What’s in a name? How new reforms are easing entry into Ethiopia’s formal sector

In Ethiopia, registering a trade name-- a precondition for a business startup-- had long been one of the most cumbersome procedures of starting a new business. One had to make frequent visits to the Ministry of Trade with a number of potential trade names, which in most cases were routinely rejected for no clear reason. In one documented instance, an applicant had to submit eighty different names before he was issued a legally registered trade name. The inordinate amount of time that one would spend in the process had created a huge public outcry.
 
Thankfully, things have changed. The Ministry of Trade, with support from the World Bank Group’s Investment Climate Program, has issued a new, simplified, and modern Trade Name Registration Law.

Under the previous version of the law (Commercial Registration and Business Licensing Proclamation No.686/2010), requirements were almost impossible to meet. Your company name could not be descriptive. Nor could it be a generic term. It couldn’t be named after a river or a mountain. It couldn’t be named after your village or region. And so on.   
 
To make matters worse, provisions within the law were remarkably vague. Often, many requirements were confused with those necessary for trademarks-- a form of intellectual property that falls under a completely separate legal regime.
 
As a result, the entire procedure suffered from inconsistency of practice, arbitrariness, and a disproportionately high degree of subjectivity in processing trade name registration applications. Most were routinely turned down. 
 
Knowing how difficult it has been to become legally registered, firms and entrepreneurs have been driven into informality. Those that managed to register their businesses were often stuck with undesired trade names that didn’t reflect their values, and hence inhibited their growth.
 
Now, for the first time, a single directive issued by the Ministry of Trade covers the entire procedure. The new directive directly addresses the sources of many of the problems encountered under the old law. It also makes a clear distinction between company/legal names, business names, and trademarks. In addition, it provides practical examples and illustrations for each of the law’s provisions in order to help guide officers as they process trade name applications. As a result, the requirements for registering a trade name are now aligned with a clear and legitimate objective.

Applications are no longer rejected on the basis of vague and unnecessary provisions. The Ministry of Trade is required to register and protect any trade name, as long as it is not identical to or misleadingly similar to an existing one. Names also must not be deemed contrary to morality or public order. No more vague and burdensome requirements.
 
This is a very important response to the concerns of the business community-- foreign and domestic alike-- and it is a welcome relief to both registering officers and those seeking registration. The new directive is expected to simplify the process, help create consistency, and significantly reduce the time it takes to register trade names.
 
In parallel, the Ministry of Trade has decentralized the hitherto centralized trade name registration responsibilities to the major regions and towns. These changes will help foster formalization and encourage the creation of new businesses, particularly small and medium enterprises.
 
The Bank Group will continue to monitor the progress made in achieving these goals and work to quantify the savings achieved as a result of this reform.