Fikiru Hailemariam manages his father’s store that has been supplying TVs, radios, computers, and electronic gadgets in Merkato for the past 18 years.

He has three licences allowing him to engage in import,wholesale and retail businesses. Fikiru mostly supplies government agencies, NGOs, colleges, and private schools with his good most of which are imported from India, China, and Japan. He imports an average of 10 million Br worth of electronic products annually, which are distributed through his wholesale and retail branches.

Like all other traders, Fikiru is required to go through the new licence registration process that prohibits him from holding different licences and engaging in imports, wholesale distribution, and the retail business at the same time.

International business classifications and criteria have been added to the new licence registration process for businesses to become more specialised and to trace transactions and illegal activities, according to the Commercial Registration and Business Licensing Proclamation (686/2010).

The Ministry of Trade (MoT) started issuing new licences on February 8, 2011. While registering to be issued a new licence, traders are required to fulfil requirements such as tax clearance documents, signatures of the shareholders if it is a share company, and bank statements indicating capital renewal.

In requesting a new licence, the applicant must appoint a director of the company, obtain a Tax Identification number (TIN) if it is not a share company, and submit a bank statement showing the capital deposited in the company’s bank account.

“A study has been conducted by MoT over the past three years to identify the absence of free market concepts in the market that prohibit competition and speedy transactions,” the ministry said in a statement. “This triggered the issuance of amendments to the commercial codes, regulations, and directives.”

The new registration will enable trade transactions to be stable and open to competition while promoting fair transactions, according to the statement.

However, when Abebech Yimer, a homemaker and mother of two, went shopping in Merkato for clothes for her children, the competitive environment was not visible.

“Each trader offers the same price, particularly at the “Dubai” and “Taiwan” market places,” she told Fortune.

Upon failing to find a different price among the traders, Abebech bought a pair of jeans for each of her small children at 85 Br apiece.

A sociologist, who spoke to Fortune on condition of anonymity, agreed with Abebech that competitiveness is absent from the market.

“A standardised system motivating the interdependency of the traders and customers will stabilise the market and lead to economic growth,” he said.

MoT is aiming for this, it claimed.

“The aim of separating the registration of importer, wholesaler, and retailer licences is to have a traceable chain wherein the pricing is consistent at all levels,” Nuredin Mohammed, director of the registration and licensing directorate at MoT, told Fortune.

The new system will also control price increments made without value being added to the product, according to Nuredin.

Yet, the new registration has diverted needs based business (supply and demand) to an asset approach (needing specialised knowledge), according to the sociologist. This has denied traders the ability to engage in a business they used to engage in and will create social stress and uncertainties in the market, he claimed. Depriving them of the bargaining power they used to have may open the door for illegal trading, he said.

However, if carried out properly, the registration process should not have an adverse effect on the market, according to Mikias Aklilu, a market analyst who teaches at a private college. The system must consider capital goods and importers who may face difficulties in transferring their imports to wholesalers; vertical integration of such kinds of imports must be allowed, Mikias argued.

Illustration by Fortune

Ethiopia ranked 104th out of the 183 economies included in the Doing Business 2011 report released by the World Bank Group (WBG). This is one place lower than its position last year. A total of nine indicators are incorporated in determining the ranking. Among these, Ethiopia got its highest status in the category of best in “Paying Taxes”, ranking 47th. Yet, this is a decline of six places in comparison with its position the previous year.

Most of the providers of capital goods sell their products to individuals, making them eligible to register as retailers instead of receiving special consideration, Nuredin argued.

However, the new registration requirements have burdened Fikiru with disadvantages that will affect his income generation ability.

The cost of importing large quantities requires a lot of capital and loans with an average interest rate of 11pc, which is recovered with profits from distributing the electronics at wholesale and retail outlets while importing it himself. The registration system, which denies him from engaging at all three levels, will shrink his profit margin, he claimed.

“The new system will not even allow me to pay the principal instalments and interest rates of the Loan dispersement from the banks,” he told Fortune.

The same frustrations are shared by many traders in Merkato who are concerned about the adverse effect registration requirements may have on their businesses.

Mustefa Mohammed, 34, who has been engaged in the wholesale and retail clothing for 14 years, is optimistic about the new licence registration requirements and has chosen the wholesale business.

He runs his own boutique in the “Taiwan” Area of Merkato, earning 100,000 Br net profit from his wholesale business annually, while generating only 25,000 Br from his retail business. All the clothes he sells are imported from China and Taiwan.

Mustefa plans to give up his retail licence as it is easier to sell the clothes as a wholesale business than a retail business, as it takes a longer time to clear out the stock as a retailer, he argued.

Yishak Debebe, who imports and distributes computers and electronic goods, used to sell five million Br worth of laptops and desktop computers to the government in bulk per year.

Choosing one of his three licences is a dilemma and will affect his profit margin, he claimed. He plans to reapply for his retailer licence, giving up his importer and wholesaler licences along with the enormous profits he used to earn.

Over the past eight months, he has sold only one million Br worth laptops and desktops, something he attributed to the uncertainties he is facing. Yishak estimates that he would sell 500,000 more over the next four months, which would reduce his annual transactions by 3.5 million computers.

Yishak has been discouraged by the proclamation forcing him to choose only one of his licences, he claimed. MoT did not create awareness about the proclamation while it was at the draft stage, which might have given traders time to argue and contribute to the proclamation, he complained.

However, there were two meetings where traders were afforded the opportunity to express their views, countered a legal expert who teaches at Addis Abeba University (AAU). Yet, this does not mean their input would be considered in drafting the final proclamation, he explained.

“The legislature will only incorporate points it believes are valuable to the final draft,” he said.

Ethiopia is ranked 104th out of 183 counties in terms of the complicated environment of doing business, according to a survey conducted by the World Bank Group (WBG) as published in Doing Business 2011.

During the past eight months, 919 traders have renewed their licences while MoT expects 15,000 licences to be renewed before July 2011, a deadline it has extended by a month.

Over the past six months, 606 traders have returned their business licences to MoT because they were unable to continue their activities due to the uncertainties they face, agreed most of the traders who have returned their licences and spoke to Fortune.

The rate of the return of licences has been much higher this year than the 38 licences that were returned during the 2007/08 fiscal year, or the 139 that were returned in 2008/09. Last year, only 94 licences were returned.

The government is indirectly trying to create specialisation, which, apart from controlling the chain, leads to productivity in the market, an economist told Fortune on condition of anonymity. It would have been effective if it were done with the willingness of the traders and by respecting free market principles, he argued.

Fikiru, who was planning to open his own electronics shop, now plans to leave the country. He is tempted to close his father’s shops and has been given the green light for doing so from his family. The government has left him no alternative due to the uncertainties it has created in the market with its new proclamation, he claimed.

By  EDEN SAHLE,
FORTUNE STAFF WRITER