Warehouse Receipt System in Ethiopia: Its Legal and Practical Significance with Emphasis on its Role in Securing Transactions

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Date

2011-12

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Addis Ababa University

Abstract

Agriculture constitutes the backbone of the Ethiopian economy; not only it attracts 90% of the Country’s export earnings but it also employs 85% of the Country’s labor force. In spite of its promising potential, the agricultural marketing system is underdeveloped and it is still in its traditional rudimentary order. Lack of rural access to finance is the fundamental problem hampering production, productivity and income of rural farm household. Financial institutions consider lending to small farmers risky (due to farmers’ lack of adequate collaterals) and costly (due to high transaction costs). In this Thesis, WHR system is suggested as an innovative mechanism that can rectify the marketing and financial problems of the agricultural sector by facilitating the conversion of inventories of agriculture into a readily tradable Device, commonly known as WHRs. The receipts can be used either as collateral to access credit or as channel for dealing with the underlying commodities. Generally, a well functioning system of WHRs provides higher prices, accurate weights and measures and credit to agricultural producers including smallholder farmers. It is also advantageous for lending institutions as it provides them secure & easily liquidated form of collateral. Despite its half a century old legal rules governing the system, Ethiopia has never been able to establish an effective WHR system and reap its benefits. Among the various legal and institutional bottlenecks capping the implementation of the system in Ethiopia, lack of active supervisory/regulatory body, absence of secondary legislation supplementing the WHR System Proclamation and the National Bank of Ethiopia’s Bills Market Directives (which has influenced banks to divert to long term loans) are the major ones. There are also challenges associated with the legal framework of the ECX warehousing business. In this Thesis, it is argued that besides creating conducive policy environment to the expansion of the warehousing industry, building a uniform legal framework of WHRs system that is enforced by a national regulatory body is crucial to tackle the existing challenges. Moreover, the core activities that should be performed by the government, lending institutions and other stakeholders towards realizing the implementation of effective WHR system are outlined. Finally to highlight on the structure of the Thesis: the first chapter focuses on methodology and the second chapter provides general background of WHR system in the world and in Ethiopia. In the third Chapter the legal framework of Ethiopian WHR system is closely analyzed. The forth chapter is devoted to legal and practical aspects of collateralization of WHRs. Finally, concluding remarks of the writer are presented together with some recommendations.

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Agriculture constitutes, the backbone of the Ethiopian economy

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