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