Monday, March 4, 2024

Deepening the business climate improvement initiative

Ethiopia has always fared poorly on the various metrics by which ease of doing business has been measured. A manifestation of the macroeconomic woe Ethiopia has been facing for some time now, the difficulty of doing business in the country has been one of the contributing factors to the minimal level of the kind of investment needed to spur development and extricate it from the clutches of abject poverty. If Ethiopia’s immense growth potential is to be fully unlocked, it is of the essence to embark on an initiative aimed at, among others, fostering an environment where businesses can thrive.

Following the rise to power of Prime Minister Abiy Ahmed (PhD) in 20218, the Ethiopian government has embarked on different short-, medium- and long-term plans towards rebalancing the Ethiopian economy. As part of the series of economic reforms it has been taking since then, it implemented a Medium-Term Reform Roadmap in 20219 to improve the ease of doing business in the country. Key aspects of the roadmap focused on undertaking several legal and procedural reforms aimed at improving entrepreneurship, formalizing businesses, increasing competitiveness and productivity of local businesses, attracting and retaining investment, creating more and better jobs, and improving transparency and accountability in public service delivery.

From restrictive laws to cumbersome bureaucracy, bad governance and political instability, the investment climate in Ethiopia remains far from welcoming for both local and foreign businesses alike. There is no arguing that improving the business climate for investors is one of the important steps in achieving the goals of the Homegrown Economic Reform Agenda (HGER)—a blueprint that has been touted as laying the foundation for a robust, resilient, and diversified middle income-level economy through a decided shift from public-sector led growth to a model increasingly driven by the private sector. In this regard it’s paramount to Institute an overarching framework that helps remove the majority of the severe bottlenecks to doing business and broadens the areas of investment one can engage in, thereby bolstering the anemic domestic investment and sustaining if not increasing current FDI inflows.

The implementation of the reforms initiated by the government to create a business-friendly environment has been checkered. True, some of the measures it took can be deemed a success including launching business registration and tax/customs duty payment online; enacting legislations which ease operating conditions and regulations across several investment areas; and reducing the time and procedural steps involved in service delivery. Nevertheless, a number of factors have impeded and continue to pose an obstacle to the ease of doing business in Ethiopia. The lack of progress in promulgating more enabling laws, the prevalence of bureaucratic red tape in many service-giving institutions, rampant corruption as well as the conflict and violence racking several parts of the nation have rendered the prospect of the business climate improving substantially in the near to the medium term low.   

The recognition of the private sector as the engine of growth and accordingly deserving of government support is a commendable move. The departure from the developmental state model, which promotes an outsized role of the government in the economy, signals a step in the right direction. Although the policy, legal and structural reforms underway bode well for the ease of doing business in Ethiopia, there remain significant hurdles hindering the private sector from operating in an enabling atmosphere. Seeing through the initiatives intended to improve Ethiopia’s business climate depends on the extent to which they are informed by lessons from past mistakes. As such it’s particularly important to give due consideration to the implementation phase to ensure that the institutions tasked with executing it are aligned with the policy considerations behind the reform measures. It’s also vital to mobilize the necessary resources both domestically and from international partners. But above all success depends on an unswerving commitment and integrity on the part of policy makers and implementer to deepen the process further.

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