In the ordinary parlance, “trust” denotes assured reliance, dependence and confidence placed on someone or something. Black’s Law Dictionary define the word “trust” as “the right enforceable solely in equity, to the beneficial enjoyment of property to which another person, [the trustee] holds the legal title. The establishment of a trust by the creator called a settlor or grantor, detach and transfer the proprietary rights thereof and allow its legal separation from its creator. Even though it is qualified, it offers legal title for the trustee to exercise the right to invest, acquire property, sue and be sued for the ultimate benefit of a third person known as beneficiary. Such legal arrangement of creating a trust can be revocable or irrevocable depending on the interest of the settlor and the trust may be established by donation while he/she is alive or by a will to be enforceable after death.

A trust is “an institution,” according to Ethiopian law, in which property or business is constituted as an “autonomous entity” by the settlor in a carefully crafted and written legal instrument or deed, describing the settlor, the nature of the property, business, interest or money, clearly designating the person or persons entrusted with the responsibility to administer it and a clear designation of beneficiaries that are entitled to enjoy the fruits and benefits therefrom. Under Ethiopian law, a trust is constituted not merely for the benefits of “any person” but also to an “action or Idea” provided it does not offend public order or morals.1

According to Margaret Ryznar,2 there are three types of trusts: business trusts, charitable trusts and private trusts. She also asserts that before the advent of corporate law, “many businesses were run out of trusts and today, many sectors continue to be run out of trusts including mutual funds, asset securitization and pension funds.” Therefore a “trust” is still the most relevant, dependable and reliable institution that is used to manage and administer properties, resources, including lifetime savings and retirement benefits, among others.

The development of modern business in general and family businesses in particular, have comparatively short history in Ethiopia that spans less than a century. Even in such brief periods, Business and businesspersons were subjected to various kinds of traumatic experiences, suffered stereotype, mistreatment, and alienation. Businesspersons were also considered among the Ethiopian society with low esteem. In contrast, the Kings (the rulers), the Clergies, the Farmers and other related activities, were highly honoured and respected occupations.

As a result, it required the intervention, strong stewardship and exemplary initiatives of progressive modern Emperors and members of the ruling circle to break the taboo and even encourage aristocrats and the common population to support, involve and engage in business activities of one sort or another. In 1931, Emperor Haile Selassie took the lead in acquiring shares of the Bank of Abyssinia, with other members of the aristocracy following his example to secure full ownership of the bank. Following the end of the Italian occupation, Ethiopia witnessed new era of peace and stability that provided along with its suitable condition for the growth and expansion of businesses.

"The establishment of a business trust which was experimented in some properties and businesses in Ethiopia, require appointed trustees in the course of running and administering each property or businesses to be “like a prudent and cautious businessman.” "

Modern marketing, trading of various kinds of local products, retail and wholesale merchandises, import and export of goods, handicrafts and small-scale industries were expanded and attracted large number of foreigners to make use of the huge untapped opportunity Ethiopia had provided. With a highly incentivizing investment policies of the Imperial period in place, a sizable upsurge of Yemenis, Indians, Greece, Armenians, Italians and other foreign communities began to predominate almost all modern business activities.

Since 1940s, some Ethiopian personalities started to gradually emerge in the business scene and begun to play modest roles. From the end of the 1950s well-over to the 1960s, significant number of notable businessmen and family businesses sprouted giving rise to popular and highly adored household names in various sectors. Very successful businessmen and family businesses, chief among them, Dejazmatch Gonafir, Mamo Yinberberu (Kacha),Tedla Desta, Kedir Eba, Mekonnen Negash, Haji Ture, Mohammed Oxediy, Teka Egenu, Debebe Habte Yohannes etc… became pioneer individuals that have set and elevated the scale of Ethiopian businesses.

The promising expansion and growth of the predominantly foreign owned companies, the infantile family businesses run by mixed foreign and Ethiopian citizens and the entirely Ethiopian nationals owned businesses that had engaged in numerous large and small scale service, industrial and agricultural sectors however, suffered sudden and unparalleled blow that herald the demise of the growing private sector of the Hailesellassie Era that had registered remarkable growth along with carefully crafted policy frameworks that emphasized indigenous ethos, built, nurtured and firmly rooted on Ethiopianized foundations.

Joachim Schwass, on his book, “Wise Growth Strategies in Leading Family businesses,”3 distinguish three typical family businesses archetypes: Ephemeral family business, Preserving family business and Entrepreneurial family business. He further clarifies that Ephemeral family business is typically a single generation business with no structures or a business which fails during the early stages of the second generation: Preserving family business may have survived over several or even many generations with simplifying structures and an Entrepreneurial family business embrace complexity based on families growing over multiple generations and address the diverse needs of the growing family.

"A business administered by designated trustees also shields and effectively protects the business from short sighted rivalries among beneficiaries and helps ensure the continuity of the business."

Most family businesses, that were born and grown during the pre-revolution (1974) period, falls and plausibly classified into what Joachim described as Ephemeral family businesses, built on the entrepreneurial skill, knowledge, and perseverance of the family head, often faced demise after establishing, operating, and expanding. In most cases, their downfall was triggered by ideologically driven communist policies and unfriendly economic conditions that stifled the growth of the budding private sector in general, and family businesses in particular. 

Decades later, the resurgence of family businesses in the post-Derg era has been plagued by a web of bureaucratic hurdles, numerous legal challenges, lingering communist stereotypes against the private sector, unclear and tangled policy frameworks, inadequate resources and capacity, property insecurity, and the absence of a lasting business ethos or practices to build upon.  

It is not uncommon to witness the sudden, unhealthy emergence of family businesses that briefly flourish, only to face crises and collapse soon after. This cycle of rapid birth, growth, and demise, followed by rebirth, has become a prevalent feature of the Ethiopian business landscape, seen as a normal course of evolution rather than hallmark of healthy business manifestations stability, continuity, institutionalized and sustained existences.

Several factors may be attributable to these scenario starting from external causes, including hostile policies and lack of conducive environment in the conduct of business to internal crisis that often flare up after a partner or an individual founder death or disablement to failure of heirs or successors to uphold vision and maintain the heritage of the entrepreneurial skills to operate as the founder and eventually causing the bankruptcy and the closure of the business. Most businesses are usually caught by surprise to such development and become unable to cope up with and adopt to new situations and circumstances due to lack of institutionalization, absence of creative readiness for plan B and lack of planning during sudden events. 

After the demise or disablement of a partner or founder of a family business, it has become an ensuing and concomitant reality for heirs to unleash disputes, indulge in prolonged litigations that may last for decades, and drain resources accumulated during the prosperous years, prioritizing immediate self-interest over the long-term growth and expansion of the business, whose survival could have benefitted many. 

The Ethiopian Civil Code of 1960 instilled the legal regime of “Trust Institution” by incorporating standardized rules4 drawing from the best experiences of other developed legal systems. These rules theoretically offer unique legal formulation of properties and rights arising therefrom, including businesses to be divested and set aside from its owner to be independently constituted as an autonomous entity for the benefit, protection and sustenance of designated persons, ideas and action. The establishment of a business trust which was experimented in some properties and businesses in Ethiopia, require appointed trustees in the course of running and administering each property or businesses to be “like a prudent and cautious businessman.” The phrases prudent and cautious businessman imply wisdom, judiciousness, the ability to forecast and predict. It also presupposes knowledge and exercise of reasonable power by a trustee to apply his entrepreneurial skills and experiences of managing the trust.

"The ownership title that trustees exercise against the beneficial ownership of the beneficiary also thwarts any threat against the existence and normal operation of the business from any creditors who might demand from the settlor."

In addition to this, the trustee is bound to maintain fiduciary duties and must always act, in the best interest of the beneficiary. The trustee cannot mix up the trust business or property with his property or business and can only draw personal advantage for his work from the trust administration as expressly indicated and determined to him in the trust instrument.

A business administered by designated trustees also shields and effectively protects the business from short sighted rivalries among beneficiaries and helps ensure the continuity of the business. The ownership title that trustees exercise against the beneficial ownership of the beneficiary also thwarts any threat against the existence and normal operation of the business from any creditors who might demand from the settlor.

Among the numerous reasons why the institution of trust and the rules are required, it has been laudably emphasized in most literatures that such institutions “protect assets in times of adverse political events i.e. wars, excessive expropriation, social or political persecution.” 

Ironically, the mounting social, political and economic upheavals that has caused revolutionary change the Ethiopian nation underwent 14 years after the adoption of the civil code, highly resonated the relevance and importance of the adoption of trust in the legal system. However, there were only numbered businesses (one of such a prominent example was the Wabi Shebelle Hotel S.C.) that had made use of the system of trust institutions to run the business by appointed trustees. And even with such foresighted legal arrangements, this company was not spared from being swept by the tides of revolutionary waves of illegal confiscation. Notwithstanding that this business could not be rescued from the onslaught of the revolutionary measures, it was the same legal formulation of the trust institution that shielded the beneficiaries from losing the property and enabled them to get back several decades later, the ownership as well as the business from a regime that was utterly recalcitrant to forego what the revolution had gifted to it.

Family businesses are extremely important and exist in all developed and developing economies. The support and protection given to such businesses provide huge dividends to the national economy by reducing unemployment, helping job creation and contributing to the revenue of the state and tax payment. While the management and conduct of business activities lies on each individual efforts of business owners, they require appropriate supports in terms of legal safeguards and protection from dying out by internal squabble among heirs upon the death or disablement of founders and the trust rules under the Ethiopia Civil Codes offer a practical alternative and it is time that it needs to be seriously enforced, widely used, reactivated, popularized and provided with appropriate sanction by concerned regulatory bodies.

1. 1. Article 518 of the Ethiopian Civil Code, 1960.
2. 2. EBSCO Publishing : eBook Collection (EBSCOhost), INDIANA UNIV - PURDUE UNIV AT INDIANAPOLIS, Page 1389-1391.
3. 3. Wise Growth Strategies in Leading Family businesses, Digital Printing 2006, Page 30.
4. 4. Articles 516-544 of the Civil Code of Ethiopia, 1960.

The views expressed in the article do not reflect the views of HST, its partners, and directors.