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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. 1