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SOME THOUGHTS ON ETHIOPIA’S FINANCIAL SECTOR CORPORATE GOVERNANCE AND
SOME OF ITS IMPLICATIONS IN A GLOBALIZING ENVIRONMENT
THE CASE OF THE INSURANCE SUB-SECTOR
SYNOPSIS
Though there is no universal consensus on either the definition or applicable model of Governance, there is
nevertheless general agreement that as a concept, it is an age-old phenomenon which has evolved over
centuries and will continue to do so in the future. It is no more confined to the narrow meaning of the act or
manner of governing, of exercising control or authority over the actions of subjects; or the exercise of political
power to manage a nation's affairs. Driven by several factors, social, economic and environmental, it has come
to mean the manner in which power is exercised in the management of economic and social resources for
sustainable human development. And corporate governance as applied to companies/businesses and defined
within local laws, regulations and national priorities are increasingly challenged by circumstances and events
having an international impact partly coming from the globalization of the market place. It encompasses the
entire exercise of power by a company/corporation in the stewardship of its total portfolio of assets and liabilities
such that it maintains and increases shareholder value while satisfying the needs of all its other stakeholders:
customers, employees, business partners, governments, local communities, the general public and the
environment. . While it could be argued that the two are not mutually exclusive and there in fact exists a degree
of osmosis taking place all the time, there is general agreement that where there exists good public governance,
there is a fair chance that there will exist good corporate governance with one continuously reinforcing the other.
The insurance industry in Ethiopia is supervised by the National Bank of Ethiopia. Like in many so called
transition economies, there are special features that affect the evolution of good corporate governance. In such
environments, there is excessive reliance on government, which provides a fertile ground for rent-seeking
initiatives, which could be more profitable than productive activities - more profits by obtaining privileges in a
system characterized by continuing government intervention than by taking risks to restructure old, inefficient
industries or starting up new ones. In such an environment, therefore, good corporate governance will have to
be an outcome of organic transformation of society in which reward is earned by those who deserve it and not
bestowed upon political cadres and loyalists.
It has resisted advice that insurance supervision could benefit more were it to be undertaken by a specialized
Commission/Authority/Agency under a Board that would include a representative of the Industry. Its impartiality
in enforcing fair competition (same rules of the game/level playing field), especially in a market where the federal
government and political parties who form part of the ruling coalition have established their own banks and
insurance companies and become major players in the industry, had come under question on several
occasions. There cannot be a more telling/naked admission than Article 3 – Scope of Application the nation’s
Insurance Corporate Governance Directives No. SIB/42/2015 which reads:
3.1 These directives shall be applicable to all insurers operating in Ethiopia.
3.2 Notwithstanding sub-article 3.1 of this article, application of these directives to an insurer owned by the
government may be with due consideration of other applicable laws.
While fully recognizing the special personal facilitation and logistical support extended towards the industry’s
efforts to establish a national reinsurer, the Authority’s ultimate decision to impose a 5% compulsory legal
cession on direct insurers against a written appeal by the Association of Ethiopian Insurers not to do so
was nothing less than an unfortunate demonstration of lack of competence on the one hand and
bureaucratic arrogance on the other.
It is with both sincere apology to individuals and deep regrets that I consider the present supervision
dispensation of the insurance industry poorly equipped that continues to manifest a conspicuous gap in
expertise matched only by an attitude of bureaucratic arrogance.
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