The Role Played by Law in the Process of Economic Globalization：the Ethiopian Legal Context

Metassebia Hailu Zeleke[1]

Ⅰ.Conceptual Framework

Since globalization is the main agenda of the contemporary world,it is mandatory that the law itself must be compatible with it.In other word,the globalization concept will affect the existing local laws in one way or another.Without amending national laws that have a very local nature,economic globalization cannot be happen.

However,one has to consider in mind that the concept of economic globalization has remained a remarkably indistinct perception in general dialogue.The fundamental debates over economic globalization of the pre-millennium era more or less left out,without directing to accord.Furthermore,legal thought has hitherto reacted to globalization by inappropriate manners since become accustomed to the mechanical autonomy for so many years.

Globalization propounds not only legal but also interdisciplinary challenges.The main important thing is that many of the conceptual dialogues of globalization pay no attention to the law as important factors even though it remains as the main player. Economics,culture,and politics prevail more sympathetic of globalization than the legal discipline.

In the legal philosophy,globalization is often happen as merely missed concept as well as come into sight as an idea of international law.However,human rights,international economic law,family law,tax &customs,money laundry and employment laws are only some of the areas affected by globalization.Globalization is not restricted to these areas of the law,it passes through all of legal discipline.

Theoretically,globalization is not a particular philosophy rather it is the up-and-coming pattern underlying the entire current theories including law especially transnational laws.Globalization is not an external development that comes from the outside of the law.Somewhat,globalization and law supports to each other.Globalization,in the contemporary world,is as much a creation of the law as it manipulates the law.Globalization must be supported by the law as well as all national laws must have a room to support and attract economic globalization.

Ⅱ.Ethiopia’s Economic Outlook

Ethiopia is a poor country in the world.Livelihoods are mainly stand on agriculture,which feeds close to 85% of the population,and also close to 90% of export earnings.In the past 40 years,the performance of the Ethiopian economy has been inconsistent,with a very poor fundamental record of 0.2% annual growth in GDP per capita over the period 1961-2003.Since its dependence of the economy on agriculture,development has historically been influenced by climatic variability,and intra &interstate conflict.

Poverty eradication is the principal growth aim of Ethiopia whereas swift economic development is a crucial approach to this objective.It is believed that this fast economic growth has to be broad-based,equitable and sustainable.In line with this,the current Growth and Transformation Plan(GTP)has been promulgated based on the accomplishments of the Plan for Accelerated and Sustained Development to End Poverty(PASDEP)and the MDGs as well as the Country’s Vision.

In this regard,the main objectives of the plan are to maintain at least an average real GDP growth rate of 11.2 percent per annum and attain MDGs;expand and ensure the qualities of education and health services and achieve MDGs in the social sector;establish suitable conditions for sustainable nation building through the creation of a stable democratic and developmental state;as well as ensure the sustainability of growth by realizing all the above objectives within a stable macroeconomic framework.During the last four years,the average GDP growth rate was 10 percent per annum.Furthermore,extraordinary results were recorded chiefly in good governance,human development and infrastructure development.

Ⅲ.Private Sector Development and Legal Framework

By knowing the fact that the private sector is a back-bone of the economic growth,Ethiopia has continued its unreserved encouragement to improve the competitiveness of the private sector through formulating favorable policy setting and supportive legal measures,enhanced infrastructure and public service provision.

Ethiopia has improved the investment law and reorganized the Ethiopian Investment Agency to present a one stop service to Foreign Direct investments.It is believed that these kind of big measures surely facilitate growth of investment predominantly in the manufacturing sub sector.Furthermore,Ethiopia is dedicated to continue its concentrated efforts to guarantee stable macro-economic condition construct ability of the private sector and make easy enlarged participation of the private sector particularly in manufacturing industries by establishment of industrial zones and parks and privatizing state owned enterprises.

Ⅳ .Legal Structure and Economic Globalization in Ethiopia

A.Corporate laws and governance

Corporate law is important in economic globalization since it creates the legal setting for the formation and of privately owned businesses.Most of a time,well drafted corporate law is important in developing countries.It encourages new investment by setting crystal clear rules for internal governance.It also gives confidence for entrepreneurship by creating easy to start up and register a company.

The existing Ethiopia’s corporate law is parcel of the Commercial Code,which existed since 1960.It is imported from the French Commercial Code as it was in that time.During the Derg regime from 1975 to 1991,the corporate law was suspended due to its communist political philosophy.It was restored to full effect under the current regime.However,the law is in need of amendment since it is not fit for the contemporary global situation.

In this regard,the current Ethiopian law permits different forms of companies,including but not limited to general partnership,limited partnership,share company,and private limited company.Both share companies and private limited companies are the most common type of company types in Ethiopia when it is compared with other forms.The law contains provisions for corporate governance,including a provision dealing with conflictof interest between a company and a director and other points in connection with loan,due care and diligence and the like.In an effort to entertain Foreign Direct Investment,it is mandatory to have this kind of provisions.

The other important national policy while thinking economic globalization is contract laws that govern the transnational trade.Even if the written law on contracts in Ethiopia is inclusive,the other machinery of commercial contracts is either absent or ignored.So,it is needed to incorporate the current internationally recognized principles and practices in the law.In this regard,the Ethiopian law incorporates five types of contracts including Assignment of Rights;Performance of Services;Custody,Use,and Possession of Chattels;Contracts for the Sale of Immovable;and Administrative Contracts.

Accordingly,Ethiopia’s Civil Code demands an expressed agreement of the parties for a contract in order to be valid.As a practical matter,however,the traditional elements of offer,acceptance,and defined subject are also required in an effort to make strength of mind that the parties have agreed.A contract shall not be deemed to be completed unless the parties have expressed their agreement to all the terms of the negotiation.

The doctrine of mistake will be treated when and only when the mistake is related to a fundamental component of the contract,and to be of a type that had the mistake not been done,the mistaken party would not have go into the contract.

According to the Ethiopian Civil Code,the contracting parties shall be obliged by the terms of the contract and by such subsidiary effects as are attached to the obligations concerned by custom,equity and good faith,having regard to the nature of the contract.In addition,the creditor shall not be bound to accept a thing other than that due to him.If these main beliefs are violated,the non violating partaker is entitled to either cancel the contract or demand enforcement.Even though there are some variations in other countries laws,these terms are not far from existing contractual provisions of contract.In order to execute the any contractual claim it has to be within 10 years of time limitations.In addition,award of specific performance only happen where it is of special interest to the party requiring it and the contract can be enforced without affecting the personal liberty of the debtor.

B.Property and possession laws

The economic globalization is sensitive while entertaining a property and possession laws of a given country.It is crucial since it provides the legal environment for a business to own,use,and sell as well as to utilize as collateral to obtain a loan facility.Sound law is important in developing countries since sound law helps entrepreneurs to acquire property in order to produce goods and services in a secured manner.

The Ethiopian Constitution declares that land is owned by the State,which is a strong political position of the ruling EPRDF.The Constitution does not prohibit private use and quasi-ownership of land by Ethiopians and,of course,in some strict circumstances by foreigners.This includes the right of private persons to own buildings on the land,their right to lease land from the State on a long-term basis,farmers’right to continue using rural land permanently for agriculture.

In other word,ownership of land as well as of all natural resources,is exclusively vested in the State and in the peoples of Ethiopia and shall not be subject to sale or other means of exchange.However,every Ethiopian shall have the full right to the immovable property he builds and to the permanent improvements he brings about on the land by his labor or capital.The government shall ensure the right of private investors to the use of land on the basis of payment arrangements established by law.

C.Policy of unfair trade practices

Nowadays,Ethiopia has put in use actions in order to open several sectors of the economy to encourage and facilitate new entrants into those areas.The Ethiopian business community has responded very positively to these openings,as demonstrated by a number of new Ethiopian entrants into the textiles,construction and floriculture sectors.However,the introduction of free competition into the economy is not yet achieved.In spite of FDI flow,some sensitive sectors are still significantly subjugated by State-owned ventures.Government owns these sectors as a strategy.

The substantive provisions of the law prohibit anticompetitive agreements and abuses of dominance as well as unfair competition.

The prohibited practices are fairly typical of those found in antitrust laws around the world.It also prohibits price fixing,bid rigging,market and customer allocations,and refusals to deal.Furthermore,price discrimination,tying arrangements,refusals to deal,excessive prices,and predatory pricing are also prohibited.Some of this conduct is not considered as illegal in some countries,but is illegal in others.

Ⅴ.Foreign Direct Investment(FDI)

A.FDI and the role of laws in the African context

While reviewing the FDI flow to Africa,investment in extractive areas are the most significant factor of FDI to flow to Africa.Though,the manufacturing and services sectors that are expected at serving Africa’s increasing consumers also scored a significant investment attraction.

North Africa is starting to enjoy the indications of revitalization in transnational investment areas,which is a decline just during the post 2011 political turmoil that created a lawless business atmosphere.The World Investment Report of 2013 notes FDI flows to the region amplified by 35 percent to $11.5 billion in 2012.

The FDI stream into West Africa,however,turns down by 5 percent to $16.8 billion.The investment challenges are not yet stated in the report but out of the FDI investment canalled to the two major oil-generating states of the region,the FDI flow to Ghana is stable at $3.3 billion,while the FDI derived to Nigeria declined by 21 percent to $7.0 billion.In this region the mining laws are more sensitive for the incoming investors.

FDI inflows go up to $10 billion in the Central Africa by maintaining previous records of growing FDI since 2010.In this region natural resources continue to attract investment from mining transnational corporations.Again,mining laws are important documents to be referred.

The same is true in East Africa.Energy assets like the newly discovered oil fields in Uganda and gas assets in the United Republic of Tanzania attract enlarged FDI to the region.As a result,inflows to the East Africa region extended from $4.5 billion in 2011 to $6.3 billion in 2012.

The case in Southern Africa is a bit different since FDI flows to the region chop down.Nevertheless from $8.7 billion in 2011 to $5.4 billion in 2012,even as some countries saw prominent increases.Inflows to the region dropped by 24 percent in 2012,to $4.6 billion.In a surprising way,FDI outflows from the region bounce back to $4.4 billion,returning the region to the position of largest source country of FDI in Africa.Corporations from South Africa were active in having FDI in industries such as wholesale,healthcare,and mining in 2012.

Since it is obvious that natural resources are serving as the foundation of FDI flows to Africa,it has to be stressed that laws that govern this resources are important one to be addressed.FDI in consumer focused industries and services are also beginning to outshine,which shows the rising buying power of the middle class in the continent’s wide market.Accordingly,Africa is more and more connected to the outside world mainly through FDI apart from the political arena.

B.FDI flow in Ethiopia

Everywhere in the world,national policies on investment are important in order encourage and facilitate foreign direct investment and gaining the maximum benefits out of it.Accordingly,Ethiopia' s contemporary regulatory framework,governing both foreign and domestic investment,has gone through important changes as part of the reform process started in 1992～1993.

In line with this,the investment regime in Ethiopia is relied on a series of investment legislations issued between the year 1996 and 2003.Apart from this,the laws specify the economic sectors that are open both to domestic and foreign direct investment(FDI);the monitoring and reporting requirements;the financial incentives that are available and financial limits and requirements for FDI.

Dissimilar many other developing countries in the world,Ethiopia does not have a separate law for FDI.To a certain extent,its various investment laws govern all domestic investment and FDI.There are significant issues,however,out of the type of investments foreigners and domestic investors may make.

In this regard,foreign investors are allowed to invest in all economic sectors except those reserved for domestic private sector or State investment.The domestic private investor area includes foreign nationals who are permanent residents in the country and who have applied for domestic investor status.Accordingly,foreign nationals of Ethiopian origin will be assumed as domestic investors pursuant of the investment Proclamation,as far as they have an Ethiopian identification card attesting to their Ethiopian origin.

As per the investment law,any foreign investor who is permitted to invest pursuant of the proclamation must bring a minimum amount of investment capital.The law understands“capital”in a broadly manner in order to cover local or foreign currency,negotiable instruments,machinery or equipment,buildings,initial working capital,property rights,patent rights,or other business assets.

The other point is the investment incentive.Ethiopia provides a number of incentives to investors.Investors are fully exempted from customs duties and import tariffs on all capital equipment and up to 15% on spare parts and from export taxes.Income tax holidays are given,varying from 1 to 5 years based on the area and region within Ethiopia.In addition,investors can carry forward initial operating losses for two consecutive years in which the lose will carried for three years in each financial lose.

In addition,as per the words of the law,investment guarantees for FDI incorporates full repatriation of capital and profits.Capital and profits encompasses profits,dividends,interest payments on foreign loans,asset sale proceeds,and technology transfer payments.With regard to investment protection,the investment law provides protection against expropriation or nationalization.The law states that no private investment may be nationalized or expropriated except in accordance with the law.

Now the point here is that in the event of expropriation or nationalization,the constitution guarantees advance payment of adequate compensation corresponding to the prevailing market value of the investment.There has been no instance of expropriation since the supposition of power by the current regime since 1991.Since Ethiopia does not differentiate domestic investment from FDI,the country’s incentive system is the same for both.This is a firm and non-discriminatory policy,as well as it is also the direction pursued by some countries that started with the dual-policy approach.

While talking about the Ethiopian FDI policy,there is another issue to be addressed.The Ethiopian investment law does not explicitly require foreign companies to meet specific implementation objectives such as,foreign exchange restrictions for imports,employment limits on expatriate staff minimum local content levels in manufactured goods,or minimal export limitations.Of course,in some countries once a foreign investor is allowed to operate in the host country,restrictions can still be obligatory on the ownership or operation of the overseas investment.The most known forms of restraints are performance requirements,which are used to optimize the influence of FDI.Performance requirements are conditions forced on investors,requiring meeting some specified objectives with regard to their investment in that country.

Exchanging and Remitting Funds are among the sensitive areas while discussing about economic globalization.Since the main purpose of going far by crossing a border is profit, the fund management and the legal requirement are one of the important areas to focus on.While discussing the Ethiopian experience,foreign investor have the right to acquire the following remittances out of Ethiopia in convertible foreign currency：

1.principals and interest payments on external loans;

2.profits and dividends;

3.proceeds from the sale or liquidation of an enterprise;

4.Proceeds from the sale or transfer of shares or partial ownership of an enterprise to a domestic investor,and

5.payments related to technology agreements;

Even though the investment proclamation guarantees to foreign investors the entitlement to make remittances,domestic investors who do not have the same assurance and remittances are subject to National Bank of Ethiopia’s prior approval.Ethiopia has signed the convention on the settlement of Investment Disputes and Nationals of other States.It has also to be known that a Multilateral Investment Guarantee Agency(MIGA)guarantee program is also operational.

The Commercial Code of Ethiopia offers for the winding up and dissolution of duly established business entities.The possible causes for dissolution of these types of business organization documented by the Commercial Code are also provided.In this connection,for instance,one legitimate cause for the dissolution of a share company is the decision of an extraordinary general assembly of shareholders.Having decided to liquidate,the general meeting must employ liquidators,if provisions are not made for such assignment in the memorandum or articles of association.Then the liquidators must go after the rules and procedures of the commercial law while liquidating the corporation.

Ⅵ.Conclusion

The word economic globalization is the growing economic amalgamation and interdependence of local as well as regional and continental economies throughout the globe with an intensification of trans-national interchange of capital,services,technologies, and goods.While,globalization is a wide set of progression regarding different networks of cultural interchange,economic and political.The concept of contemporary economic globalization is propelled by the fast growing importance of information in all types of productive activities and markets by progresses in technology and science.

In line with this the economic globalization mainly involves the globalization of finance,production,technology and markets as well as organizational regimes and the labor market.However,the law is the adhesive in this perspective in order to joinly manage the above stated areas of the economic elements.

Accordingly,while economic globalization has been increasing starting from the emergence of cross-border trade,it has full-grown at an increased rate over the last 20～30 years.This situation made countries gradually cut down trade barriers and open up their current accounts and equity accounts.This recent boom has been largely accounted by countries that are economically developed integrating with developing ones by means of FDI.

For that reason,globalization has fundamentally increased incomes and economic growth in developing countries and provides minimal consumer prices in developed countries.In addition,it also alters the political equilibrium between developing and developed countries and has an impression on the culture of each affected country.Besides,the changing location of goods production has bring about many jobs to trans-nationals by demanding personnel in developed economies to alter their professional engagement.

REFERENCES

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[2]Cooperative Socialites Proclamation No 147/1998,Federal Negarit Gazetta,5th Year No 27,Addis Ababa.

[3]Dr.Shavit Matias,Globalization,International Law,and the State,Presented as Keynote at The Georgetown University Law Center’s Event on Globalization,2008.

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[5]Frank J.Garcia,Globalization and the Theory of International Law,Boston College Law School,2005.

[6]http://Unctad.Org/En/Pages/Pressrelease.Aspx?Originalversionid=136,1 August 2014.

[7]Investment(Amendment)Proclamation No.375/2002,Federal Negarit Gazeta,10th Year No.8,Addis Ababa.

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[10]Public Enterprises Proclamation No 25/1992,Negarit Gazetta,51st Year ,No 21,Addis Ababa.

[11]Ralf Michaels,Globalization and Law：Law beyond the State.

[12]Sabino Cassesethe ,Globalization of Law,International Law and Politics,Vol.37,2006.

[13]The Constitution of The Federal Democratic Republic Of Ethiopia,Federal Negarit Gazeta,1st Year No.1,Addis Ababa.

[14]Guide Lines on the Treatment of Foreign Direct Investment，World Bank.

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[1]Dip Law(Addis Ababa University),LLB in Law(Unity University),MA in African Studies specializing in Citizenship and State in Africa(Addis Ababa University),MA Candidate in Public Management &Policy specializing in Public Policy(Addis Ababa University).Currently,the writer is working as a Consultant and Attorney-at-Law in the Ethiopian Jurisdiction.All expressions mentioned in this article are solely the opinion of the writer.The writer can be reached through metassebiahz@gmail.com.