An amendment to the National Payment System Proclamation No. 718/2011 was recently published on the Negarit Gazette. The changes under Amendment Proclamation No. 1282/2022 (Amendment NPS Proclamation) were necessitated to enhance the regulatory framework for new developments, changes, and innovations in the National Payment System. It is to be recalled that Ethiopia has introduced several financial sector reforms, to amend its financial sector policies and open up its financial market to foreign investment.

17 February 23

Electronic payments have grown at a record rate in many African nations. The future of payments in Africa is being influenced by a combination of favourable demographic and economic trends, technological innovation, and improvements in the payment infrastructure. With the introduction of the Ethiopian Automated Transfer System in 2011 and the enactment of the National Payment System Proclamation No. 718/2011, Ethiopia’s payment systems also experienced a radical transformation. The first move towards compatibility in digital payments was inspired by the establishment of the national switch in 2016 which will establish a unified platform for electronic payments once it is put into use. As part of the National Digital Payments Strategy (NDPS) for 2021–2024, Ethiopia has planned a comprehensive digital transformation that has enormous potential benefits for its citizens. To support a cashless and financially inclusive economy, the strategy calls for creating a secure, competitive, efficient, innovative, and responsible payment infrastructure. The Amendment NPS Proclamation is now an important step in realising these objectives of the country.

The Amendment NPS Proclamation has introduced several changes to the different sections of the Proclamation and the powers of the National Bank of Ethiopia (NBE). However, the major change of the Amendment Proclamation is the opening of the sector to foreign nationals. The Amendment Proclamation, under article 6 (7), has allowed foreign nationals to invest as a payment instrument issuer or a payment systems operator in Ethiopia or establish a subsidiary which shall be licensed as a payment instrument issuer or payment system operator. In order to register for these services, foreign nationals will have to follow the licensing procedures provided under the Amendment Proclamation and which will be further regulated by the directives of the NBE.

The Amendment NPS Proclamation also sets rules to be followed by foreign investors. Foreign nationals and Ethiopian organisations fully owned by foreign nationals are required under this new law to invest in payment instrument issuer and or a payment systems operator business only through foreign direct investment, in foreign currency. Similarly, this requirement also extends to Ethiopian organisations partially owned by foreign nationals.

Now that the amendment is in force, the National Bank is expected to issue a directive on licensing and authorisation which will govern licensing and authorisation fee and the information to be submitted by the applicant and other conditions required for licensing or authorisation. In addition, based on the Amendment NPS Proclamation, NBE may prescribe, by a directive, conditions in relation to the employment of staff, outsourcing and the relationship between a parent company and a subsidiary of a payment instrument issuer or a payment system operator fully or partially owned by foreign nationals. A lot remains on how these directives go about setting the rules of implementing the basic rights accorded to foreigners under the Amendment NPS Proclamation.

An Amendment to the Public/Private Partnership Proclamation is Published
The House of Peoples’ Representatives ratified the Public-Private Partnership Amendment Proclamation on 22 December 2022 which amended the Public Private Proclamation No. 1076/2018 (PPP Proclamation). The amendment proclamation is now published as Public Private Amendment Proclamation No. 1283/2023 (Amended PPP Proclamation). The explanatory note submitted to support the need for the amendment clearly states that the amendment is necessitated by practical observations on the ground since the PPP proclamation became effective.

The first and most paramount reason was the time it takes to get projects started under the PPP framework, especially the time the bidding process takes. The second and related reason is the unsatisfactory level of preparation of the projects in accordance with the demanding requirements of the PPP proclamation. The amendment intends to give the privilege for the government to secure PPP projects through direct negotiation when it is clear that doing so will be in the interest of the public or address key infrastructure needs.

The major change of the Amended PPP Proclamation is the introduction of a direct negotiation mechanism whereby the Public-Private Partnership Board may endorse the implementation of a project proposal in accordance with the understanding reached through bilateral intergovernmental economic diplomacy or through direct contact with a foreign company with direct negotiation. However, in order to resort to direct negotiation, the public body/enterprise and the Ministry of Finance must approve the project’s significance and the board must be satisfied that the implementation of the project proposal results in the benefit of public service. Companies which desire to be beneficiaries of the direct negotiation mechanism are required to fulfil the minimum requirements set by the Amended PPP Proclamation.

Among others, a company requesting to hold a direct negotiation with the public body/enterprise is required to have experience in accomplishing three or more projects in the sector and evidence of good financial standing to demonstrate that it has the required financial and technical capability to deliver the project. The Amended PPP Proclamation has also excluded from the scope of application of the PPP Proclamation businesses are carried out by an equity joint venture between a public enterprise and a private investor or a foreign government or a public enterprise of a foreign government.

The Amended PPP Proclamation could be seen as a step in the right direction to the extent that it will add pace and efficiency to the procurement process and attracts quality developers. On the contrary, it may also be considered a step in the wrong direction to the extent that it opens a room for below-standard procurement practices, unreliability, and lack of confidence in the system of awarding important projects and attracting no credible developers.

Should you have any questions on this legal alert, please do not hesitate to contact Mesfin Tafesse