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RENEW’s Legal Corner: October 2022
By Tsegamlak Solomon, Lincoln Ford & Sintayehu Abebe | Wed Oct 05 2022
Our take on developments in the investment ecosystems of East Africa
ETHIOPIA
Ethiopia Positions to Open The Banking Sector To Foreign Investors
The Ethiopian Council of Ministers approved the draft policy on opening the banking sector to foreign investors. In Ethiopia, the finance sector, which includes banking, insurance, and microfinance, has been among the protected areas closed to foreign companies. The government of Ethiopia has decided to amend laws to allow foreign investments in the country’s banking sector. Once the new policy is published, the preparation of other legal frameworks like proclamations, regulations, and directives will follow. The NBE is already revising the existing banking business proclamation, and the long-lasting Banking Service Code is also expected to be amended accordingly. The newly approved policy allows foreign banks to enter using four commercial modalities. Foreign banks can open subsidiary arms in Ethiopia, open branches in Ethiopia, and will also be allowed to acquire shares in existing local banks. Based on this policy, foreign banks can acquire up to a 30% direct stake in local banks. Foreign individuals are allowed to acquire up to 5% and foreign non-bank investors are allowed to acquire up to 5% in any local bank. However, the policy excludes insurance and microfinance from the scope of activities open to foreign investors. The change Ethiopia is making in opening up the sector to foreign investors will enable it to support the sector’s services with technology, enhance the networking of the country’s economy with the international market, improve the forex shortage, and strengthen the competitiveness and efficiency of the finance sector.
A New Limit On Birr And Forex Holdings Is Introduced
The National Bank of Ethiopia (NBE) has issued a directive to limit the amount of birr and foreign currency held in the territory of Ethiopia. The Directive FXD/81/2022, entered into force on September 5, 2022, states that it has become necessary to limit the Birr holding amount for a person entering into and departing from Ethiopia, and sets conditions, limitations, and circumstances under which an Ethiopian, a resident of Ethiopia, and a non-resident or any other person may process and utilize foreign currency. According to the Directive, a person entering into and departing from Ethiopia may hold up to a maximum of Birr 3,000.00 (Birr Three Thousand) per trip to and from Ethiopia, and a person residing in Ethiopia entering the territory of Ethiopia shall convert all foreign currency he/she is carrying at an authorized forex bureau for the equivalent sum in Birr, or deposit to his/her foreign currency account within 30 days of entry to the territory. The directive also sets a time limit for holding and conversion of foreign currency for foreign nationals of Ethiopian origin or Ethiopian nationals not residing in Ethiopia who enter into the territory carrying foreign currency.
The Government Has Introduced A New Directive For Imported Personal Appliances
The Ministry of Finance has introduced a new Directive regarding taxation of personal appliances (i.e., Personal Appliances Import Directive No. 923/2022, hereinafter the “Directive”) this month. This directive is more restrictive on importation of personal appliance goods compared to the previous law. The categories of goods which have duty and tax-free privilege are reduced from 102 categories to 16 categories under the new law. In addition, persons who accept a personal appliance as a gift shall pay a 30% income tax if they do not have a tax identification number. Furthermore, individuals are not allowed to receive a personal appliance product more than two times in a year. The Directive mentions the main purpose for the amendment is to fight illegal activities which are impacting the import trade negatively and the introduction of this Directive is expected to alleviate this problem.
NBE Has Come Up With A New Insurance Directive
The Ethiopian government is introducing big changes to the financial sector. Recently, the fintech and banking sectors have opened for the private sector and foreign investors. In September, the National Bank of Ethiopia (NBE) came up with another big move which greatly impacted one of the financial sectors in the country, the insurance sector. NBE introduced a new directive for insurance companies. Under Minimum Paid-Up Capital for an Insurance Company Directive No. SIB 57/2022 (hereinafter the “Directive”), the minimum paid up capital for new insurance companies has increased to ETB 400 million from the previous ETB 60 million amount. In addition, the Directive introduced provisions which impact the current operating insurance companies and new businesses which will join the sector. Increasing competition in the sector and enhancing the retention capacity of insurance companies are mentioned as the key rationales for introducing the new Directive.
The Agricultural Sector Is Expected To Benefit From The Supplier Credit Scheme
The agricultural sector contributes the lion’s share to the Ethiopian economy. However, investors engaged in this sector used to complain about its neglect from access to finance and credit for a longer period. To their satisfaction, NBE has introduced a new Minimum Paid-Up Capital for an Insurance Company Directive No. SIB/57/2022 which allows supplier credit for importers of agricultural machines/inputs. In addition, liquefied petroleum gas importers are also mentioned as the beneficiary of the supplier credit under the directive. However, the directive sets a maximum cap on the borrowing capacity of the importers. The debt-to-equity ratio of the company may not exceed 60:40 of the registered capital in the business license. If the importers fulfill the rest of the document requirements stipulated under the directive, they can benefit from the supplier credit scheme. The introduction of this directive is expected to increase agricultural productivity and to modernize the agricultural sector.
The agricultural sector contributes the lion’s share to the Ethiopian economy. However, investors engaged in this sector used to complain about its neglect from access to finance and credit for a longer period. To their satisfaction, NBE has introduced a new Minimum Paid-Up Capital for an Insurance Company Directive No. SIB/57/2022 which allows supplier credit for importers of agricultural machines/inputs. In addition, liquefied petroleum gas importers are also mentioned as the beneficiary of the supplier credit under the directive. However, the directive sets a maximum cap on the borrowing capacity of the importers. The debt-to-equity ratio of the company may not exceed 60:40 of the registered capital in the business license. If the importers fulfill the rest of the document requirements stipulated under the directive, they can benefit from the supplier credit scheme. The introduction of this directive is expected to increase agricultural productivity and to modernize the agricultural sector.
UGANDA
EU Resolution on EACOP Causes Stir Amid Progress on Oil Pipeline
An emergency resolution passed last month by the EU parliament has come under heavy scrutiny by the citizens of Uganda at large. The resolution passed by a majority of the house in essence seeks to halt operations of Uganda's oil projects in particular the East African Crude Oil Pipeline (EACOP) and Tilenga.
The legislative body of the European Union bases this decision on the insistence that there should be a feasibility study for the span of 12 months to ‘identify an alternative route that would preserve the environment and consider other projects based on renewable energy,’ as mentioned in an article by the Independent Uganda. The body has gone ahead to request that drilling activities should not commence around protected green areas such as the Murchison Falls National Park. They also requested that human rights violations such as arbitrary arrests of activists and inadequate compensation for those expropriated from their land by EACOP be remedied.
This decision was met with a lot of dismay by the Uganda government who have said it is rooted in hearsay and misinformation about the realities of Uganda’s pipeline projects. The Minister of State for Energy and Mineral Development stated this month in regard to the route that ‘the Hoima- Tanga route was selected as the best route for Uganda after careful evaluation based on the best pipeline routing principles. In addition, Uganda has up-to-date stringent laws on the environment and protected areas, which are strictly followed in developing oil and gas projects.’
While addressing the concerns on human rights violations and compensation for Projected Affected Persons (PAPs), the minister stated that ‘a specific Human Rights Impact Assessment (HRIA) was undertaken and measures were put in place to address any potential adverse effects on land-based livelihoods.’ He also added that EACOP in Uganda affected 3,648 PAPs as opposed to the alleged 100,000 that the EU parliament had projected and 2,662 have already signed compensation agreements with 1,977 fully paid already.3
RWANDA
New Land Law To Outline Different Avenues For Dispute Resolution
Matters of land conflicts related to boundaries and systematic land registrations under the new Law n° 27/2021 of 10/06/2021 governing land will now be handled by the National Land Authority and Districts or the City of Kigali. This was an evident switch from the earlier mass land registration from 2008 to 2013 where over 12M parcels were registered in the Land Administration Information System (LAIS). The new land law outlines the process of handling land disputes and enables the National Land Authority and local government institutions to make decisions on disputes related to boundaries and systematic land registration only.
According to an article in The New Times, ‘Disputes outside of that scope do not fall under the powers of the National Land Authority. For example, land transfer disputes are not included in the new law because the transfer contract is signed between individuals and does not directly engage the institution. To implement this provision, Ministerial Order No 004/MoE/22 of 15/02/2022 determining modalities and procedures for resolution of disputes related to land boundaries and systematic land registration was published to set procedures to be followed when a person is filling the land case.’
The new law emphasizes alternative dispute resolution as an effective remedy to these disputes but also gives the parties the option to pursue court proceedings as is their constitutional right. It has also enabled the courts to reduce the backlog of land disputes appearing before them which had proven to be a deterrent to effective and fair justice earlier in the year.
Merits Of The ACFTA For Women And Youth In Trade
The African Continental Free Trade Area (AfCFTA)’s Protocol on women and the youth is a significant step in the right direction towards Intracontinental trade having included the two most dominant demographics in the trade industry. The protocol is being mulled over by the body’s Secretariat putting into account the immense contribution of youth and women to the continent’s economic growth. According to the Secretary-General of the AfCFTA Secretariat, Mr. Wamkele Mene, ‘they are the drivers of the African economy. SMEs run by women account for close to 60 percent of Africa's GDP, creating about 450 million jobs.’
He also stated, in response to what the AfCFTA offers women who contribute to 70 percent of informal trade in Africa, that ‘we offer scale. Women will now be able to expand their market and have access to new markets in East Africa, in Southern Africa, in Central Africa. We offer an opportunity to expand into a market of 1.3 billion people with a combined GDP of $3.4 trillion.’
Despite this protocol still being in the negotiation stage, the studies conducted to create inclusive legal provisions for youth and women within this protocol will offer a myriad of opportunities for young Africans developing cutting edge technological solutions for everyday problems and deviate from the traditional trade agreements that seemingly benefited mainly larger corporations.
5) https://www.un.org/osaa/news/what-afcfta-holds-women-and-youths-2022
6) https://www.newtimes.co.rw/article/1329/news/business/why-the-afcfta-protocol-on-women-and-youth-in-trade-is-indispensable
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