Boom in business deactivations in Ethiopia needs state investigation

Despite being one of the most rapidly growing economies in Africa, the number of registered business licenses in Ethiopia is low and further declining. According to Melaku Kinfegebriel at Noble Consulting Solution, the scenario is one that merits investigation from government authorities.

Currently, there are just over 91,000 active business licenses across all of Ethiopia, most of which operate in the capital city of Addis Ababa. What is stirring conversation amongst observers is the staggering number of business licenses that are being deactivated by business owners on an annual basis.

In the last year alone, nearly 740,000 business licenses have been deactivated across the East African country, which is more than seven times the number of active businesses. The number of closures is rapidly on the rise, given that the number of deactivations in 2014 stood at just over 260,000.

Ethiopia is one of the most rapidly growing economies in Africa, and is among those driving growth in the lucrative region of East Africa. The country has been engaged in concerted efforts to increase exports and boost domestic economic growth, but has been frustrated in its results.

Exports have only fallen, and Ethiopia’s ranking on the World Bank’s global Ease of Doing Business index lies below 150th. According to Melaku Kinfegebriel of Noble Consulting Solution, the deactivations might be indicative of illicit business activities that avoid registration to avoid taxes.

“I think implementation of digital biometric identification at national level can help fight such fake businesses. But the government also needs to make easy doing business in Ethiopia by conducting proper study,” says Kinfegebriel. “The figures are surprising. One can’t cat expect less than 100,000 active businesses in a country with over 100,000 million population. This tells a lot about the business climate of the country as well as the behavior of the business owners,” says Kinfegebriel.

“The government also needs to do more investigations why over 700,000 businesses – seven times more than the active businesses – decided to deactivate their licenses in just one year. I know many people setup a company to do one time business and return the license. But the figure is alarming and tells the government to sit down and find out what causes businesses to deactivate licenses. Otherwise, it will be hard for the government to boost its tax collection as well as improve the current not so good doing business ranking of Ethiopia,” he adds.