A Small but Important Step in Ethiopia's Relationship with its Growing Private Sector

Since the mid-1970s, Ethiopia has gained the reputation of being a challenging country to do business in. Despite the amazing progress the country has made over the last 20 years, the country still ranks 159 out of 190 in the World Bank’s Ease of Doing Business ranking. Different reasons have contributed to this challenging environment, including the lack of transparency and the inconsistency in the application of the country’s laws by the different administrative bodies of the government, and what some refer to as a communist hangover - the government has traditionally viewed the private sector as a corrupt enemy versus the engine that drives prosperity. As a foreign investor operating in Ethiopia, RENEW has had firsthand experience dealing with these challenges, directly or indirectly, through our portfolio companies. In addition to these challenges, the lack of a formalized grievance handling mechanism has created uncertainty in our day to day operations.

However, following the government’s adoption of an economic policy in favor of the private sector (see our recent blog on the Homegrown Economic Reform Program) and the enactment of new investment laws (LINK to the major changes), which followed the Reform Program, the government introduced an investor grievance and an investment dispute resolution mechanism. As per the new investment laws, an investor with any kind of grievance, related to his/her investment in Ethiopia, against the decision of any Federal Government executive body, is entitled to submit a complaint to the Ethiopian Investment Commission (EIC) to get it resolved.

Despite the enactment of this privilege under the investment proclamation, the implementation has remained unclear until recently. The EIC, in the presence of the Commissioner and other stakeholders, developed and launched a systematic and formalized investment grievance handling mechanism referred to as the Investment Grievance Management Procedure (IGMP), which has been informally operational since 2019, but was formally launched in December 2020. According to the Investment Commission, IGMP is an early warning and tracking mechanism to identify problems that arise from decisions made by the federal government in relation to changes of laws, breach of contracts, expropriation, and/or inaction of the government in case of third party interventions. This allows the federal government to respond to grievances in a timely manner as per the country’s laws, regulations and international investment agreements.

So how would an investor use this new service? The team at RENEW met with the EIC to learn how the process works. Here’s what we know.

First, a complaint must be submitted to the IGMP against any final decision made by a Federal Government executive body, and the following three cumulative requirements need to be met:

Next, once a grievance is filed to the IGMP against a decision made by the EIC or any other Federal Government executive body, the unit undertakes a technical and problem-solving session involving consultation and engagement with the relevant Federal Government executive agency/agencies. If the unit is unable to resolve the investor’s grievance through its technical and problem-solving session, it refers the case to the Ethiopia Investment Board.

If the grievance goes to the Investment Board, which is chaired by the Prime Minister, it is reviewed and a final decision is made.

All of this sounds well and good, but how long will this process take? Will the government really act as an honest broker, accusing itself of wrongdoing? If found that the grievance is legitimate, who will pay for the lost revenues and damage the government inflicted wrongly on the company? While we see this process as a great step forward in Ethiopia’s goal to improve its doing business environment, like many things, the process needs to be streamlined, tested, and the people working in it need to be empowered to make decisions. Otherwise, it becomes yet another bureaucratic step that the private sector must go through to fight a government that doesn’t support its growth.

The introduction of a grievance mechanism, if it actually works effectively, will be a huge relief for investors whose investments have been put at risk by the different arbitrary and obscure administrative decisions undertaken by the different government agencies. RENEW has first-hand experience of such decisions impacting our companies. This will provide a platform for foreign investors already registered in Ethiopia to have their complaints heard and resolved, which could result in the reinvestment of their returns. It can also be considered a step forward in the country's attractiveness for foreign investors and could serve as a hook to attract new investors to the country.