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Ethiopia: Ethical Business and Due Diligence

 

Right now, Ethiopia is one of the most exciting investment destinations in the world, with a staggering 10% average annual GDP growth for a decade – that’s more than a doubling of the size of the economy in ten years. [1]

 

Investors, of course, are concerned about the risks of doing business in such a frontier market. Among these risks are legal exposure to the US Foreign Corrupt Practices Act, the UK Bribery Act and other similar legislation, and question marks over engagement with an authoritarian government. Due diligence and ethical investment are relatively new concepts in Ethiopia, and understanding and managing these risks is not easy. We’ll come on to that but first, a reflection on the nature of government oversight in the Ethiopian private sector.

 

Ethiopian governance is highly bureaucratic, and has been since the late 19th century [2]. If you’ll forgive the slightly silly analogy, navigating the system can sometimes feel like performing a circuit at the Crufts agility show (for non-British readers, this is a famous pageant for dogs: http://www.crufts.org.uk/).

 

Businessmen are guided from one obstacle to another – a form to fill in, a rubber stamp to collect, a fee to be paid. Occasionally, you might think a particular process unnecessary and be tempted to skirt around it. When you do, you are firmly guided back onto your prescribed route by the marshal. Then, when you finally cross the finish line you look up, expecting an encouraging nod from the judges. But you are met with silence, because scant attention is paid to your overall performance. Even the marshals have turned their focus back to their assigned obstacles.

 

This system has two key characteristics. The first is divestment of responsibility. Officials studiously avoid considering the bigger picture, lest they be held accountable for it. The second is mutual oversight. For, when each official’s duties are so constrained and prescribed, they are easily monitored by the officials standing across from them and behind them, and vice versa.

 

It may be that such a system is the only effective way of controlling corruption in a country like Ethiopia, which does not have the luxury of a highly educated civil service to oversee the private sector through more sophisticated mechanisms. In Transparency International’s latest Corruption Perceptions Index, Ethiopia fared better than each one of its immediate neighbours – including Kenya, the economic powerhouse of East Africa. [3]

 

Happily, both for Ethiopia and for international firms, corruption-free business is entirely possible here. As with so many things, achieving it is largely a case of adequate preparation before stepping in. Planning is essential, as is thorough due diligence. Local presence and understanding are key. Well-equipped with such insight, businesses can go a long way to mitigating the risks of entry into the Ethiopian market, and ethical trade and investment can play a vital part in sustaining Ethiopia’s robust growth in the years to come.

 

References:

 

[1] “Ethiopia, Long Mired in Poverty, Rides an Economic Boom”, New York Times, 3rd March 2015. http://www.nytimes.com/2015/03/04/world/africa/ethiopia-an-african-lion-aspires-to-middle-income-by-2025.html?_r=0

 

[2] “Revolutionary Ethiopia: From Empire to People’s Republic,” Edmond Keller, 1998.

 

[3] Results of the Transparency International Corruption Perceptions Index are available at http://www.transparency.org/cpi2014