Ethiopia stands at a crossroads. The Ethiopian Capital Market Authority is building infrastructure for securities trading. Foreign investors are evaluating opportunities in one of Africa’s largest economies. Yet Ethiopia lacks what has become standard across the continent: a comprehensive corporate governance code.
Nigeria adopted its National Code of Corporate Governance in 2018. Ghana launched its code in 2022. Kenya has operated under governance standards since 2002, comprehensively revised in 2015. Egypt updated its code in 2016. South Africa has refined its King Reports through four iterations since 1994. Mauritius developed its first code in 2003. Even Tanzania and Uganda have established frameworks.
Ethiopia is now a latecomer to institutional development that has reshaped African corporate landscapes. A comprehensive governance code would fundamentally transform how Ethiopian companies operate, access capital, and contribute to development. The question is not whether Ethiopia needs such a code but how to develop one that learns from regional experiences.
What a Code Would Achieve and the Costs of Its Absence
South Africa’s experience demonstrates how governance frameworks reshape corporate ecosystems. Research on companies listed on the Johannesburg Stock Exchange shows that better-governed firms, measured by compliance with King Code principles, consistently outperform poorly-governed peers in financial returns. The mechanism is straightforward: good governance reduces information asymmetry between companies and investors. When boards demonstrate independence, financial reporting is transparent, and minority shareholders enjoy meaningful protections, capital flows more readily at lower cost.
Kenya’s experience illustrates governance codes’ role in capital market development. Though the Nairobi Securities Exchange lists only sixty-six companies, Kenya’s requirement since 2016 that all securities issuers comply with comprehensive governance standards has attracted foreign portfolio investment disproportionate to market size. The Capital Markets Authority requires annual governance audits by professionals accredited through the Institute of Certified Public Secretaries of Kenya, providing external verification that governance claims are credible rather than self-reported.
For Ethiopia, a governance code would provide the institutional foundation for capital market growth. Without standardized practices, Ethiopian securities will trade at discounts reflecting governance uncertainty. A 2026 risk assessment identified corporate governance as an emerging concern for Ethiopia, with investors conducting deeper due diligence on “opaque structures, related-party risks, and inconsistent documentation.” Without clear national standards, each investor must independently assess whether Ethiopian companies meet minimum thresholds, increasing costs and reducing capital flows.
Nigeria’s experience before 2018 illuminates costs of fragmentation. Prior to the unified National Code, Nigeria operated with sectoral codes for banks, insurance companies, pension operators, and telecommunications while many companies fell under no specific framework. Companies operating across sectors faced conflicting requirements. Large private companies not subject to sectoral regulation operated in governance vacuums. Investors lacked unified reference points for what constituted good governance.
Ethiopia faces analogous fragmentation. The National Bank regulates banks through directives including governance provisions. The Capital Market Authority is developing standards for securities issuers. State-owned enterprises operate under the 2020 Code of Corporate Governance for Public Enterprises. But large private companies in manufacturing, construction, trade, and services operate without clear governance frameworks beyond the Commercial Code, which research consistently identifies as inadequate for modern corporate complexities.
Egypt’s approach shows how codes influence enterprises beyond formal requirements. Egypt’s Corporate Governance Code, issued by the Egyptian Institute of Directors under the Financial Supervisory Authority, applies formally to listed companies but provides frameworks for state-owned enterprises and large private companies. Though voluntary for non-listed entities, the code has shaped expectations across Egypt’s corporate sector because international partnerships and development institution financing increasingly require governance certifications.
Learning from Regional Experiences: What Works and What Doesn’t
South Africa’s King Reports represent African governance codes’ most sophisticated evolution. King IV reduced principles from seventy-five in King III to sixteen, recognizing exhaustive rules create compliance burdens without proportionate benefits. It shifted from “apply or explain” to “apply and explain,” assuming organizations practicing good governance will have applied all principles but may implement them differently based on context.
Yet even South Africa faces governance challenges. State-owned enterprises, including Eskom, have experienced governance failures resulting in massive losses despite formal compliance. These failures reveal codes alone do not guarantee good governance. Effective governance requires genuine board independence, credible enforcement with real consequences, and professional expertise among directors and regulators.
Nigeria’s 2018 code illuminates implementation challenges Ethiopia should anticipate. Research examining the code’s first years identifies critical problems. First, the code did not replace existing sectoral codes but layered atop them. When national provisions conflict with sectoral requirements, for example, different independence standards for board composition, the legislation provides no hierarchy or resolution mechanism. Companies in regulated sectors navigate overlapping requirements without clear guidance on which standard prevails. A bank must comply with Central Bank directives and simultaneously report compliance with the national code, creating confusion and costs without corresponding benefits.
Second, Nigeria’s voluntary “apply and explain” approach limits enforceability. The Financial Reporting Council can monitor and report but has limited sanctioning authority beyond reputational pressure. Sectoral regulators have stronger enforcement powers, reinforcing sectoral over national standards. Third, announcing a code does not automatically create capacity to implement it. Many Nigerian companies lack directors with governance training. Board members appointed through family, political, or business relationships may be successful but unfamiliar with fiduciary duties or audit committee oversight concepts.
Ghana’s November 2022 National Corporate Governance Code offers a different model. Rather than attempting to replace sectoral frameworks, Ghana’s code explicitly positions itself as harmonizing them while preserving sectoral specificity. It establishes thirteen core principles applicable across sectors while explicitly endorsing existing sectoral codes from the Bank of Ghana, Securities and Exchange Commission, and National Insurance Commission. This pragmatism reflects political reality: sectoral regulators have established turf and expertise. Attempting to eliminate sectoral codes would provoke bureaucratic resistance that could derail reform entirely.
Kenya’s phased implementation provides valuable lessons. When Kenya gazetted its comprehensive Code of Corporate Governance Practices for Issuers of Securities in March 2016, it didn’t become fully applicable until March 2017, allowing companies twelve months to align governance structures. Moreover, Kenya invested heavily in capacity building. The Capital Markets Authority partnered with the World Bank to conduct training. Master classes for CEOs, CFOs, and company secretaries preceded full implementation. The Institute of Certified Public Secretaries developed accreditation programs for governance auditors.
Egypt demonstrates the importance of iterative improvement. Egypt’s first code appeared in 2005, was revised in 2011 to incorporate corporate social responsibility and enhanced disclosure, then updated again in 2016. The 2016 code expanded to encompass state-owned enterprises explicitly, recognizing their importance in Egypt’s economy. This evolution demonstrates that first-generation codes inevitably require revision as implementation reveals gaps.
Mauritius provides cautionary lessons about selective compliance. Research tracking Mauritius’s 2004 code implementation through 2007 found reasonable compliance with highly visible requirements—companies appointed non-executive directors and established audit committees—but deeper investigation revealed selective compliance. Many boards claimed independence for directors with obvious conflicts. Audit committees existed on paper but exercised minimal oversight. Directors’ remuneration remained opaque despite transparency requirements. Companies implemented visible, low-cost elements while resisting costly accountability requirements.
Why Simply Copying Won’t Work: Ethiopia’s Specific Context
Ethiopia’s governance challenges differ importantly from those that shaped codes elsewhere. Research on Ethiopian corporate governance identifies concentrated ownership and political connections as defining features. Ethiopia’s large businesses divide into state-owned enterprises, party-owned companies, and family-controlled private companies. When control structures are examined, ruling party influence extends across both SOEs and party enterprises, with some family businesses maintaining complex associations with political actors.
This ownership concentration creates different governance problems than dispersed shareholding environments where UK or Australian codes originated. Anglo-American codes emphasize protecting minority shareholders from management abuse, assuming the central problem is agency conflict between shareholders collectively and managers. Ethiopia’s problems center on conflicts between controlling shareholders and minority stakeholders, between public and private interests in state-influenced enterprises, and between formal structures and informal relationship networks.
Research documents enforcement deficits across multiple dimensions. The judicial system faces capacity constraints and perceptions of political influence. Shareholder protection laws exist but are inadequately enforced, with courts handling cases slowly and inconsistently. Studies identify discriminatory enforcement between state and private banks, with regulators applying different standards based on ownership. Research examining Ethiopian boards documents widespread deficits in director knowledge and skills, with directors often appointed through political connections rather than professional qualifications.
Related-party transactions present particularly acute challenges. Research documents extensive related-party relationships between companies, political actors, and controlling shareholders that would violate codes in most jurisdictions but operate openly in Ethiopia. Family businesses engage in transactions with other family companies without independent oversight. SOEs transact with party-owned companies through arrangements blurring commercial and political considerations.
Political instability represents another Ethiopian-specific challenge. Research on Ethiopian banks from 2014-2023 found political instability significantly impacts financial performance, particularly for institutions serving conflict-affected regions. Some banks “suffered tremendously” affecting returns on equity and operational capacity. Directors must navigate governance responsibilities while operating where violence, displacement, and regulatory disruption can occur unpredictably.
What Ethiopia Must Do
Ethiopia must develop a code reflecting Ethiopian political economy, institutional capacity, and business structures while drawing on international experience. The first imperative is genuine multi-stakeholder engagement. Ghana’s code emerged from extensive consultation involving the Institute of Directors, professional bodies, academia, government, regulatory agencies, and business associations. This inclusive process created stakeholders who felt ownership because they shaped content. Nigeria’s more technocratic approach, where the Financial Reporting Council drafted with limited broad engagement, contributed to implementation difficulties.
Ethiopia should convene a National Corporate Governance Council representing the National Bank, Capital Market Authority, Ministry of Finance, professional bodies, business associations, and civil society. This Council should drive development through working groups, public consultations, exposure drafts, and iterative revision. The process will take longer than expert-driven drafting but produces better code with stronger implementation prospects.
The code’s architecture must balance comprehensive principles with sectoral flexibility. Ethiopia should establish core principles applicable to all entities above certain thresholds: ethical leadership, board composition including independent directors, audit committees, risk management, stakeholder engagement, transparency, and accountability. Simultaneously, permit sectoral regulators to impose additional requirements. Critically, the code must establish clear hierarchy: where sectoral standards are higher, they apply; where silent or lower, national principles apply; where conflicts arise, a designated body adjudicates.
Enforcement mechanisms must be designed into the code. For listed companies, the Capital Market Authority should have enforcement jurisdiction with power to audit, investigate, and impose penalties from warnings to delisting. For banks, the National Bank exercises similar authority. Sanctions should include financial penalties, mandatory remediation, public disclosure of non-compliance, and in severe cases, director disqualification. Without credible consequences, companies will engage in selective compliance.
Capacity building must parallel code development. All directors of public companies, listed entities, and SOEs should complete certified governance training within twelve months of appointment. Professional certification programs should be developed through partnerships with regional institutes of directors. Ethiopian universities should incorporate governance modules into business programs. Company secretaries need similar professionalization, with clear qualifications including governance training and certification.
Phased implementation allows learning and adjustment. Ethiopia could begin with companies seeking capital market access, requiring full compliance as a condition for securities issuance. Second phase could encompass banks, building on National Bank directives. Third phase might cover other public companies and large private entities above thresholds. This sequencing allows regulators to develop enforcement capabilities gradually and permits code revision based on implementation experience.
State-owned enterprise governance deserves particular attention. Following Egypt’s model, Ethiopia could integrate SOE governance into the comprehensive code while recognizing their distinct characteristics. SOE boards should include independent directors from private sector backgrounds, not only political appointees. Appointment processes should be transparent and merit-based. SOE governance reporting should serve dual accountability: to the state as owner and to the public through transparent financial reporting.
Finally, Ethiopia must commit to iterative improvement. The code should include provisions requiring formal review every three to five years, with revisions based on implementation experience, stakeholder input, and evolving international standards.
The Path Forward
Ethiopia cannot afford continued governance gaps that create uncertainty, increase capital costs, and signal institutional immaturity. A comprehensive code would provide foundations for capital market development, establish standards facilitating business activity, create transparency attracting investment, and position Ethiopia competitively in global markets.
But Ethiopia must proceed thoughtfully. South Africa demonstrates iterative evolution elevating governance standards. Kenya shows systematic capacity building enables implementation. Ghana illustrates pragmatic harmonization of national principles with sectoral specificity. Nigeria warns against layering requirements without resolving conflicts. Mauritius cautions that selective compliance undermines effectiveness without robust enforcement. Egypt demonstrates addressing state-owned enterprise governance explicitly.
Ethiopia’s code must reflect Ethiopian realities: concentrated ownership, political connections, capacity constraints, enforcement challenges, and political instability. Importing Anglo-American models designed for different contexts will fail. Ethiopia should develop principles addressing Ethiopian challenges while drawing on proven international practices appropriately adapted.
This requires sustained commitment from political leadership, regulatory agencies, professional bodies, business communities, and civil society. Code development through genuine engagement will take time but produces better results. Capacity building must parallel development. Phased implementation allows learning. Integration with capital market development creates incentives for quality.
Ethiopia has delayed long enough. The Ethiopian stock exchange has just been established, with only two or three companies listed and many more in the pipeline. As these capital markets develop and investment flows increase, governance gaps will impose growing costs. Without a comprehensive code establishing clear standards, well-governed Ethiopian companies will pay higher capital costs because investors cannot easily distinguish them from poorly-governed peers. Even now, in private capital markets—bank lending, private equity, development finance—Ethiopian enterprises face governance uncertainty premiums that increase borrowing costs and reduce valuations. A comprehensive code will not solve all problems, but it establishes frameworks within which solutions develop and allows well-governed companies to signal quality credibly.
The time for Ethiopia’s corporate governance code has come. Regional peers are not waiting. International investors are evaluating alternatives. Ethiopia should move forward deliberately but decisively: convene the National Council, begin consultations, study regional experiences, develop principles reflecting Ethiopian contexts, build capacity, plan implementation, establish enforcement, and commit to improvement.
The opportunity is clear. The path is knowable. Ethiopia must seize this moment to join African nations with comprehensive frameworks, learning from their experiences to build something adapted for Ethiopian needs. The work begins now.
Tesfaye T. Lemma (PhD) is a tenured Full Professor of Accounting at Towson University and a multi-award-winning scholar whose research focuses on corporate governance, banking sector reforms, sustainability, climate-related governance, and sustainable finance in emerging and developing economies. He serves as an Associate Editor of Business Strategy and the Environment, one of the world’s leading journals in sustainability research, and his work informs policy and practice on climate finance design, institutional capacity, and the implementation of sustainability strategies.
