Ethiopia Country Profile

General Information

The Political Climate


Unique among African countries, Ethiopia has never been under European colonial rule, with the only exception being a short-lived Italian occupation from 1936-41. In 1974, a Marxist military coup followed by a 15-year dictatorship ended a long tradition of monarchy in Ethiopia. The country started a difficult process of transition to democracy in 1991, when the Ethiopian People's Revolutionary Democratic Front (EPRDF) assumed power and came to dominate the political scene. The May 2005 elections changed the political landscape in Ethiopia profoundly, as voters for the first time deserted the long time ruling party in large numbers. Although Prime Minister Meles Zenawi and the party coalition of the EPRDF won a comfortable majority, the opposition made significant gains and disputed the results. The opposition boycotted the 2008 local elections, citing harassment by the EPRDF.

The ruling party remains largely authoritarian and continues to dominate all formal institutions of the federal republic, while the local governments are effectively controlled by the central government. Moreover, new criticism of the government mounted in 2008, when new legislation was passed, giving the government mandate to restrict the influence of civil society as well as broader powers to pursue defamation cases against the media. The government's attitude in dealing with the problem of corruption largely reflects the overall system and character of governance in the country. The government strategy is in fact clearly top-down, dominating anti-corruption institutions, the anti-corruption debate and the formulation of anti-corruption policy, while alienating the participation of civil society. As a potentially positive sign of strengthened democratic processes, an increased number of political parties and registered voters are participating in the country's elections than the previous elections of 2005, which were publicly protested and largely criticised by opposition parties and international observers for falling short of international standards. However, according to a March 2010 article by Human Rights Watch, the Ethiopian government continues to wage coordinated and sustained attacks against political opponents, journalists, and rights activists.

Corruption is perceived by ordinary Ethiopians to be rampant. According to Global Integrity 2006, the offering and receiving of bribes and the performance of public functions on a discretionary basis are viewed as normal, while corruption is considered a fact of Ethiopian social fabric. Despite the establishment of anti-corruption initiatives in recent years, such as the Federal Ethics and Anti-corruption Commission (FEAC) in 2001, corruption in Ethiopia remains unabated. Still, however, several sources, including the African Economic Outlook 2009, the Bertelsmann Foundation 2008 and the US Department of State 2008, indicate that there have been improvements in the perception of corruption in recent years, which may reflect heightened activity of the FEAC in fighting high-level corruption. According to the Transparency Ethiopia Corruption Diagnostic Baseline Survey 2009, 59% of the surveyed citizens living in the Ethiopian capital, Addis Ababa, believe that the level of corruption will decrease in the future. Corruption, however, is still ranked among the largest socio-economic problems in the country, along with the cost of living, unemployment and housing. Despite the increased public profiling of the FEAC, suspicions persist that the institution is not truly independent. According to the Bertelsmann Foundation 2008, the FEACC is considered by some observers to produce nothing but propaganda, and despite the considerable amount of pending cases, the fight against corruption is perceived as an instrument employed by the ruling party to prosecute and weaken its political opponents.

Business and Corruption

Since the early 2000s, the federal government has continuously aimed at implementing an economic reform programme designed to stabilise the financial position of the country, promote private sector participation in the economy and attract foreign direct investment (FDI). The Ethiopian economy has grown at rates above 10% in recent years, mainly due to strong growth in the agriculture and service sectors as well as sustained inflows of official development assistance and FDI. This rapid growth of the Ethiopian economy has increased the size and importance of the private sector, but Transparency International 2009 reports that it has also led to enhanced opportunities and incentives for corruption. In addition, Ethiopia's Anti-Corruption Commission (FEAC) estimates in a 2007 report that corruption is worst in the interaction between the public and private sectors.

Corruption has traditionally been perceived by foreign companies to be a major impediment to their operations in Ethiopia. For example, according to the World Bank & IFC Enterprise Surveys 2006, there are indications that petty corruption is widespread in Ethiopia, given that approximately 13% of the companies surveyed expect to pay facilitation payments to 'get things done', while 23% identify corruption as a major constraint. This perceived challenge is supported by Global Integrity 2006, referring to earlier surveys in which 78.5% of responding companies believed that corruption in the public sector negatively influenced their operations, versus 40% that identified corruption in the private sector to negatively affect their operations. In addition, Global Integrity 2006 further reports that a businessman has described Ethiopia as 'the land of 10%', which implies that hardly anything can be accomplished without adding this amount to the costs as a kickback. Moreover, practices of corruption are increasingly taking the form of private-to-private corruption whereby private companies yield procurement contracts to other private companies in return for bribes or other undue favours.

On the positive side, the World Economic Forum Global Competitiveness Report 2009-2010 indicates a significant change in foreign companies' perception of corruption in Ethiopia. Whereas the surveyed companies in the 2008-2009 report ranked corruption as the single most problematic factor for conducting business in the country, corruption is now perceived by companies to be much less of a constraining factor compared to other factors, e.g. such as inflation, tax rates and inefficient bureaucracy. In addition to the overall level of corruption in Ethiopia, the World Bank & IFC Enterprise Surveys 2006 reports that the average number of companies expecting to pay facilitation payments and identifying corruption as a major constraint is much higher in other Sub-Saharan countries than in Ethiopia. Still, however, companies are generally advised to consult with experienced attorneys, to develop, implement and strengthen integrity systems, and to carry out extensive due diligence before committing funds or when already doing business in the country.

Regulatory Environment

According to the US Department of State 2008, Ethiopia's regulatory system is generally considered to be non-discriminatory, although bureaucracy can be quite burdensome and opaque. This is further backed by the World Economic Forum Global Competitiveness Report 2009-2010, where foreign companies rank inefficient government bureaucracy among the top constraints for doing business in Ethiopia. Other major constraints include inflation, difficult access to financing, as well as tax rates and tax regulations. The persistence of corruption in Ethiopia can partly be explained in terms of a lack of coherent rules and regulations, extensive red tape and poorly trained public officials. According to the Bertelsmann Foundation 2008, high levels of corruption are present in relation to the ruling party and its business affiliates who benefit from a lack of a regulatory framework to safeguard against the emergence of monopoly or oligopoly power. State ownership and bureaucratic management still govern many sectors of the economy and the financial, construction, beverage and transport sectors, in particular, are subject to strong political pressures.

Although official and unofficial barriers, such as corruption, still deter foreign investment and certain sectors remain off-limits to foreign participation (e.g. banking), the country has taken several steps to liberalise its foreign investment laws, such as those relating to agriculture, and to streamline the regulatory environment and registration process to obtain business licences. For instance, the government-established Ethiopian Investment Commission (EIC) provides investment information and a one-stop shop that, according to the US Department of State 2008, significantly cuts the cost of obtaining investment and business licences. Other investment and trade related information is provided by the Ethiopian Chamber of Commerce and Sectoral Association, which is an autonomous private sector organisation. According to the World Bank & IFC Doing Business 2010, the process of starting a company has significantly simplified, now taking an average of 9 days and 5 procedures, which is well below the regional average of 45.6 days and 9.4 procedures. Registration of property, building a warehouse and enforcing contracts can also be done faster and cheaper than in comparable Sub-Saharan countries.

The legal system is based on common law, but consistent enforcement is an issue. The rule of law consequently remains limited, due to the lack of checks and balances between state powers and a traditional interference of the executive branch in judicial matters. Moreover, according to the US Department of State 2008, the judicial system is underdeveloped, poorly staffed, and inexperienced. This constitutes a major impediment for settling commercial disputes and results in weak understanding and enforcement of property and contractual rights. Both the Ethiopian Arbitration and Conciliation Center and the Addis Ababa Chamber of Commerce provide commercial dispute services. International arbitration is also possible for foreign companies, but there is no guarantee that a decision made by an international arbitration body will be fully accepted and implemented by Ethiopian authorities. Ethiopia is not a member of the International Centre for the Settlement of Investment Disputes (ICSID) or of the New York Convention of 1958. Access the Lexadin World Law Guide for a collection of laws in Ethiopia.