New commercial code stirs delay between banks, foreclosure
Bankers express concern over the new commercial code citing that it will present challenges when foreclosure arises.
On the latest meeting with the regulatory body, National Bank of Ethiopia (NBE), the president of Ethiopian Bankers Association and President of the state owned financial giant Commercial Bank of Ethiopia, Abie Sano, expressed his concern by underlining that the banking foreclosure proclamation, property mortgaged or pledged with banks proclamation no 97/1998, is in danger due to the newly in placed commercial code which replaced the over a half century law.
“The proclamation was initially established to make the credit scheme run smoothly, but now legal experts inform me that the new commercial code has a vague article on the issue,” Abie said.
He said that when creditor banks prepare for foreclose a property that was placed as credit collateral they are facing legal challenges, “properties are frozen by the court when banks proceed to foreclosure.”
He said that member banks are also coming with similar cases to the association, “I think it will be a challenge for the sector and the nation as a whole.”
Article 3 of the 1998 proclamation states that an agreement authorizing a creditor bank with which a property has been mortgaged or pledged and whose claim is not paid within the time stipulated in the contract, selling the said property by auction upon giving a prior notice of at least 30 days to the debtor and transferring the ownership of the property to the buyer, shall be valid.
“A creditor bank which, prior the effective date of this Proclamation, has a claim on property mortgaged or pledged with it, may sell the property by auction upon giving a prior notice of at least 30 days and transfer the ownership of the property to the buyer,” article 4 of the same proclamation reads.
Article 9 also stated any suit or decree on execution pending before a court prior to the coming into force of this Proclamation may be terminated upon application by the creditor bank with which the property has been mortgaged or pledged and the bank may sell and transfer the property to the buyer in accordance with this Proclamation.
However, experts stated that the commercial code has put unclear articles regarding the involvement of courts that may delay the process of banks to foreclose properties.
Experts said that when the property mortgaged or pledged with banks proclamation was ratified separately as a provision behind the commercial code it targeted to protect banks from embattlement to repossess their resources, “but the new commercial code has not taken into consideration the 24 years old foreclosure proclamation.”
They added that it has now created a gap on the foreclosing procedure, “debtors now evoke the new code since as a legal procedure the new law has the position for application.”
Legal experts like Daniel Getnet expressed that the government must act immediately to protect public property which are not only bank assets.
Nonetheless, there is a legality issue on the proclamation which strongly backs banks.
“In the country the economy and financing scheme is mainly supported by a trust linked with collateral. If it will not continue as healthily as the previous experience it will pose a challenge to the economy,” Daniel explained.
At the event Yinager Dessie, Governor of NBE, reminded that the regulatory body has ruled for banks to focus on loan collection and would not tolerate debtors particularly major ones.
“We have directed you to take measure up to foreclosure for poor performing debtors and some of you are doing well,” he said, adding, “It has come to my attention however that when some banks go for foreclosure they are facing challenges.”
The Governor said that he heard about the issue just a week ago when the claim came to the regulatory body and promised that it will be solved with relevant government bodies.
Ethiopia inaugurates first free trade zone in Dire Dawa
Ministry of Finance finalizes preparations for a new incentive regulation to be applied in free trade zones as the country inaugurates the first free trade zone in Dire Dawa.
Similarly, the Council of Ministers ratify the first national special economic zone policy on its 11th extraordinary meeting aimed to expand free trade zones in the country.
Dire Dawa Industrial Park has now been re-established to be the first free trade zone under the name Dire Dawa Free Trade Zone with the official opening ceremony of Dire Dawa free trade zone expected to be held on Sunday August 14, 2022 in the presence of Prime Minister Abiy Ahmed and other senior government officials.
“The Corporation has finalized necessary preparations to establish the zone including legal frameworks, working systems, and infrastructure in collaborating with the different governmental stakeholders,” said Kiyya Tekalign, Strategy Advisor at Industrial Parks Development Corporation (IPDC).
As he said, the Ministry of Finance has finalized preparing the free trade zone incentive regulations which is expected to be ratified soon. To benefit from the scheme, the corporation calls the private sector to invest in the free trade zone. In addition, the free trade zone would offer customs duties privileges and play a significant part in reducing the cost of logistics, as he explained.
Dire Dawa was selected to be the first free trade zone due to its proximity to ports, market potentials and huge cargo gravity as well as suitability for multimodal transport and logistics operation. The free trade zone is 300 km far from Djibouti port, 500 km from Berbera port and 2.5 km from Dire Dawa dry port. FTZ is integrated with the dry port and various service providing institutions such as customs during operation, the Minister added.
As indicate by Kiyya, in the free zone, the country’s customs system and general laws are applied in a way that facilitates the development, and investors, importers and exporters and organizations that work in this free trade zone will benefit from various incentives and manufacturers entering a free trade zone can obtain production inputs without leaving the free trade zone in addition to the duties and taxes imposed on unfinished products not being implemented.
“The Free Trade Zone will be used as an export processing zone where goods can be unloaded, handled, produced and assembled as well as re-sent to the industrial park as a free trade park and export processing zone,” Kiyya Explained.
The zone is expected to provide support for the manufacturing, importing, and exporting procedures by increase efficiency, trade competitiveness, FDI, urbanization, industrialization to the economy. It is also expected to decrease inflation and reduce logistics time and cost while increasing import substitution and export revenue, job creation, and skill transfer which are among the goals of the free trade zone.
The corporation has prepared 15 sheds for production and warehouses, 4 hectare of open storage ward, and also 48 hectares for private sectors who want to build their production facility.
Since the goal of establishing a free trade zone has been included in the logistics strategy, extensive research has been carried out, especially in the last two years, and the research found to be convincing has led to the establishment of the special economic zones by the National Logistics Council as a policy program, and the Dire Dawa Free Trade Zone has been working as a pilot project. By watching the need to strengthen and expand the free trade areas and learning the best experiences of successful countries, the government has planned to establish more Free Trade Zones in other regions and Special Economic Zones as well.
Based on detailed criteria, Modjo, Adama and Semera areas are among those considered for free trade zones.
The FTZs will enable Ethiopia to become a significant land-linked trade, investment, industrialization, and logistics hub in Africa.
Establishing free trade zone is one of the initiatives set in the 10-year perspective development plan of the country.
Dire Dawa Industrial Park is located in Dire Dawa on 150 hectares of land 445 km from Addis Ababa. The park specializes in garment, apparel, and textile and commenced operation in 2018, with 15 factory sheds which has necessities such as electricity supply, telecom services, feeder roads, water supply and other related services.
It can be recalled that many of the 15 sheds in Dire-Dawa Industrial Park are not occupied by investors.
As Shiferau Solomon vice CEO of IPDC explained, the outbreak of the pandemic took over as soon as the park was inaugurated and also the instability of the country were the main reasons for under operation.
In 2019, Ethiopia agreed with Kenya to establish a free trade zone and enhance infrastructural development. Ethiopia has also ratified the African Continental Free Trade Area (AfCFTA) in March 2019 and is also is going through the WTO accession process. The FTZ aligns with AfCFTA and plans to realize regional integration, and is part of Ethiopia’s initiatives in the 10-year perspective development plan.
As Ethiopia is a landlocked country, it is known that it imports goods mainly using the port of Djibouti. Similarly, the country’s exports are also transported to destination markets using this port of Djibouti. Dire Dawa is not only close to Djibouti, but also has a convenient road for cargo vehicles leading to the port of Djibouti and the Ethio-Djibouti railway line passing through it, making it convenient for logistics services.
New proclamation to pave way for foreign fintechs
Foreign fintechs are soon to be allowed entry following the newly tabled proclamation which revises a decade old national payment system proclamation.
During the latest session held on Saturday August 6, the Council of Ministers approved the amendment for the national payment system proclamation no 718/2011 that was first issued in 2011.
When the proclamation is ratified by the parliament it will pave a way for foreign investors to get involved on the country financial systems at least this time around as payment operators.
So far there are two companies which venture in Ethiopia as fintech operators; Ethio Telecom’s Telebirr and Kacha Digital Financial Services, which recently introduced its operation.
Early this week, Solomon Damtew, Acting Director of Payment and Settlement System Directorate at National Bank of Ethiopia (NBE), said that the proclamation amendment will be a game changer since it allows well known and experienced foreign companies to invest on the market.
“Following the amendment of the proclamation, the ecosystem will be opened which means that highly experienced foreign companies will enter into the Ethiopian payment system,” he said.
“The move will uplift the success that we have so far achieved on the sector and will foster the use of a cashless economy in addition to ensuring financial inclusion besides strengthening the digital payment ecosystem,” he added.
According to Solomon, NBE, a financial sector regulatory body, is developing detailed directives that will allow providing a license for the incoming operators.
Despite being about 14 months in, the state owned telecom provider, Ethio Telecom’s Telebirr has been able over half of its subscriber to mobile money users. The number of agents that are hired by fintech or financial firms has also shot up by 800 percent to reach 156, 876 in just a single year’s time from about 15,000 agents in the 2020/21 financial year.
According to Solomon, most of the new agents are aligned with Telebirr.
Solomon told Capital that the proclamation revision has taken about three months of prudent work.
According to the proclamation, national payment system consist sending, receiving and processing of orders of payment or transfers of money in domestic or foreign currencies, and issuance and management of payment instruments and payment, clearing and settlement systems.
It added that payment service providers, including operators, participants, issuers of payment instruments and any third party acting on behalf of them, either as an agent or by way of outsourcing agreements, may entirely or partially operate in the country.
On its entry as a first private and foreign investor to the telecommunication industry, Safaricom has expressed its interest to be a mobile money player in the country to which the government has finally given a green light to its demand. As a result, the Kenyan telecom brand is expected to be one of the pioneer foreign companies to invest as a fintech. The company is popular for its revolutionary M-Pesa mobile money service.
