Month: March 2024

By Geda Yoseph, Associate at DMLF

Irregular union is a relationship that is similar to marriage but actually it is not a marriage. Irregular  union also produces legal effects. Ethiopian Federal Family Law recognizes the existence of irregular unions and as a result attached some legal consequences to the union. Some of these effects are similar to that of marriage.  We shall briefly be looking on to irregular union as envisaged under the Revised Family Code Proclamation No.213/2000(RFC).

Definition  

Irregular union is when the man and the women live together as husband and wife without concluding valid marriage. The most important elements of irregular union are: the man and the woman must live together as husband and wife and the man and the woman have never concluded a valid marriage. If a man and a woman live in such a manner, it is said that they keep up an irregular union with each other. However, the mere fact that a man and woman exercise sexual relations repeatedly in a manner that is known to other persons, is not sufficient by itself to constitute an irregular union. To constitute an irregular union, the way these persons live must be analogous (similar and comparable) to that of married persons.

Proof of Irregular Union

According to Article 106 of the RFC, an irregular union is proved by the possession of the status of the union. Possession of status of persons living in an irregular union means that when, although they are not married, the man and woman behave like married persons, their relatives, and community members also consider them as married couple. When such facts exist, the man and the woman will have the status of persons living in an irregular union. When it is said members of families, it means members of both the man and the woman. Since the relation is analogous to marriage, the law expects that members of the families of the man and the woman could know the relation. Hence, if one of the parties is capable of providing the existence of the state of fact of an irregular union, the court shall presume that the man and woman live in an irregular union. However, the above presumption is subject to rebuttal by producing counter reliable evidence or proof.

Effects of Irregular Union 

1. Bond of Affinity

Unlike marriage, irregular union does not create a bond of affinity between the man and the relatives of the woman or between the woman and the relatives of the man. However, the provisions concerning impediments to marriage in the case of affinity in the direct line shall apply in the case of irregular union. Article 9 of the RFC prohibition to married couples shall apply to irregular union. As a result, a man cannot marry the sister of the woman with whom he is engaged in an irregular union. Similarly a woman cannot marry the brother of the man with whom she is engaged in irregular union.  

2. Community of Property

According to Article 102(1) of the RFC, if the relationship of the man and the woman in the irregular union has lasted for at least three years, a community of property shall be created between the man and the woman. Whatever property acquired during the union shall be the common property of the man and the woman. Unlike the case of marriage, a community of property shall not begin at the first date of their relation. The man and the woman should live at least for three years continuously so that their relationship would result in a common property. However, once they have lived for three years, the community of property shall be effective from the time of commencement of the relation. The provisions of community property of married couples shall also apply to the man and the woman who live in an irregular union.  

Termination of Irregular Union

Article 105 of the RFC provides as to how irregular union can be terminated. Unlike marriage, there is no need to go through a certain formal procedure to dissolve or terminate the relationship that is created as a result of an irregular union. Therefore, the man and the woman can put an end to their union at whatever time they like. They can terminate such a union either by their joint agreement or by a unilateral decision of either of them. The party who is terminating the union by his decision is not liable to pay compensation to the other party, unless he commits fault. 

Conclusion 

Irregular union is the fact of living together by a man and a woman without concluding marriage. The man and the woman live just in the same manner as married persons. Regulation of irregular unions is very essential to protect the interests of both parties and to prevent violations of rights committed in this union. The Ethiopian Revised Family Law provides a legal framework to regulate irregular unions in proving the existence of the union, creation of bond, the time at which common property is created and termination of the union. 

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By Mahlet Mesganaw, Partner at DMLF

The Revised Family Code Proclamation No 213/2000 incorporates provisions of settlement of disputes through arbitration for disputes of marriage. One form of arbitration is an attempt to reconcile issues of divorce of the spouses. The arbitrators attempt to persuade the spouses to renounce their petition of divorce. The next area in which arbitration is cited is for the purposes of resolving disagreement during marriage. The third area in which arbitration is mentioned is during conditions of divorce. These provisions for settlement of disputes through arbitrators are briefly discussed herewith.

Arbitration to Reconcile Marital Relations

Arbitration proceeding is an option that comes  after a petition for divorce is filed in courts of law. Final decision of ordering divorce is vested in courts only. However a judge who has received a petition of divorce shall attempt to speak to the spouses  individually or together to renounce the divorce petition, solve their dispute amicably and continue their married life. When the attempt by the judge does not bear fruit or is likely to fail, then the judge is at liberty to order the spouses to settle their disputes through arbitrators of the spouses own choice.

The appointment of arbitrators, discharge of their obligation and failure to resolve the dispute amicably is dealt under Articles 119-122 of the Revised Family Code. The spouses shall appoint one or more arbitrators and submit within 15 days from the date they were told to do so, the names of the arbitrators to the court. On receiving the list of arbitrators or when the arbitrators appear before the court, the court shall make a record forthwith and give direction as to how the reconciliation has to proceed. The court can order the arbitrators to submit the result of the arbitration or the attempt of reconciliation within three months. 

The judge is at liberty, where it deems necessary, examine the progress of the arbitration and make orders for submission of periodical reports thereon. Where the court is of the opinion that the spouses may settle their dispute through arbitration, the judge may, having regard to the progress of the arbitration, give additional time of not more than one month.

It is the responsibility of the arbitrators to make an effort to reconcile the spouses and to make them renounce their petition for divorce. If the arbitrator’s attempt is successful, then the spouses can submit the report of the arbitrators together with an application for their divorce file to be closed.  Where the arbitrators have concluded that the dispute cannot be solved except by divorce, they shall report the result of their attempt to the court without delay. The arbitrators shall have no power to give any order or decision concerning the spouses except persuading them to resolve the issue through arbitration. 

In cases where the arbitrators have failed to submit reports, the court shall close the case.  Where the spouses or one of them have petitioned the court to reopen the case within one month from the date of the closure of the case by stating the reasons for not submitting the report and that the issue has not been settled through arbitration, the court may reopen the case and give appropriate decision.  The closure of the case may not stop the spouses or one of them from submitting a new petition and request for their case be reconsidered.

Arbitration on Disagreements During Marriage

Arbitration and Conciliation Working Procedure Proclamation No 1237/2021 provides that divorce is a non-arbitrable matter. Similarly the Revised Family Code on Article 117 states that only the court is competent to decide on divorce and effects of divorce. Nonetheless Article 118 of the Revised Family Code declares that without prejudice to the power of the court to decide on divorce, disagreements of spouses during marriage can be decided by arbitrators chosen by the spouses. Any party who is dissatisfied with the decision of arbitrators may appeal to a court having jurisdiction. The court, having examined the petition, may approve, amend or reverse the decision of arbitrators. Such a decision of the court shall be final. 

Arbitration on the Legal Effects of Divorce Decision  

Where the marriage is dissolved by divorce, the court shall request the spouses to agree on the conditions of divorce. The court gives not more than 6 months for the settlement of conditions of divorce. The conditions of divorce include apportioning of property, guardianship of children and maintenance payment arrangement. Where the spouses are not willing to agree or have failed to agree, the court shall, by itself, or through arbitrators, or experts appointed by the court, or by any other means the court thinks appropriate, decide on the conditions of divorce. Article 83 sub-article 3 of the Revised Family Code provides that the conditions of divorce agreed upon by the spouses or decided by arbitrators or experts shall be submitted to the court for approval.

To sum up, arbitration during marriage and divorce is mentioned in the Revised Family Code in a number of articles. The word ‘arbitration’ may not be the right term for those cases of persuading the spouses to renounce their petition of divorce. Mediation or mediator or  conciliation or conciliator or court supervised mediation may have been the right term, as the duties of the ‘arbitrators’ is NOT to decide but to reconcile. Free University of Amsterdam on its training manual for mediation asserts that ‘Mediation is often called a win-win process in contrast with legal action which one party must lose; mediation recognizes legitimacy of both parties’ self-interests and seek ways to reconcile them’.Regarding marital disagreement, as any disagreement, can be presented for an arbitration. Such arbitration decisions can be appealed to a court of law and the court may approve, amend or reverse the decision of the arbitrators. Similarly conditions of divorce may also be entertained by arbitrators. The decision of the arbitrators shall be presented to the court for approval. Hence, the establishment of arbitration centers as envisaged by Proclamation No 1237/2021 together with mediation centers will contribute greatly to realize the objective of the family law and constitutionally protected family unit, i.e marriage.

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By Geda Yoseph, Associate at DMLF

                                     Introduction 

Arbitration is a consensual dispute resolution process based on the parties’ agreement to submit their disputes for resolution to an arbitral tribunal, usually composed of one or three independent arbitrators appointed by or on behalf of the parties. Arbitration can also be defined as the resolution of a dispute by a privately appointed third-party decision-maker. Arbitration is a mechanism for settling disputes. If there is no dispute, there can be no arbitration. Arbitration is known for its procedural flexibility, which allows parties to engage in an efficient, confidential, and fair process leading to a final, binding, and enforceable award. From an international perspective, arbitration awards are enforceable in over 150 countries around the world due to the application of the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention). Currently, both at the national and international level, arbitration is becoming one of the most preferable dispute settlement mechanisms. As compared to formal court proceeding arbitration, arbitration is flexible, saves a lot of costs, and enables the parties to resolve their dispute in an amicable manner. At the international level, arbitration is also one of the areas showing good progress and advancement. Countries are signing different bilateral and multilateral agreements with each other to regulate and facilitate transactions and dispute settlement.

                    Characteristics Feature of Arbitration 

• Arbitration is a mechanism for resolving disputes in accordance with the rules and principles of the law. It is a right-based mechanism. Rules and principles of law may sometimes be chosen by the parties. In contrast, other alternative dispute settlements, like mediation and conciliation, shall not be bound to be governed by any other substantive or procedural laws.
• Arbitration is consensual as far as its initiation is concerned; an agreement to arbitrate is the cornerstone of arbitration. There are exceptions for this consensual nature of arbitration under Cooperative Society Proclamation 985/2016 and National Payment System Proc. 718/2012.
• Arbitration is a private procedure. The reason it is called a private procedure is that several issues are determined by the parties. The parties organize the tribunal, the parties determine the jurisdiction, and the parties with the tribunal determine the venue, the language, the time, etc. of arbitration. For this reason, arbitration is called a private procedure.
• Arbitration leads to a final and binding determination of the rights and obligations of the parties. The process and outcome of arbitration are binding on the parties. Sometimes it is also final and non-appealable.

 Advantages of Arbitration as Compared to Court Litigation

• Arbitration permits the parties to choose people with specialized knowledge to judge their dispute. Judges in state courts are less likely to acquire the same degree of expertise in the technical aspects of the transactions that come before them, as are the lawyers who represent the parties and who may later serve as arbitrators in similar transactions. In construction arbitration, there may be engineers or architects as well as lawyers serving as arbitrators.
• The procedure in arbitration is flexible and can be adapted to the needs of the particular dispute. Due to the flexibility and finality of arbitration proceedings, resolving disputes through arbitration may often be quicker and cheaper than resolution through court litigation or other means of dispute resolution.
• Arbitration is not subject to appeal on its merits unless otherwise agreed upon by the parties. What the parties lose in legal security, because errors made by the tribunal in the application of the law cannot be corrected, they gain in the reduced amount of time required to reach a final decision and reduced costs.
• Faster decisions and lower costs as compared to litigation in the courts have been one of the traditional arguments in favor of the arbitration-stamp duty proclamation. Faster decisions and lower costs as compared to litigation in the courts have been two of the traditional arguments in favor of arbitration.

international Commercial Arbitration

In international transactions, people and different international organizations also resort to international commercial arbitration. In international commercial arbitration:

• Litigating in foreign courts is unthinkable. While that is good for one party to the transaction, it is not so good for the other party, who faces all the difficulties of litigating in an unfamiliar procedure, in a language that may be foreign and may not be the language of the contract, and not being able to use its lawyers who are familiar with the company. It is also not irrelevant that one party is staying at home while the other party is staying in a foreign country, with all the inconvenience and expense that entails.
• Arbitration reduces inequalities. Arbitration of disputes among organizations or people living in different countries is a means to reduce the inequalities. While it is possible for the arbitration to take place in an arbitration organization located in the home country of one or the other party, it is also possible for the arbitration to be administered by an arbitration organization located in a third country.
• When the state is a party, a foreign court is even more unattractive. There are special concerns about the partiality of the courts when the state is a party to the dispute. The state has too many means to influence decisions in its own courts for foreigners to feel comfortable litigating against it there. This factor is the major reason for the extraordinary increase in the number of bilateral investment treaties in recent years in which foreign investors have the option of instituting arbitration in one of several arbitration forums outside the host state.
•  Ease of enforcement: A final reason for the current popularity of international commercial arbitration is the comparative ease of enforcement of an award as compared to the enforcement of a judgment of a foreign court.

                      Different Types of Arbitration

There are different types of arbitration that deal with different subject matters. These types of arbitrations include:

• Commercial arbitration                            
• Investment arbitration
• Commodity arbitration
• Sports arbitration
• IP Arbitration
• Public law arbitrations
• International arbitrations

                 Major Concepts /Issue in Arbitration 

There are four (4) major concepts or issues in arbitration. These are: arbitrability, jurisdiction, arbitration agreement, and separability. Let’s consider each of them briefly.

1. Arbitrability: In Ethiopia, arbitrability is simply the notion of whether a dispute falls within the category of disputes that can be resolved by arbitration. What disputes are not arbitrable in Ethiopia are listed under Article 7 of Arbitration and Conciliation Working Procedure Proc.1237/2021. This includes divorce, adoption, guardianship, tutorship, succession, criminal cases, tax cases, judgments on bankruptcy, decisions on the dissolution of business organizations, all land cases, including leases, administrative contracts, except where permitted by law, trade competition and consumer protection, and administrative disputes falling under the powers given to relevant administrative organs by law.
2. Jurisdiction: Jurisdiction refers to the scope of powers of the arbitration tribunal. Article 19 of Proclamation 1237 provides that the arbitral tribunal can determine its own jurisdiction. With regard to an objection against the decision of the tribunal on its jurisdiction, Art. 19(5) provides that an objection against the decision of the tribunal on its jurisdiction shall be submitted to the First Instance Court within one month from the date of rendering such a decision. The submission of an objection in accordance with Sub-Article (5) of this Article shall not prevent the tribunal from continuing with the arbitration proceedings and rendering an award according to Article 19(6). The implication of Art. 19(5) and 19(6) is that arbitration will not be stayed because of a jurisdictional objection. The implication is that defendants will not delay arbitration by raising jurisdictional objections. The tribunal may go on and issue its award, and the court may rule that the tribunal doesn’t have jurisdiction. In which case, the award will be void.
3. The arbitration agreement: An arbitration agreement is an agreement to submit present or future disputes between the parties to arbitration. The notion of an arbitration agreement comprises two basic types: a) A clause in a contract by which the parties to a contract undertake to submit to arbitration the disputes that may arise in relation to that contract (arbitration clause); or b) An agreement by which the parties to a dispute that has already arisen submit the dispute to arbitration (submission agreement). The arbitration agreement has to be in writing in light of Art. 6 of Proc. 1237/2021. An arbitration agreement has to be written, signed, and attested by witnesses in light of Article 6 of Proc. 1237/2021. Arbitration agreement can be made by electronic means such as emails, telegrams, etc. that can be retrieved.
4. The Arbitration Tribunal: The Arbitration Tribunal is a sole arbitrator or a panel of arbitrators that hears the case and makes the award or other necessary orders. With regard to the appointment of arbitrators, contracting parties are free to agree on the procedure for the appointment of arbitrators, whether by arbitration centers or by a third party, in light of Article 12 of Proc. 1237/2021. Objection is possible if there are circumstances that create justifiable doubts as to impartiality, independence, or fulfillment of the criteria stated in the arbitration agreement. where one of the contracting parties fails to appoint the co-arbitrator within 30 days from the date of receipt of the notice by the other party, or where the two arbitrators fail to agree on the appointment of the third arbitrator within 30 days from the date of their appointment, or where the contracting parties fail to agree, in the case of a sole arbitrator, the First Instance Court shall appoint such arbitrator upon the request of one of the parties. Once arbitrators are appointed, they have their own rights and duties.

         Right of Arbitrators 

• Right to fee

                  Duties of Arbitrators 

• The duty to be and remain impartial and independent
• The duty to conduct the arbitration in an efficient manner
• Duty to decide the case expeditiously
• Not meet any of the parties separately.
• Not to receive any gifts from the parties

                            Decision of Arbitration Tribunal

The arbitrator tribunal, after reviewing substantive parts of the issue final, gives an award. Award is a generic term denoting the decisions of the arbitral tribunal. On the other hand, an order is a decision of the tribunal determining the procedural direction of the proceeding (procedural orders). An award has the aspect of finally disposing of a particular issue in dispute between the parties. In arbitration, both judgment and decree are called awards.

Status of the decision Arbitration Tribunal in Light of Arbitration and Conciliation, Working Procedure Proclamation, Proc. No. 1237/2021

One of the characteristics of arbitration is that it leads to a final and binding determination of the rights and obligations of the parties. Arbitration leads to a final and binding determination of disputes. Article 44(6) also provides that any decision of the arbitral tribunal shall be deemed to be a decision given by a court, shall be binding on the parties, and prevents bringing suit on similar matters between such parties.

     Appeal and Cassation Review With Regard to Arbitral Award

Before Proclamation No. 1237/2021 came into force, there was controversy and uncertainty about whether the decision of the arbitrator tribunal was subject to appeal or not, even in the absence of agreement parties. The Federal Cassation Bench also considered several cases, even in the presence of an agreement between parties, to appeal to a formal court after the tribunal rendered the decision. This issue and uncertainty were resolved after the coming into force of Proclamation No. 1237/2021.

                  Appeal under Proclamation No. 1237/2021

According to Proclamation No. 1237/2021, Article 49 an appeal is not automatically available; it depends on the presence of an agreement. Article 49(1) states that unless the contracting parties agree otherwise in their arbitration agreement, no appeal shall lie to the court from an arbitral award. In the absence of agreement between the parties, there is no appeal. With regard to an error of law, parties can exclude cassation by agreement. Article 49(2) of Proclamation 1237/2021 provides that unless there is agreement to the contrary, an application for cassation can be submitted where there is a fundamental or basic error of law. According to the above provision, cassation review is available unless excluded by agreement.

Article 49(3) provides exceptions for exceptions. It provides grounds on which appeals are never allowed, even if the parties agree to appeal. These are:-

• Appeal on arbitration on equity, According to Art. 41(5), an arbitral award may be granted based on equity or known commercial practices where such power is expressly given to the tribunal by the contracting parties or the applicable law authorizes such application. With regard to such an arbitral award, parties cannot appeal even by entering into an agreement.
• Arbitration on agreed terms/consent award: According to 43, when contracting parties have resolved their dispute by agreement before an arbitral award is rendered on the subject matter of the arbitration, parties cannot appeal to court by opposing such a decision even by entering into an agreement.
• Arbitration without reason: according to Art. 44(2), contracting parties may agree not to disclose the reason or whether the arbitral award is granted based on mutual consent. With regard to such decisions, parties cannot appeal to the court even after entering into an agreement.

In light of Article 49(3) of Proclamation 1237/2021, parties cannot appeal on the above-listed grounds even by entering into an agreement. Article 49(3) limits parties’ autonomy by limiting their contractual power with regard to appeals.

International conventions on Recognition and Enforcement of foreign arbitral awards

There are different international conventions and treaties with regard to recognition and enforcement of foreign arbitral awards. Let’s briefly consider the New York convention.

The NY Convention has two objectives:

• The recognition and enforcement of arbitral agreements 
• The recognition and enforcement of arbitral awards

The Convention is an international treaty and thus part of public international law. Article I(1) of this convention also provides that the Convention shall apply to the recognition and enforcement of arbitral awards made in the territory of a State other than the State where the recognition and enforcement of such awards are sought, arising out of differences between persons, whether physical or legal. It also applies to arbitral awards not considered as domestic awards in the State where their recognition and enforcement are sought. On 24 August 2020 Ethiopia acceded to the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “Convention“).The ratification of the NYC comes at a time where the country is undertaking major economic and legal reforms including the privatization and liberalization of mega sectors. It also plays a significant role in attracting foreign investors and creating a good environment for investment.

Investment Arbitration

Ethiopia’s special law includes arbitration as an alternative dispute settlement mechanism. A case in point is the Investment Proclamation Procl.No. 1180/2020.

Ethiopia recently enacted a new investment law with the purpose of promoting investment and encouraging foreign investors to invest in Ethiopia. The new investment proclamation introduces several changes, like using a negative listing approach with regard to areas of investment those foreigners can invest in, which is a provisionally positive listing approach. Other than areas reserved for domestic investors, foreign investors can invest in any area. To be more specific, the new investment proclamation also introduces provisions that deal with arbitration, which allow investors to resolve the dispute through arbitration in light of Articles 28(2, 3).Investment Proclamation under Article 28(2) provide that the Federal Government may agree to resolve investment disputes involving foreign investments through arbitration. The inclusion of such provisions in investment law plays a significant role in creating a favorable environment for investment. Another important provision is Article 28(3) of the investment proclamation, which provides that where a foreign investor chooses to submit an investment dispute to a competent body with judicial power or arbitration, the choice shall be deemed final to the exclusion of the other. Currently, at the international level, arbitration is becoming an effective and widely used dispute settlement mechanism. Investors also prefer arbitration over formal court proceedings due to several factors we mentioned above. Hence, recognition of arbitration in investment law is a good legal reform to attract foreign investors.

                                             Conclusion 

Arbitration is a formal method of alternative dispute resolution (ADR) involving a neutral third party who makes a binding decision. The dispute will be decided by one or more persons (the ‘arbitrators’, ‘arbiters’, or ‘arbitral tribunal’), which renders the ‘arbitration award’. Parties often seek to resolve disputes through arbitration because of a number of perceived potential advantages over judicial proceedings. Arbitration is often faster than litigation in court. Arbitral proceedings and an arbitral award are generally non-public and can be made confidential. Because of the provisions of the New York Convention of 1958, arbitration awards are also generally easier to enforce in other nations than court verdicts. In most legal systems, including Ethiopia, there are very limited avenues for appealing an arbitral award, which is sometimes an advantage because it limits the duration of the dispute and any associated liability. Hence Arbitration is becoming the most preferable dispute settlement method, and Ethiopia also recognizes arbitration under Proclamation 1237/2021 and different other special laws like investment law.

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By Mahlet Mesganaw, Partner at DMLF

The Transaction of Minerals Ratification Proclamation No. 1144/2019 governs the transaction of minerals resources after production. The Proclamation covers all transactions of minerals produced from all mining operations conducted in Ethiopia. The FDRE Constitution provide that the rights to ownership of all natural resources of Ethiopia is exclusively vested in the government and its people. Accordingly it has become necessary to regulate the transaction of minerals by a proclamation. We shall briefly look into the competency requirements, licenses required, eligibility, duration of licenses and a brief conclusion shall follow.

Authority and Ministry

The licence issuing Authority and the Ministry mentioned in the Proclamation are the Ministry of Trade and Regional Integration and the Ministry of Mines, respectively. These Federal organs issue mineral refining, smelting for metallic and associated minerals and mineral exporters certificate of competence. Licences and certificates other than the once given to the authority or Ministry are given by the Regions.

Certificate of Competence 

To transact minerals, a person has to qualify to carry out the trade. The following certificates of competence (coc) may be requested and upon fulfillment of the requirements, issued : a) mineral supplier coc, b) mineral crafting coc, c) mineral refining coc, d) mineral smelting coc, d) mineral transaction coc and f) mineral export coc.

Licenses

Any person who wishes to trade in minerals shall present a coc and shall be issued with the following License : a) mineral supplier licenses b) mineral crafting license c) mineral refining license d) mineral smelting license d) mineral trade license and e) mineral export license.

Eligibility 

Among the Licenses referred above, mineral supplier license or gold and silver smelting license shall not be issued to foreign investors. A holder of a mining license shall not be issued with a supplier licence. Similarly regarding eligibility for coc, mineral transaction or export certificate of competence shall not be issued to foreign investors.

Duration and Renewal 

Any license or coc shall be valid for one year from the date of issuance subject to renewal upon fulfillment of the requirements.

In conclusion, the Transaction of Minerals Proclamation aims to modernize the mineral transaction scheme so as to create proper structure that enhances the contribution of the mining sector to the economy of Ethiopia. The Proclamation also enables investors engaged in mineral transactions perform their rights and obligations as per the rules and regulations.

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By Dagnachew Tesfaye, Managing Partner at DMLF

The National Payment System Proclamation No 718/2011 has been amended. The amendment proclamation is the National Payment System(Amendment) Proclamation No 1282/2023. The latter Proclamation was made in Addis Ababa, on February 3/2023. The objective of Proclamation 1282/2023 is to accommodate the developments, changes and innovations in the National Payment System. Since the amendment Proclamation, the National Bank of Ethiopia (NBE) has issued Licencing and Authorization of Payment Instrument Issuers Directive No ONPS/09/2023, effective as of October 6,2023. Regarding payment system operators, the Licencing and Authorization of Payment System Operators Directive No ONPS/02/2020 govern the operators. A brief overview of these laws shall be dealt hereunder.

Payment Instrument Issuer and Payment System Operator

The National Bank of Ethiopia is entrusted to regulate the sector. The NBE shall receive any application from any interested party to be a payment instrument issuer or payment system operator. Payment Instrument Issuer can be a company, or a government owned enterprise or a bank or micro finance institution authorized by the NBE to issue payment instruments. Whereas a Payment System Operator could be a financial institution or any other company licensed or authorized to establish and operate a payment system including routing, matching, clearing, netting and settlement of payment instructions or government securities.

Licencing and Authorization

Among several general requirements, some of the sector specific requirements shall be the focus. A business organization that wishes to acquire a license for payment instrument issuer or a payment system operator shall be obliged to form a subsidiary company exclusively for the business objective of performing payment system operation or payment instrument issuing. The applicant should fulfill minimum paid up capital.

The NBE has put a minimum paid-up capital of ETB 50 million or its equivalent in foreign currency for payment instrument issuer on Directive No 09/2023 Article 4 sub-article( 5).The  contribution has to be in cash.  The cash has to be deposited in a blocked account in a bank in the name of the payment instrument issuer. NBE shall respond to such applications within 60(sixty days).

Similarly, according to Directive No ONPS/02/2020, an applicant intending to be licenced as a payment system operator shall be established as a company, have a minimum of 10 shareholders to operate more than one system, capital of not less than ETB million if it is a switch, ETB million capital, if it is an automated teller machine operator, ETB 10 million capital, if it is a point of sale device orator and ETB 3 million if it is a payment gateway operator.

The national switch operator on the other hand is required to have ownership by a person limited to 40%. The national switch operator shall be only owned by financial institutions and the NBE. The ownership by a natural person is limited to 1 share at the time of entry and have 1 more share every time new shares are sold thereafter. When the ownership is by an institutional shareholder other than the NBE, the ownership is limited to 5%. The national switch operator shall have a paid up capital of ETB 300 million.

Foreign Nationals

Foreign Nationals may be allowed to engage in a payment instrument issuer business or a payment system operator business. Such foreign-owned companies are required to raise capital fully in foreign currency. In the case of collaboration with Ethiopians, the foreign partners are required to contribute in foreign currency to the extent of their aggregate percentage holding.

Investment Protection Fee

Investment Protection Fee has been defined in the Proclamation 1282/2023 as an amount of money paid to the government by foreign nationals who invest in businesses that are reserved for domestic investors only. Hence the foreign-owned company is required to pay not only a licence or authorization fee but also an investment protection fee. The NBE shall determine from time to time the amount of the investment protection fee.

Rejection of Licencing

The NBE may reject an application for authorization or licensing for payment instrument issuer and payment system operator. These rejection points have been included in NBE Directive No. ONPS/09/2023 and NBE Directive No.02/20 . Such a rejection is appeal-able.  

Pilot Trial and Grant of Licence

Based on the result and assessment of pilot trial period of 30 -60 days for payment system operator and 6-9 months for payment instrument issuer, the NBE may grant full licence.

In conclusion, the amendment in the proclamation and issuance of Directives on the payment system signifies a big step in Ethiopia’s endeavour to improve and innovate the financial regulatory landscape.

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