Restrictions on Foreign Funding of Civil Society


The International Journal
of Not-for-Profit Law

Volume 12, Issue 3, May 2010

Debebe Hailegebriel

A. Types of Restrictions on Foreign Funding

The newly enacted Charities and Societies Proclamation (CSP) has a unique legislative history as a subject of fierce debate and contention between the Ethiopian Government, on the one hand, and Ethiopian civil society and other interested parties, on the other hand. The controversies surrounding the legislation are multi-dimensional and relate to various aspects of the Proclamation. The focal point, however, of much of the controversy has been the restrictions on foreign funding for civil society organizations (CSOs) in Ethiopia.

  1. The Nature of the Legal Restriction

The Proclamation contains restrictions on foreign funding that are fundamental to the definition, identity, and operational mandate of CSOs. Based on this standard, the Proclamation recognizes three forms or types of CSOs, which may be established as either charities or societies. These are “Ethiopian Charities or Societies,” “Ethiopian Resident Charities or Societies,” and “Foreign Charities or Societies.” The legal definitions of these categories are provided under Article 2 of the CSP as follows:1

1.) Article 2(2): “Ethiopian Charities” or “Ethiopian Societies” shall mean those charities or societies that are formed under the laws of Ethiopia; all of whose members are Ethiopians; generate income from Ethiopia; and are wholly controlled by Ethiopians. Here it should be noted that the law includes an exception to the general rule concerning the generation of income from within Ethiopia. Accordingly, organizations can still be considered “Ethiopian Charities or Ethiopian Societies” “if they use not more than ten percent of their funds which is received from foreign sources”2 (emphasis added). The 10% restriction relates to the use of foreign funds and not to the amount of foreign income the organization is receiving.

2.) Article 2(3): “Ethiopian Resident Charities” or “Ethiopian Resident Societies” shall mean those charities or societies that are formed under the laws of Ethiopia, and that consist of members who reside in Ethiopia, and that receive more than 10% of their funding from foreign sources.

3.) Article 2(4): “Foreign Charities” shall mean those charities that are formed under the laws of foreign countries or which consist of members who are foreign nationals or are controlled by foreign nationals or receive funds from foreign country sources.3 As one can observe, the criteria in this provision are outlined in the alternative, using the word “or” to indicate that if one of the distinguishing elements applies, then the organization is considered a “Foreign Charity.” Accordingly, an organization receiving funds from a foreign source could be classified as foreign charity even if none of the other criteria apply. This raises the question of the precise contours between “Ethiopian Resident Charities” and “Foreign Charities.” It is worth noting that the classification of “Ethiopian Resident Charities” and “Ethiopian Resident Societies” was introduced in the draft CSP as a compromise to labeling Ethiopians as “Foreign.”

The foregoing provisions indicate the significance and centrality of funding to the classification of charities and societies. These provisions make clear that the corporate citizenship of CSOs is not determined only by the law under which they are incorporated or the national composition or citizenship of their members. Rather, the decisive factor for entitlement to, or deprivation of, Ethiopian corporate citizenship is also the actual or anticipated source of funding. In other words, for a CSO to acquire Ethiopian corporate citizenship, it is not sufficient to be incorporated under Ethiopian law; in addition, the amount of funding received by the CSO from foreign sources must not be more than 10% of its overall funding. If it acquires more than 10% of its funds from foreign sources, then it is denied Ethiopian corporate citizenship.

The definitional distinction between Ethiopian Charities or Societies and Ethiopian Resident Charities or Societies acquires heightened significance, since it serves as the basis for eligibility for involvement in human rights and governance issues. As stated above, the CSP determines the nationality of a given CSO based on its source of income, and at the same time makes Ethiopian nationality (or corporate citizenship) a requirement for engaging in governance and advocacy activities.4 Organizations that receive more than 10% of their income from foreign sources are effectively excluded from working on the advancement of human rights, promoting the rights of children and the disabled, gender equality, nations and nationalities, good governance and conflict resolution, as well as the efficiency of the justice system.

  1. Early warning signals for the legal restriction

The enactment of legislation incorporating foreign funding restrictions as well as other restrictive provisions has been under consideration since 2003. Especially after the conflict between the prominent human rights CSOs and the Government on matters related to the May 2005 National Election, such a legislative initiative from the Government seemed imminent. However, the Ministry of Justice (MOJ), in its official explanatory document of the Draft Proclamation, provided a depoliticized explanation about the need for the new legislation. According to the MOJ, the initiative for drafting the new Proclamation sprang from the Business Process Reengineering (BPR) study, which was geared toward overhauling the operational structure and procedures of the Ministry.

Immediately after the 2005 National Election, the tone of the Government toward CSOs changed. The Government began denying not only the role and contribution of CSOs in the economic and democratic process but also the foundational principles of the sector. The Prime Minister and other government officials repeatedly asserted that only “mass-based organizations” such as women, youth, trade unions, etc. can play roles both in the democratization and economic development of the country. On the contrary, government officials blamed NGOs for being “rent seekers” and for contributing to the economic crisis of Africa. The ruling party, the Ethiopian People Revolutionary Democratic Front (EPRDF), has clearly indicated its hostile position towards NGOs since the 2005 National Election. In its policy document, the EPRDF questions the role of NGOs in the development process, and describes NGOs as patronage networks distributing “policy rents,” receiving big salaries and benefits without bringing concrete results, spending 60% of their budgets on administrative matters, strengthening a rent-seeking political economy, and thereby negatively affecting the development of the country.5

According to EPRDF policy document, which can also be considered a government policy document:

NGOs are not organizations established by citizens to protect their rights. These organizations are rather established by individuals mainly for personal benefit, accountable to, and advancing the interests of foreign agencies. Their leaders are not accountable to the staff of the organizations and the beneficiaries. As result, they cannot have a democratic nature and role.… Therefore, the government has to confront the “rent seeking” nature of NGOs, for example, by considering those organizations receiving 15% of their income from foreign sources as foreign organizations and denying them recognition as a means of expression of freedom of association as well as democratic forums.

  1. Impact of the Legal Restrictions

The restriction on foreign funding is already having an effect on both the operation and existence of CSOs, and particularly advocacy-based CSOs. Donors have become hesitant to engage in long-term project agreements because of the uncertainty and restrictions of the CSP. Consequently, some CSOs have already been obliged to reduce the number of their staff and/or close branch offices.6

The restrictions on access to foreign funding and operational areas will likely have an unprecedented effect not only on the development of CSOs but also on the democratization process. As things now stand, foreign funding is the only source of funding for almost all CSOs in Ethiopia. Due to the poverty of the nation, there is no substantial indigenous funding that can compensate for the loss of resources engendered by the restrictions. Consequently, the restrictions will likely create a severe financial crisis for CSOs, which might result in their being crippled. Alternatively, human rights CSOs may opt to abandon their activity in such areas and turn to relief provision and related non-sensitive areas of work.

Moreover, the role of CSOs as watchdogs promoting human rights and good governance will be affected by this legislation. As stated repeatedly, generating over 90% of their budget from local sources will be a challenge for local CSOs and, hence, their survival will be at risk. The law heavily curtails the involvement of CSOs in activities that are key to empowerment and sustainable development. In other words, the CSP discourages the rights-based approach to development, which is essential to holding government accountable for its actions.

This legislation will also affect the contribution of development partners who seek to support the country’s development by working with both Government and CSOs. Consequently, the CSP may reduce (temporarily or permanently) foreign aid, particularly foreign aid channeled through NGOs. The CSP also contradicts international instruments such as the Paris Declaration, which calls for a rights-based approach to development and the participation of CSOs in the formulation and assessment of national development strategies.7

Recently, 42 community-based organizations (CBOs) operating in the Southern Nations, Nationalities and Peoples’ Region (SNNPR) were shut down and banks instructed to freeze their assets. The official reasons given for such actions by the Government include the engagement of the organizations in promoting harmful traditional practices, mobilizing communities against the use of fertilizers, setting up a parallel government, and non-transparent accounting practices. Although all of these organizations were registered with the Regional Government of SNNPR and not with the Federal Government, there is an argument that these organizations fall under the jurisdiction of the new CSP because of their reliance on foreign sources of income.8 According to Article 3(1)(b) of the CSP, organizations established as Ethiopian Resident Charities or Societies, and therefore receiving more than 10% of their income from foreign sources, are subject to the CSP.

B. Justifications

  1. Declared Justifications

The underlying ideological justification for the restriction on foreign funding of CSOs emanates from the Ruling Party’s position on promoting Revolutionary/Developmental Democracy in all aspects of public life. The Party (EPRDF) considers the free flow of foreign funding to CSOs as a means for perpetuating parasitism and rent-seeking, which the Party considers as the most prevalent evil in Ethiopian public life. The Party further expounds that the fact that a CSO is wholly established and managed by Ethiopians is not enough to make it an Ethiopian CSO unless it also generates its funding from local sources. A CSO receiving a substantial portion of funding from foreign sources could be an instrument for the illicit advancement of the interests of foreign powers. This means that the sources of funding of a CSO should determine its identity and legal standing in the Ethiopian legal system. Therefore, the EPRDF considers it appropriate to impose restrictions on the level of foreign funding (i.e., a maximum of 10%) on those CSOs that engage in such sensitive areas as human rights, good governance, gender equality, children’s rights, the rights of the disabled, conflict resolution, and the efficiency of the justice sector.

The official justification is also related to a unique understating of the very nature of the constitutional right to freedom of association. The official position is that the right to freedom of association is a democratic/political right and not a human right. Consequently, it is officially propounded that since this right is not a human right, it does not belong to all human beings. Rather it is said to belong to citizens alone; as such, the enjoyment of this right is said to be limited only to citizens. The logical result of this position is that since freedom of association is a right that exclusively pertains to citizens, foreigners cannot exercise it either directly by establishing a CSO, or indirectly by funding local CSOs. The overall tone of the justification is that these restrictions are necessary to ensure that those CSOs involved in the designated sensitive areas truly represent national interests and are not vulnerable to manipulation by foreign elements through foreign funding.

The Government has expressed the rationale for the enactment of the CSP in the law itself and other relevant documents. Accordingly, we may highlight the following stated objectives:9

  • to ensure the realization of citizens’ right to association enshrined in the Constitution of the Federal Democratic Republic of Ethiopia;
  • to aid and facilitate the role of charities and societies in the overall development of Ethiopian people;
  • to provide varieties of measures to be taken against CSOs in case of fault;
  • to ensure the accountability, transparency, and consistency of CSOs to the public;
  • to provide the legal basis for the relationship between CSOs and sector administrators; and
  • to determine the amount of money CSOs spend for administrative purposes and project activities (core objectives).
  1. Underlying Motivations

The most revealing indicator underlying the enactment of the CSP is the generally skeptical attitude adopted by the State regarding the role and participation of CSOs in the national political space. The Government displays a hostile attitude towards “rights watchdogs” and human rights organizations, which it brands as funnels for civil and political discontent and mouthpieces of the Opposition. In the context of political party debates and rights-based CSO activities during the May 2005 election, the Government grew more inimical toward CSOs. Some CSOs have also been active in monitoring and exposing human rights violations. Moreover, the Government has shown a tendency to consider the advocacy-based NGOs as petty fault-finders who capitalize on the weaknesses and mistakes of the Government to promote their own interests. In line with this perception, the Government holds that the main cause for such “belligerence” on the part of the CSOs is the financial support received from abroad.

In addition, the Government accuses some of the human rights CSOs and their leaders of abandoning their impartiality and aligning themselves with the Opposition. Consequently the Government resorts to vindictive measures toward the CSO leaders, whom it has labeled as “angry elites” in league with Opposition leaders. The restrictive legislation also seems to be a manifestation of these vindictive measures.

  1. Evaluation of the Justification

The central point underpinning the official arguments of the Government appears to be an attitude of aversion towards CSOs as alternative forms of social organization and political participation. In claiming a share of the nation’s political space, the existence of such structures may be perceived as threatening to the Government’s hold over the political space. The Government seems to consider itself as the sole genuine actor in public life. The argument is flawed in that it is based on the wrong perception of CSOs and their role in society; the Government should consider them as partners and should support their development.

The second aspect of the Government’s arguments appears to be xenophobic hostility toward the involvement of foreigners in matters related to human rights and governance. The Government emphatically asserts that foreigners cannot exercise the right to freedom of association in Ethiopia. The fact that the right to freedom of association is found in the section of the Ethiopian Constitution dealing with democratic rights cannot by itself deprive this right of its status as a human right. Such fundamental human rights as child rights, women’s rights, and the right to property are also found in this section. It would be outrageous to argue that these rights are not human rights because they are found in a certain section of the Constitution. Moreover, the restriction on the involvement of the international community in human rights and related matters in Ethiopia by providing funds for local human rights CSOs contradicts Ethiopia’s obligations vis-à-vis the global concern for human rights.

  1. Legal Grounds to Challenge the Justifications

As stated above, government justifications for restricting the rights of CSOs are more political than legal. The argument that freedom of association is a “democratic right” and not a human right to be respected to everyone10 runs counter to Article 31 of the Ethiopian Constitution, which guarantees freedom of association for everyone regardless of their nationality or source of income.11 Further, the same provision entitles everyone to associate for any cause or purpose. Thus, the CSP restricts the rights of individuals to engage in advocacy activities based on their source of income, in violation of this constitutional guarantee. The Constitution is the supreme law of the land and, therefore any law, customary practice, or decision of an organ of state or a public official that contravenes the Constitution shall be of no effect.12

Unlike most countries, the power of interpreting the Constitution is given to a political body called the House of Federation.13 This House is professionally supported by the Council of Constitutional Inquiry, which is empowered to receive applications “where any Federal State law is contested as being unconstitutional and such a dispute is submitted to it by any court or interested party. In such cases, the Council shall consider the matter and submit it to the House of the Federation for a final decision.”14 Therefore, one option is challenging the constitutionality of the CSP in these fora at the domestic level.

fora is another option.

C. Responses and Lessons Learned

  1. Responses

(a) Participation in the Drafting Process

The draft Proclamation was presented for discussion with civil society organizations as well as other interested bodies. A number of consultative meetings were held with representatives of CSOs and concerned government officials. This included two roundtable discussions between the Prime Minster and CSO representatives, and several other meetings with the Ministry of Justice (MOJ). Although some provisions in the draft Proclamation were changed as a result of this dialogue, it is difficult to say that civil society input had any meaningful impact on the final shape of the Proclamation. Most of the revisions were more technical and cosmetic than substantive. Government officials remained stubborn and resistant to genuine and constructive dialogue.

(b) Collective Responses of CSOs

The CSOs responded to this legislation in a coordinated manner by establishing a special Taskforce that pursued continuous dialogue with the Government. Members of the Taskforce are drawn from various segments of civil society: development, advocacy, religious, and networks. The Taskforce prepared commentaries on the different draft versions of the law and submitted these to the Government. It organized forums wherein government officials and experts as well as CSO representatives came together and discussed the draft legislation. It also served as means of communication between the international community and CSOs. After the adoption of the Proclamation, the Taskforce has continued its activities with a revised mandate.

(c) The Response of the International Community

The international community played a significant role in exerting influence on the Ethiopian Government. High delegations from countries including the United States and the United Kingdom made frequent visits to Ethiopia to express their concern over the legislation, and held high-level meetings with various officials, including the Prime Minister and Ministry of Justice. The CSO legislation offered one of the rare instances in Ethiopia when the international community came together with a unified voice and expressed its concern.

Many doubt, however, whether these efforts made any impact on the final outcome of the Proclamation. Moreover, it appeared that some members of the international community preferred an approach of “wait and see” to pressuring the Government during the drafting process. The concern of the international community was countered by appeals to “non-interference” in domestic affairs by the Ethiopian Government: “We need your money but if you try meddling in our internal affairs, you can take your money away.” In addition, the Government challenged members of the international community by claiming that some CSP provisions were taken from other laws, such as the UK Charities Act.

Certain international organizations, such as the International Center for Not-for-Profit Law, Human Rights Watch, and CIVICUS, played crucial roles in providing comments and position statements on the draft CSP. These organizations played a significant role in providing technical support and attracting the attention of other actors towards the challenges posed by the draft law.

After the adoption of the CSP, the donors group15 designed a strategy called “POST PACKAGE STRATEGY”16 which has two major components: Law Enforcement Monitoring System and CSO Adaptation Facility. Under the first component, the plan is to monitor the application of the law, challenges CSOs may encounter, and the impact of the law on donor assistance and citizens’ rights. To this end, a monitoring tool will be developed, and the findings of the monitoring exercise will be used to support the advocacy and policy dialogue with the Government.17 DFID has taken the lead role in implementing the Monitoring Component. Although the implementation of this activity was planned to begin in October, and preparatory work has been completed, it has proved challenging to secure the permission of the Government. Reportedly, the Government has now accepted the project in principle, but the Ministry of Finance and Economic Development (MoFED) is still expected to write a formal letter to the Charity and Society Agency (CSA) and the donor community.

The second component includes four strategies:

  1. CSO Adaptation Facility
  • Help CSOs to adapt to the legal environment
  • Raise awareness of CSOs on the content and nature of the law
  1. Provide technical assistance to CSOs
  • Engage in capacity building activities in areas such as fundraising, income generation, cost share, etc.
  • Provide funding for capacity building and adaptation strategies
  1. Link the issue of CSOs with other initiatives such as Protection of Basic Service (PBS), EC Civil Society Fund, etc.
  • Roles and contribution of CSOs
  • Media outreach
  • Documenting and distributing best practices of CSOs
  1. Policy dialogue towards better legal environment
  • Lobbying
  • Networking

Various donors have expressed their interest in supporting the Civil Society Task Force, and some donors, such as Irish Aid and CIDA, have already begun releasing funds. The Civil Society Support Group (CSSG), which is composed of Irish Aid, CIDA (ECCO), DFID, Norwegian Embassy, and SIDA, has already started working with the CSA and agreed to have regular meetings in which concerns can be discussed. In addition, Pact Ethiopia, in close consultation with USAID and other members of the CSSG, is working on the Adaptation Facility, particularly on Domestic Resource Mobilization (DRM), Strategic Plan Development, and awareness-raising on the CSP.

(d) CSOs’ Individual Responses

The challenge of the new law relates to the very existence of some CSOs, particularly those working on advocacy and human rights issues. Even before the adoption of the CSP the number of these organizations was insignificant.18 The majority of CSOs in Ethiopia were and are religious and development (service delivery) organizations. Those Ethiopian CSOs engaged in restricted activities are now considering adaptation strategies individually and collectively. It appears that the majority of these CSOs are planning to be registered as “Ethiopian Resident Charities or Societies,” abandoning work on advocacy and human rights areas. Very few, perhaps not more than three organizations, will be registered as “Ethiopian Charities or Societies” and focus on governance and human rights issues.

  1. Lessons Learned

The CSOs and the international community did their best to avert the current situation, and are still working for a better legal environment. On the other hand, the Government, and particularly the ruling party, is determined to curb the activities of advocacy CSOs in Ethiopia through the legislation regardless of the pressures it faces at the international and national levels. Considering the active roles CSOs played in the 2005 National Election and in view of the upcoming (2010) National Election, the relationship between the CSOs and the Government remains strained, and there is no chance of amending the legislation in the near future.

Many also agree that the sector itself contributed to the enactment of such a draconian law. Some of the major internal contributing factors to the adoption of the legislation include the following:19

  • Weak accountability and transparency of CSOs to their constituencies and the public;
  • Weak or no self regulation system;
  • Weak institutional development;
  • Absence of internal democratic administration;
  • Programs and projects are mostly fund-driven;
  • Lack of focus and commitment on organizational objectives; and
  • Poor networking and collaboration culture.
  1. What Next?

The CSOs and the international community should work in close cooperation toward alleviating the existing situation, particularly before advocacy CSOs perish in Ethiopia. The international community must use its leverage and exert all necessary influence on the Government, which so heavily relies on the financial support of foreign countries. Donors to the Ethiopian Government must ensure that their development agreements include the participation of CSOs as much as possible. The international community can facilitate constructive dialogue between the Government and CSOs on amending the legislation. They should provide due attention and extend their support to CSOs that are likely to be affected by the legislation.

Similarly, CSOs must continue their collective effort for the amendment of the legislation and establish a relationship with the Government that is based on trust and confidence. CSOs may want to challenge the constitutionality of the law both at the national and international levels. They should also engage in ongoing dialogue with the Government at the expert and political levels for the amendment of the law. Collectively they should support each other in efforts to adapt to the new legislation. Attention should also be given to the establishment of a strong self-regulatory system which ensures the independence, accountability, and transparency of CSOs.


* This paper is made possible with the generous support of the American people through the United States Agency for International Development (USAID). The contents are the responsibility of the authors and do not necessarily reflect the views of USAID or the United States Government.

1 See Article 14 (2,(3) and (4) of the Charities and Societies Proclamation (CSP) No. 621/2009.

2 “Income from Foreign source” means “a donation or delivery or transfer made from foreign source of any article, currency or security. Foreign sources include the government agency or company of any foreign country; international agency or any person in a foreign country”. See Article 2(15) of the CSP.

3 Please note that the law does not provide for the establishment of “Foreign Societies.”

4 See Article 14 (5) of the CSP which reads, “Those who can take part in activities that fall under Sub- Article 2(j) the advancement of human and democratic rights, (k) the promotion of equality of nations, nationalities and peoples and that of gender and religion, (l) the promotion of the rights of the disabled and children’s rights, (m) the promotion of conflict resolution and reconciliation and (n) the promotion of the efficiency of the justice and law enforcement services shall be only Ethiopian Charities and Societies.”

5 Revolutionary Democracy and Struggle for the Development of Democratic Rule, EPRDF, 2006.

6 It has been reported that Ethiopian Human Rights Council (EHRCO), Ethiopian Women Lawyers Association (EWLA), and Action Aid and Christian Relief Development Association (CRDA) are some of the organizations engaged in lay offs and closing branch offices. EHRCO has decided to close nine branch offices and to confine its activities at the head office and three branches. See also “Addis Neger,” weekly Amharic newspaper, October 24, 2nd year, No. 105.

7 See Paragraph 14 and 47 of the Paris Declaration on Aid Effectiveness, Ownership, Harmonization, Alignment, Results and Mutual Accountability, High Level Forum, February 28 to March 2, 2005.

8 Please recall that organizations that are receiving more than 10% of their income from outside are considered as Ethiopian Residents’ Charities or Societies. All of them were funded by the Christenson Fund and under the management of the Fund’s Program Officer for the African Rift Valley Region.

9 For objectives mentioned under a and b, please see the Preamble of the PCS whereas the rest are taken from the Minutes of the Legal and Administrative Affairs of the House of Peoples’ Representatives of Ethiopia, December 24, 2008.

10 The Explanatory Note of the Draft Charities and Societies Proclamation, Ministry of Justice, 2008, p. 11.

11 Article 31 of the FDRE Constitution reads, “Every person has the right to freedom of association for any cause or purpose. Organizations formed, in violation of appropriate laws, or to illegally subvert the constitutional order, or which promote such activities are prohibited.”

12 See Article 9 of the FDRE Constitution.

13 The Federal Government has two houses: the House of Peoples’ Representatives and the House of the Federation. The House of Peoples’ Representatives is the highest authority of the Federal Government which is made accountable to the people. Members of the House of Peoples’ Representatives are elected by the people for a term of five years. On the other hand, the House of the Federation is composed of representatives of Nations, Nationalities, and Peoples. Each Nation, Nationality, and People is represented in the House of the Federation by at least one member who is elected by the State Councils (Regional Governments). This House is given the power, among others, to interpret the Constitution, decides on the rights self-determination of including secession, provide solutions for conflicts among the different regions, and determine division of revenue between the Federal Government and Regional States and subsidies that the Federal Government may provide to the States. Looking at the composition of its members and the procedure by which they are elected, many people consider this House as a political body and question its independence in interpreting constitutional issues.

14 Council of Constitutional Inquiry Proclamation No 250/2000, Article 6(2).

15 Among the donors group the following are actively participating in the process of supporting the CSOs and expressing their concern on the legislation; USAID, DFID, CIDA (ECCO), Irish Aid, SIDA, etc.

16 The Strategy called as Post Package Strategy just to indicate the continuation of the support of the international community even after the adoption of the CSP.

17 Interview with Mr. Shimelis Assefa; Governance Officer, CIDA and member of the Civil Society Support Group of Donor Assistance Group. June 27, 2009, Addis Ababa.

18 According to the official Estimation by Ministry of Justice, advocacy CSOs were about 125 out of 3,800 CSOs registered at the Federal level.

19 The Role of NGOs in Protecting Democratic Values, the Ethiopian Experience: The Challenge of Democracy from Below, edited by Bahru Zewde et al., Forum for Social Studies, 2002, pp 125-129.