The response of the Ethiopian federal government to the economic impact of COVID-19 on businesses has so far been to relax tax burden through Tax Relief Directive No. 64/2012. However, tax relief is beneficial only if a business makes income which currently is much harder as the pandemic is disrupting the performance of privet contracts. Businesses all over the country are experiencing reduced demand, late payments, depressed revenue and overall disruption in supply chine. Similarly, all members of the public with privet contracts i.e. employees, tenants, farmers, homeowners and others face the prospect of defaulting on their obligation. The government has so far refrained from interfering with the terms of contracts. One exception is the Federal Housing Corporation (FHC) in Addis Ababa which has announced a 50% reduction of housing rent due to the pandemic. On the contrary, other countries like Belgium have passed temporary measures to protect debtors affected by the pandemic from creditors by imposing a moratorium on creditors’ rights to enforce debts, terminate or dissolve existing contracts and initiate bankruptcy proceedings.
This blog is not about the merits or demerits of any potential government actions in contracts, rather on the impact of COVID-19 on debtor-creditor relationships as per the preexisting law of Ethiopia and provided there is no contractual provision to deal with such issues. It especially focuses on excuses available for debtors to successfully navigate out of contracts made physically or commercially impossible by the pandemic.
- Re-negotiation Vs litigation
There are many factors that can be considered to objectively measure and compare different paths to justice i.e. monetary costs, opportunity costs, and intangible costs. In general, monetary costs include items like lawyers’ fees, administrative or court fees, and bribes and other unofficial payments that are common in Ethiopia, opportunity costs refer to missed opportunities or lost income that results from the time and energy spent on one activity like litigation, and intangible costs refer to the negative effects on parties emotion, reputation, and ongoing business relationship.