Presentation on theme: "Joint Ventures, Prospects and

Challenges in Ethiopia"— Presentation transcript:

1 Joint Ventures, Prospects and Challenges in Ethiopia
Ethiopia’s experiences and practices in promoting joint ventures, the challenges and the way
forward. By Yohannes Woldegebriel Director, Arbitration Institute Addis Ababa Chamber of
Commerce and Sectoral Associations

2 “If you can't beat 'em, join 'em. Two heads are better than one
“If you can't beat 'em, join 'em. Two heads are better than one. United we stand.”

3 JV Defined Legal Definition Black’s Law

“A business undertaking by two or more persons engaged in a single or defined project”. It could
also be defined alternatively as “An agreement to conduct business for a single defined project or
for a specific purpose to earn profit or share losses.”

4 JV explained under investopedia

...JV Defined JV explained under investopedia JVs represent a great way to pool capital and
expertise and reduce the exposure of risk to all involved. JV present some unique challenges as
well. For instance, if party A comes up with an idea that allows the JV to flourish, what cut of
the profits does party A get? Does the party simply receive a cut based on the original investment
pool or is there recognition of the party's contribution above and beyond the initial stake?

5 JV Contrasted with other Joint efforts

Joint ownership, tenancy in common- lack feature of adventure Alliance-much less rigid
arrangement Syndicate- association of individuals to conduct business often financial character.
Franchise – right granted by trademark/name owner without sharing profit/loss. Consortium-
association of persons intending to participate in common activity and achieve common goal.
Sub-contracting –an independent contractor employed to carry out certain work on his own way.

6 JV Contrasted with Partnership

Lack of Legal Personality Secrecy nature Limited purpose/duration Joint management by
partners-joint management of the joint venture Personal nature of the relationship- not
transferable. Fiduciary Relationship-parties are required to maintain the strictest loyalty.
Informality –it could be formed in writing, orally or otherwise. Non-continuity with death,
incapacity, bankruptcy.

7 Types of Joint Venture Contractual joint venture- arising from agreements of the parties.
Partnership joint venture- partners are jointly and severally liable to the fullest extent possible.
Corporate joint venture- a separate legal entity in which participants are shareholders.

8 JV from ownership stand point

Public-private joint venture Private-private joint venture Full junction joint venture -created by
the merger of existing businesses Non full function joint venture- sort of cooperative joint
venture
9 JV From Jurisdiction stand point
International Joint Venture Domestic Joint Venture

10 Advantages of JV Flexibility in formation.

Management is shared among participants. One or other partners can procure loan to the JV due
to credit worthiness and enable the JV to get needed financial resource. Profit and losses are
shared. JV do not pay corporate income tax.

11 …Advantages of JV Capital. Technology and knowhow.

plant, machinery and equipment. Foreign engineers and technical personnel foreign technical
expertis. Management technique. Sourcing of raw materials as an input to the JV. Marketing of
the JV products particularly exported products.

12 Disadvantages of JV Liability is unlimited.

Liability is unlimited. There is joint and several liability. Lacks continuity. Interest not
transferable.

13 JV under 1960 Commercial Code

JV Under Ethiopian Law JV under 1960 Commercial Code Contractual JV under the
Commercial code involve elements of agreement ad hence it appears that there is an emphasis on
contractual terms of JV parties. Business Organization While the contractual element of JV is
quite emphatic, the also provide that JV is also a business organization and not mere contractual
relationship. Accordingly it is provided under the code that JV is one among the six types of
business organizations under Ethiopia’s commercial code. However the following features if JV
militate against JV’s classification under business organizations. Secrecy- JV need not be known
to third parties Informality- need not be in writing, register or publicized. No legal personality of
its own. No name of its own.

14 …JV Under 1960 commercial code

Other Features Applicability of principles of partnership Joint Venture “is subject to the general
principles of law relating to partnerships” and 272(4) of the Ethiopian commercial code(ECC).
The extent of liability of Joint Venture partners as between themselves can be limited by their
memorandum of association (Article 276(2), but the liability of the manager to third parties is
full and unlimited (276(1) (ECC) partners who take part in the management of the business shall
be jointly and severally liable as between themselves and with the manager (Article 276(4)
(ECC).

15 JV Under Ethiopian Law Corporate ‘Joint Venture’

As much as JV is a contractual arrangement under the Ethiopian Commercial Code, it should be
noted that the code does not rule out the formation of corporate JV by choosing the following
legal forms- partnership, private limited company, or share company. The following are,
however, the natural legal ramifications; if two or more joint venture partners form a registered
ordinary or general partnership, then the liability of the partners will be joint and several If the
joint venture partners form a limited partnership, then some of the partners (i.e. the general
partners) will assume full, personal, and joint and several liability whereas the limited partners
will be liable only to the extent of their contributions. the joint venture partners form either a
private limited company or share company, then their liability will be limited to the extent of
their contributions.

16 JV Under The Dergue Regime

International joint ventures were more common during the period of the Cold war where western
firms, were interested to do business with communist countries behind the “iron curtain” and
other closed countries. Such joint ventures were mostly between western firms and state
enterprises. Two Major JV Legislations Joint venture Establishment Proclamation No. 235 of
1983. Joint Venture Council of State Special Decree No. 11, 1989.

17 … JV Under The Dergue Regime

Parties to JV Ethiopian State, state enterprise or financial agency capital on one hand a)and
foreign state, state enteprise, financial agency or private capital on the other. B) between
Ethiopian State, state enterprise or financial agency capital and Ethiopian cooperative or private
capital on one hand and foreign state, state enterprise, finacial agency or private capital, jointly
or severally on the other. Art.

18 … JV Under The Dergue Regime

Other major features of JV JV commence operation upon registration by authorised public office.
JV is entitled to be granted license or permit. JV may in its own name, enter into contract,
acquire ownership rights, undertake obligations, sue and be sued, use and dispose of its property.
Shareholders of the JV were liable for the JV liabilities only to the extent of their sharholdings
and commitments in the JV.

19 JV under the New Investment law Proclamation no 769/2012

Areas of investment that may be carried out jointly with government - 1. Manufacturing of
weapons 2. Ammunitions and 3. Explosives that may be used for producing weapons. Telecom
Services. Capital requirement Minimum capital required for a foreign investor investing jointly
with foreign with domestic investor shall be $150,000 The Minimum Capital required of a
foreign investor investing in architectural or engineering works or related technical consultancy
services, technical testing and analysis or in publishing work shall be USD 50,000 if the
investment is made jointly with domestic investor.

20 JV under the New Investment law Proclamation no 769/2012

Industrial Zone Industrial zone development shall be undertaken by the federal government or
where deemed necessary, by joint investment of government and private sector JV Contrasted
with “Kinijit” The emphasis in the proclamation is only about the joint investment in its literal
sense, and this sense can be further evidenced by the Amharic version of the corresponding
article, which uses the word “ቅቅቅቅ” rather than the term “ቅቅቅቅ ቅቅቅቅ” as used in the
Commercial Code Amharic version.

21 JV Under Public Procurement Law

JV under public procurement and Property Administration Proclamation This proclamation
envisage some sort of public private joint venture (public private partnership investment through
the private sector participation by a contractual arrangement between public body and a private
sector enterprise as the concessionaire In which the concessionaire: a) undertakes to perform or
undertake any construction project or service or lease concession; b) assumes substantial
financial, technical and operational risks in connection with the performance of a public function
or use of government property; and c) receives consideration for performing a public function or
utilizing government property, by way of fees from any public funds, user levies collected by the
concessionaire from users or customers for a service provided by it, or a combination of such
consideration.

22 JV Under Public Procurement Law

The Minister of Finance and Economic Development may issue directive prescribing the rules
governing the formation of Public Private Partnership and the modes of implementation of such
partnership.

23 The way Forward for JV A unified and integrated body of rules governing ‘joint ventures’
and responding to the current needs of JV is highly demanding different rules and practices
undertaken in various areas must be avoided. the idea of ‘secrecy’ as one legal element for the
joint venture arrangement should be retained but another type of JV that can be disclosed should
be allowed. limited liability joint venture for limited or specified projects with a legal personality
should also be introduced in our legal framework with flexible legal requirements for its
formations different from the requirements of other forms of business organization, and also with
all the necessary solid corporate governance structures and protective clauses for minority
shareholders to ensure their right for joint management. tax laws should be revisited to
accommodate tax liability issues to be raised in case of ‘joint venture’ companies, particularly
flexible tax structure should be put in place to enable corporate joint venturers to pay their own
profit taxes independently to avoid double taxation. The ne laws of should also allow flexibility
in formation.