Proceedings of the Fifth Annual Students Research

Forum

Organized & Sponsored By

Research and knowledge Management Office,

St. Marys University College

August 26, 2011

SMUC, Multi-Purpose Hall
Addis Ababa, Ethiopia
 Research and Knowledge Management Office (RAKMO)

All rights reserved

Printed in SMUC Printing Press, Addis Ababa, Ethiopia

First published in 2012

Research and Knowledge Management Office (RAKMO)

St. Marys University College

P. O. Box 1211

Addis Ababa, Ethiopia

Email: rakmo@smuc.edu.et
Website: www.smuc.edu.et
 Table of contents

S.N. Contents Page

1 Preface iv

Ato Goitom Abraham,

2 v
Vice President for Business and Administration, SMUC
Welcoming Message and Opening Speech
Kassahun Tesfaye, Nahom Asrat and Sintayhu Abbabyia, SMUC 1
3
Analysis of Capital Structure: The case of Wegagen Bank Share Company in
Addis Ababa
Eskedar Dibekulu 40
4 Assessing the Effectiveness of Advertising at Dashen Bank Share Company in
Addis Ababa
Genet Abebe 76
5 Assessment of Service Recovery Practices in the Ethiopian Airlines, Addis
Ababa
Tewodros Birhanu 102
6 Monitoring and Evaluation of CORHA-Based NGOs Implementing Sexual and
Reproductive Health Projects in Addis Ababa: Practices and challenges
Helene Solomon 136
7 Assessment of Leadership Practices and Problems in St. Marys University
College in Addis Ababa
Eden Solomon 154
8 The International Criminal Court and Pursuit of Legal Justice: Problematizing
Complementarity
PREFACE

St. Marys University College (SMUC) launched a forum titled Students Research Form (SRF)
for students who are pursuing their studies at higher learning institutions in 2007. The Forum
aims at providing opportunities for the students in different fields of study to share their findings
from research endeavours. In 2011, the Research and Knowledge Management Office
(RAKMO) of the St. Marys University College organized and held the Fifth Annual Students
Forum with a similar aim of promoting the culture of knowledge generation, presentation and
dissemination successfully. At the Forum, the students presented a total of six research papers
which covered various topics. All of the papers were prepared and presented by the students
from different departments of the University College.

This Proceeding is thus a compilation of six papers presented at one day long event of the 5th
Annual Students Research Forum. The ideas reflected in those papers are that of the authors and
do not represent the position of the Research and Knowledge Management Office of the St.
Marys University College. In addition, any omission(s) and/or error(s) are that of the
contributors.

Finally, the Research and Knowledge Management Office (RAKMO) of the St. Marys
University College would like to seize this opportunity to acknowledge and warmly thank all
participants, paper presenters, welcome message and opening speaker, rapporteurs, as well as
reviewers that had contributed to the successful realization of the event.

iv
Welcoming Message and Opening Speech, Ato Goitom Abraham, Vice President
for Business and Administration, SMUC

Dear:
Students,
Teachers,
Participants of the Forum

Welcoming you all to this event, I would like to express my gratitude for having the opportunity
to open this annual student research forum organized by the Research and Knowledge
Management Office of the University College. As most of you know, this forum was initiated
and launched by the University College in 1999, to support the research pursuits of students and
assist young researchers who can contribute to the social and economic development of the
country. To this end, students who successfully complete their undergraduate theses are invited
to compete and present their research findings annually. And this is the fifth annual forum to be
conducted. The University Colleges academic management believes that this is a good practice
that should be encouraged and rewarded, since it will have a great impact in developing the
research Skills problem solving capacity and communication skills of students.

Observations indicate that such forums have positive contribution towards bringing together and
providing young students the opportunity to share their experience and expertise. This practice
will certainly have a significant role in enhancing their research and presentation skills. It is also
hoped that such a practice will be exemplary to the youth in developing a sense of responsibility
and self-confidence. I am confident that the programme will continue with the active
participation and cooperation of all stakeholders, including students, teachers, the academic
management, the Research and Knowledge Management Office, and other concerned Offices. I
would like to assure you that the management of the University College will do its level best to
ensure the successful continuation and growth of the forum. Efforts are already underway to
elevate its standard to the national level, where interested students from all universities, both
private and public could participate and share their experiences.

v
In conclusion, I would like to extend my heartfelt appreciation to the Research and Knowledge
Management Office and to those who exerted relentless efforts in organizing and making this
special event possible.

I would also like to thank and congratulate the young graduates selected to present their papers in
this forum, for their commendable job and enthusiasm.

Wishing you an enjoyable time, I declare that the Forum is open.

Thank you,

Goitom Abraham

Vice President for Business and Administration

vi
ANALYSIS OF CAPITAL STRUCTURE: THE CASE OF WEGAGEN
BANK SHARE COMPANY IN ADDIS ABABA

Kassahun Tesfaye, Nahom Asrat and Sintayhu Abbabyia

Abstract
The study assessed the role of capital structure and its impact on different activities of Wegagen Bank S.
C. It generally intended to assess the role and to examine the impact of increasing reserve in National
Bank of Ethiopia (NBE) on returns, customers willingness to deposit and liquidity problems. Capital
structure is the way a firm finances its assets through some combination of debt, equity, or hybrid
securities. The firms choice of how much debts it should have relative to equity is capital structure
decision. Such a decision has many implications for the firm and is far from being settled issues either in
theory or in practice. An appropriate capital structure is a critical decision for any business organization.
Capital structuring may have multi-faceted roles and impacts in business firms like Wegagen Bank. These
aspects of the structuring endeavours could contribute to both positive and negative roles as well as
impact on the part of the firm under consideration. The study employed descriptive survey method using
interviewing techniques and documentary analysis. It also used purposive sampling technique. Both
interview guide and documentary analysis checklist were the tools used to collect both primary and
secondary data. The study then employed both quantitative data analysis techniques (such as vertical
analysis, horizontal analysis, and ratio analysis supported by univariate statistical techniques) and
qualitative data analysis methods. The findings of the study show that the Bank is generally characterized
by high degree of inflexibility, decreasing shareholders EPS and increased cost of capital, a
combination of factors that has affected its efforts of securing the required amount of debt for financing
its operations, being liquid enough to meet its debt obligations, and its liquidity state is considered to be
unsatisfactory, albeit it has shown some sort of improvement since 2009, has been consuming more of its
equity finance, fulfills both liquidity and reserve requirements imposed by the National Bank of Ethiopia,
has also experienced a declining pattern of debt-equity ratio, and then the Banks capital structure is
exercising high debt proportion. Therefore, Banks capital structure has been dominated by debt or has a
mix of more of debt than equity. Thus, concerned officials of the Bank, the NBE, and policy makers at
different levels in the country should consider this package of empirical findings and the conclusions
reached while working on issues related to capital structure of such marketing and banking firms in
various socio-economic contexts. It is also suggested that further studies on the creditors and the
shareholders attitudes towards and perception of the existing capital structure of the Bank and/or other
private and government owned firms using some of the influential theories of capital structuring both
vertically and horizontally in Addis Ababa in particular and in Ethiopia in general.

Introduction

Capital structure has been a major issue in financial management ever since Franco Modigliani
and Merton Miller published their article titled The Cost of Capital, Corporation Finance and
the Theory of Investment. In 1958 and 1963, they showed that given frictionless markets,
homogeneous expectations, etc., the capital structure decision of the firm is irrelevant. This
conclusion depends entirely on the assumptions made. By relaxing the assumptions and

1
analysing their effects, the theory seeks to determine whether an optimal capital structure exists
or not, and, if so, what could possibly be its determinants. If capital structure is not irrelevant,
then there is also another thing to consider: the interaction between financing and investment
(Lachmann, 1978).

Financing and investment are two major decision areas in a firm. In the financing decision, the
manager is concerned with determining the best financing mix or capital structure for his firm.
Song (2001) argues that capital structure could have two effects. First, firms of the same risk
class could possibly have higher cost of capital with higher leverage. Second, capital structure
may affect the valuation of the firm, with more leveraged firms, being riskier, being valued lower
than less leveraged firms. If we consider that the manager of a firm has the shareholders' wealth
maximisation as his objective, then capital structure is an important decision, for it could lead to
an optimal financing mix which maximises the market price per share of the firm.

An appropriate capital structure is a critical decision for any business organization. The decision
is important not only because of the need to maximize returns to various organizational
constituencies, but because of the impact such a decision has on an organizations ability to deal
with its competitive environment as well (Shahjahanpour & Simerly, 2011). The prevailing
argument, originally developed by Modigliani and Miller (1958) is that an optimal capital
structure exists which balances the risk of bankruptcy with the tax savings of debt. Once
established, this capital structure should provide greater returns to stockholders than they would
receive from an all-equity firm.

In finance, capital structure refers to the way a firm finances its assets through some combination
of debt, equity, or hybrid securities. A firm's capital structure is then the composition or
'structure' of its liabilities. A firms choice of how much debts it should have relative to equity is
known as capital structure decision. Such a choice has many implications for a firm and is far
from being settled issues either in theory or in practice. A firms capital structure is really just a
reflection of its borrowing policy. Should we borrow a lot of money, or just a little? At first
glance, it probably seems that debt is something to be avoided. After all the more debt a firm has,
the greater is the risk of bankruptcy. What we learn is that debt is really double-edged sword,
and, properly used debt can enormously beneficial to the firm. A good understanding of the
effects of debt financing is important simply because the role of debt is so misunderstood, and
many firms (and individuals) are too conservative in their use of debt. In addition, these firms
sometimes make errors in the opposite direction; they are becoming too much heavily in debt,

2
with bankruptcy as the unfortunate consequence. Striking the right balance is what the capital
structure issue is all about.

The striking activities may include altering the firms existing capital structure which is known
as capital restructuring. As the assets of a firm are not directly affected by a capital restructuring,
we can examine the firms capital structure decision separately from its other activities. This
means that a firm can consider capital restructuring decision in isolation from its investment
decisions (Firer et al., 2004). Thus, this study aims to examine the role of capital structuring and
its impact on the activities of Wegagen Bank S.C. in Addis Ababa, Ethiopia.

Statement of the Problem

Capital structuring may have multi-faceted roles and impacts in business firms like Wegagen
Bank. These aspects of the structuring endeavours could contribute to both positive and negative
roles as well as impact on the part of the firm under consideration.

Capital structure has both positive and negative roles in the operations or activities of the banks.
A profitable business will experience a higher return on equity (ROE) as borrowing increase
(Ward & Prince, 2006). The same authors postulate that the impacts of debt or leverage, since a
profitable business firm is able to earn at a higher rate than it paying for borrowed funds. This
assumption may lead to another assumption which assumes that all firms should ensure that their
capital structures are greatly weighted towards a higher level of debt. However, there is a limit to
the amount of debt a firm should take on (De Wet, 2004). Debt and equity are the principal
sources of funding for a business firm. The proportional distribution of these two sources of
funding depends on how a firm decided to divide its cash flow between a fixed component which
is utilized for obligations towards debt capital, and a residual component which belongs to equity
shareholders. Therefore, the firms financial debt affects the firms value (Sharma, 2006).

Capital structure of banks can be affected by credit risk, profitability and risk. Amidu and Hinson
(2006) explanatory study of the Ghanaian banks cane be a case in point. They examined how
credit risk affects a banks capital structure, profitability and lending decisions. The results of the
study showed that capital structure (equity to total assets) of banks was found to be positively
related to the banks credit risk, profitability and risk; but not to the banks size, liquid assets and
lending.

3
Moreover, capital structure affects the firms marketing strategy and customers satisfaction.
Understanding the link between capital structure and customer mindset metrics provides an
alternative, customer-focused perspective on the consequences of capital structure decisions. Here
the focus is on customer satisfaction as the focal customer mindset metric for two reasons. First, prior
research provides evidence of the positive effect of customer satisfaction on various performance
metrics, including loyalty, purchase intent, and repurchase behaviour (e.g., Mittal and Kamakura
2001; Seiders et al., 2005), accounting metrics such as profitability and sales (e.g., Anderson,
Fornell, & Lehmann 1994 cited in Srinivasan et al., 2009), and financial market metrics such as
shareholders value and risk (e.g., Fornell et al., 2006; Gruca & Rego, 2005; Tuli & Bharadwaj, 2009
quoted in Srinivasan et al., 2009). Second, unlike other mindset metrics such as purchase intent, there
is a well-established and often used firm-level database on customer satisfaction scores (such as the
American Consumer Satisfaction Index).

The same authors in 2009 argued that capital structure had had impacts on customers satisfaction
through two routes; the marketing effort route and the direct route. The fundamental premise of the
marketing effort route is that a firms capital structure impacts a firms marketing strategy,
specifically its advertising, research and development, and corporate social responsibility initiatives1,
which, in turn, impact customers satisfaction. Consistent with Zhao et al. (2010) and Joshi and
Hanssens (2010), the direct route captures any effect of capital structure on customer satisfaction
over and beyond the indirect effect through marketing effort route. This captures, for example,
customers and employees anxiety concerning firms potentially defaulting on its outstanding debt
and the decreased ability of a highly leveraged firm to respond to competitive actions.

Song, Vadakkepatt and Lehmann, in their forthcoming research-based article, indicate the effects of
capital structure (i.e., a firms mix of debt and equity) on customers satisfaction. These authors dealt
this by giving a specific emphasis on the mediating role of a firms marketing effort.

However, one of the major objectives of financial management in such business firms is
maximizing shareholders value and, hence, the relationship between capital structure and firms
value has become a key issue (Rayan, 2008). Therefore, at this juncture, a number of issues can
be raised in the form of questions which, in turn, require empirically-based answers.

This paper thus emphasizes on the analysis of the capital structure of Wegagen Bank. It then tries
to examine the role of capital structuring and its impact on the activities of the Bank. To this end,
the study raised the following basic research questions:

4

What is the impact of Wegagen Banks increasing reserve in the National Bank of
Ethiopia (NBE on its capital structure)?

What is the impact of the increasing reserve on its liquidity (solvency) problem?

What is the impact of the increasing reserve on customers willingness to deposit in
Wegagen Bank?

What types of factor prevent the Bank from making optimal (target) capital structure?

How could the Bank make optimal capital structure for each fiscal year?

How does the Bank choose how much debt should be relative to equity?

How the mixture chosen will affect both the risk and the value of the Bank? and

How does the Bank decide one capital structure is better than any other?

Objective of the Study

The general objective of the study is to assess the role of capital structure and its impact on
different activities of the Wegagen Bank S. C. It generally intends to assess the role and to
examine the impact of increasing reserve in National Bank of Ethiopia (NBE) on return,
customers willingness to deposit and liquidity problem. More specifically, it aims

To assess the relationship between assets of the Bank and its capital structure;
To examine the Banks capital structure in isolation from its investment decisions or its
other activities; and
To investigate the Banks choice of how much debt should be relative to equity.

Significance of the Study

The study was undertaken to identify the problems of making optimum capital structure of the
business firms, particularly financial and banking sector. Thus, it is believed that the study would
have paramount importance role for financial policy makers in general and all commercial banks
as well as to Wegagen Bank in particular in solving its problems and ambiguities and to improve
its decision making in such specific areas. It is also hoped that the study would give some
information and knowledge for practitioners, especially financial decision makers to know the
past financial performance and problems faced and also to project assumed future result.
Moreover, it may contribute to the knowledge reservoir of literature financial management and
economics. Therefore, some of the findings of this empirical study may initiate further studies in

5
the financial and baking sector or in different contexts both in Addis Ababa and elsewhere in the
country.

Scope of the Study

The scope of this study is limited to the Head Office of Wegagen Bank in Addis Ababa. The
study also delimits its scope to the consideration of only debt-equity financing source which is
listed on its balance sheet for the consecutive four Fiscal Years starting from 2007 to 2010.

Organization of the Paper

This paper consists of five parts. The first part of this study introduced the background of the
study, the problem statement, including sub-problems or research questions to be addressed,
general and specific objectives as well as description about the scope of the study. Second part
presents a review of literature and relevant theories as well as empirical research associated with
the problem addressed in this study. Next, the paper presents the research design and
methodology, tools and procedures used for data collection and analysis. The fourth part is on
analysis of the data and presentation of the results of the study. Finally, it offers a summary and
discussion of the student researchers major findings, and puts together these findings in line
with their implications for practice of capital structure in the financial and banking sector, and to
suggest recommendations for action and gray of areas in the topic for future research endeavour.

Literature Review

The study presents thematic reviews of relevant literature which are organized around a topic or
issue, rather than the progression of time. The literature review is organized in such a way that it
presents and discusses pertinent themes or topics which seem to be included in this type of study.
This section presents review of both conceptual/theoretical and empirical literature on such
issues as capital structure and some major theories, guiding principle of capital structure
decision, the target or optimal capital structure, reserve requirements as a powerful tool, ratio
analysis for capital structure, ratios as well as limitations of ratio for capital analysis.

In corporate finance, there exists a large body of literature that examines the financing behaviour
of firms, reflected by their capital structure. Capital structure is the mixture of debt and equity
financing. Its choice and determinants, however, related to many different factors. Hence,
scholars in the field developed numerous theories to analyze alternative capital structures.

6
Modigliani and Miller (1958) were the pioneers in the theoretically examining the effect of
capital structure on the firm value. In the perfect capital market, the capital structure does not
affect a firms value. It is the theory of capital structure irrelevance that a firms value depends
on the ability of its assets to create value, and is irrelevant if the assets originate in internal
capital or external capital. Let us consider historical development of the concept of capital structure and then
some major theories developed regarding capital structure.

The Modigliani-Miller theorem (or M & M model), proposed by Franco Modigliani and Merton
Miller, forms the basis for modern thinking on capital structure, though it is generally viewed as
a purely theoretical result since it disregards many important factors in the capital structure
decision. The theorem states that, in a perfect market, how a firm is financed is irrelevant to its
value. This result provides the base with which to examine real world reasons why capital
structure is relevant (i.e. a company's value is affected by the capital structure it employs). Some
other reasons include: bankruptcy costs, agency costs, taxes, and information asymmetry. This
analysis can then be extended to look at whether or not there is, in fact, an optimal capital
structure - the one which maximizes the value of the firm.

In order to discuss about capital structure in a perfect market, it is worth considering a perfect
capital market (no transaction or bankruptcy costs; perfect information); firms and individuals
can borrow at the same interest rate; no taxes; and investment decisions aren't affected by
financing decisions. Modigliani and Miller made two findings under these conditions. Their first
'proposition' was that the value of a company is independent of its capital structure. Their second
'proposition' stated that the cost of equity for a leveraged firm is equal to the cost of equity for an
unleveraged firm, plus an added premium for financial risk. That is, as leverage increases, while
the burden of individual risks is shifted between different investor classes, total risk is conserved
and hence no extra value created. Their analysis was extended to include the effect of taxes and
risky debt. Under a classical tax system, the tax deductibility of interest makes debt financing
valuable; that is, the cost of capital decreases as the proportion of debt in the capital structure
increases. The optimal structure then would be to have virtually no equity at all.

If capital structure is irrelevant in a perfect market, then imperfections which exist in the real
world must be the cause of its relevance. Research in the capital structure field is mostly
dominated by five theories: the pecking order theory, trade off, agency cost, life stage theory,

7
and information asymmetry. The theories below try to address some of the above-stated
imperfections, by relaxing assumptions made in the M&M model.

Theory of Pecking Order

Business firms have a particular preference order for capital used to finance their businesses.
One of the most influential theories of corporate finance is theory of pecking order. This theory
tries to capture the costs of asymmetric information. It states that companies prioritize their
sources of financing (from internal financing to equity) according to the law of least effort, or of
least resistance, preferring to raise equity as a financing means of last resort. Hence, internal
financing is used first; when that is depleted, then debt is issued; and when it is no longer
sensible to issue any more debt, equity is issued. This theory maintains that businesses adhere to
a hierarchy of financing sources and prefer internal financing when available, and debt is
preferred over equity if external financing is required (equity would mean issuing shares which
meant 'bringing external ownership' into the company). Thus, the form of debt a firm chooses
can act as a signal of its need for external finance.

Therefore, according to the pecking order theory, there is no target capital structure. The firms
choose capitals according to the following order of preference: internal finance, debt, and equity.
Myers and Majluf (1984) argue that there exists information asymmetry between managers
(insiders) and investors (outsiders). They further argue that managers have had more inside
information than investors and act in favour of old shareholders. Owing to the information
asymmetries between the firm and potential investors, the firm will prefer retained earnings to
debt, short-term debt over long-term debt and debt over equity. The same aforementioned
authors also argued that if firms issue no new security but only use its retained earning to
support the investment opportunities, the information asymmetric can be resolved. This implies
that issuing equity becomes more expensive as asymmetric information insiders and outsiders
increase. Firms whose information asymmetry is large should issue debt to avoid selling under-
priced securities. The capital structure decreasing events such as new stock offering leads to a
firms stock price decline.

The pecking order theory states that firms generally prefer to finance with internal funds. Ideally,
a firm would have a debt ratio equal to zero. However, only firms that have enough internal
funds can reach this long run equilibrium. Firms that are most likely to achieve a well-
established source of internal equity are older, mature firms. Small, young or growing firms, that

8
lack own resources, will have to rely on debt (and equity) financing. In the short run, the debt
ratio tends to deviate from zero. In the short run, the theory suggests that firms increase or
decrease their debt ratio if they have a negative free cash flow or a positive free cash flow
respectively.

Finally, pecking order theory (Myers, 1984; Myers & Majluf, 1984) advocates that companies in
their capital structure decisions have not been searching for a target debt ratio, but the level of
debt is determined by the need to finance growth opportunities; when internal finance is
exhausted.

Trade-off theory of Capital Structure

The trade off theory was the earliest and most recognized theory of capital structure which
explains the formulation of capital structure. Modigliani and Miller (1963) developed their trade
off theory which assumed that there are optimal capital structures by trading off the benefits and
costs of debt and equity. The main benefit of debt is tax deductibility of interest and the costs are
bankruptcy cost (Kim, 1978) and agency cost (Jensen & Meckling, 1976; Myers, 1977).

Modigliani and Miller assume perfect and frictionless capital markets to prove their irrelevance
theorem, which was later generalized by Stiglitz (1974). According to the irrelevance theorem,
the firms financing policy should not affect the firms value or its cost of capital. The firms
value is solely determined by its investment decisions. This obviously implies that there are no
interactions between corporate finance and investment decisions. A logical conclusion is that
firms financing and investment decisions can be analysed separately. The M&M irrelevance
theorem of capital structure, though based on the unrealistic assumption of perfect capital
markets, shows that market imperfections are a requisite for capital structure to matter. By
introducing market imperfections, firms seem to get an optimal, value-maximising debt-equity
ratio by trading off the advantages of debt against the disadvantages. On the other side, the
pecking order theory (Myers, 1984; Myers and Majluf, 1984) contradicts the existence of
financial targets, and states that firms follow a financing hierarchy: internal funds are preferred
above external financing and if the latter becomes necessary, safe debt is preferred over risky
debt and equity issues are at the lowest end of the pecking order. In spite of ongoing debate,
there are still no clear-cut answers as to how firms make their financing decisions.

This theory indicates the exposure of the firm to bankruptcy and agency cost against tax benefits
associated with debt use. Bankruptcy cost is a cost directly incurred when the perceived

9
probability that the firm will default on financing is greater than zero. One of the bankruptcy
costs is liquidation cost, which represents the loss of value as a result of liquidating the net assets
of the firm. Another bankruptcy cost is distress cost, which is the cost a firm incurs if
stakeholders believe that the firm will discontinue.

Trade-off theory, therefore, allows the bankruptcy cost to exist. It states that there is an
advantage to financing with debt (namely, the tax benefits of debt) and that there is a cost of
financing with debt (the bankruptcy costs and the financial distress costs of debt). The marginal
benefit of further increases in debt declines as debt increases, while the marginal cost increases,
so that a firm that is optimizing its overall value will focus on this trade-off when choosing how
much debt and equity to use for financing. Empirically, this theory may explain differences in
Debt/Equity (i.e. D/E) ratios between industries, but it doesn't explain differences within the
same industry.

According to the trade-off theory, companies capital structure decisions point towards a target
debt ratio, where debt tax shields are maximized and bankruptcy costs associated with the debt
are minimized. Hence, Jalilvand and Harris (1984) strongly argue that companies are expected
to look for a target debt ratio.

Modigliani and Miller (1963), on the other hand, took taxation under consideration and proposed
that the firms should employ as much debt as possible. Companies have an advantage in using
debt rather than using internal capital, as they can benefit from debt tax shields. This tax shield
allows firms to pay lower tax than they should, when using debt capital instead of using only
their own capital. Finally, the theory argues that the more debt is, the more a firms value is
created.

In summary, static trade-off theory suggests that firms in infancy, go-go and adolescence cannot
afford debt as their bankruptcy costs are high, and their earnings are too low to use the tax
benefit of increasing interest payments. In the prime and stable stages, the larger, more
predictable earnings make the tax shield advantage of debt more beneficial. Bankruptcy costs are
also smaller in the prime and stable life stages. In the stages from aristocracy to death, firms are
likely to experience a decrease in earnings (and, hence, a decrease in the tax shield benefit of
debt) and as a result might be inclined to use less debt. Static trade-off theory thus suggests that
the proportion of debt in a firms capital structure should follow a low-high-low pattern over the

10
firms life stages. However, recent studies have shown a focus shift from the trade off theory to
pecking order theory (Quan, 2002; Mazur, 2007).

Agency Cost Theory

Jensen and Meckling (1976) identified the existence of the agency problem. They proposed that
there are two kinds of agency costs - agency costs of equity and debt. The conflicts between
managers and shareholders leads to agency costs of equity, and the conflicts between
shareholders and debt-holders leads to agency costs of debt. Usually, managers are interested in
accomplishing their own targets which may differ from the firm value. The owners may try to
monitor and to control the managers behaviours. These monitoring and control actions result in
agency costs of equity. When a lender provides money to a firm, the interest rate is based on the
risk of the firm. A manager may tempt to transfer value from creditors to shareholders. These
monitoring and control actions result in agency cost of debt.

There are three types of agency costs which can help explain the relevance of capital structure.
These are:

Asset substitution effect: As D/E increases, management has an increased incentive to

undertake risky projects. This is because if the project is successful, shareholders get all
the upside, whereas if it is unsuccessful, debt holders get all the downside. If the projects
are undertaken, there is a chance of firm value decreasing and a wealth transfer from debt
holders to share holders.
Underinvestment problem (or Debt overhang problem): If debt is risky (e.g., in a
growth company), the gain from the project will accrue to debt holders rather than
shareholders. Thus, management has an incentive to reject positive projects, albeit they
have the potential to increase firm value.
Free cash flow: Unless free cash flow is given back to investors, management has an
incentive to destroy firm value through empire building and perks, etc. Increasing
leverage imposes financial discipline on management.

Capital Structure Life Stage Theory

One of the five sub-theories proposes that capital structure may be influenced by the
organizational life stage of a firm, as financing needs may change with the changing
circumstances of the firm (Damodaran, 2001). There has been a great deal of research into both

11
organisational life stage theory and capital structure theory, but relatively little into how the two
theories may relate to one another. In order to lay a theoretical framework for our study, we
review capital structure life stage theory.

Some theorists have approached the problem of how organisational life stage relates to capital
structure from different perspectives. Bender and Ward (1993), for example, focused on the
trade-off between business risk and financial risk, positing that business risk reduces over the life
stages of a firm, allowing financial risk to increase.

Hovakimian, Opler and Titman (2001) offered a similar view, stating that firms should use
relatively more debt to finance assets in place and relatively more equity to finance growth
opportunities, and should, therefore, use progressively more debt in their financing mix as they
mature. This is supported by Damodaran (2001) who proposed that expanding and high-growth
firms would finance themselves primarily with equity, while mature firms would replace equity
with debt.

Life stage theory of capital structure would seem to suggest, therefore, that debt ratios should
increase as the firm progress through the early life stages. Empirically, however, little work has
been done to support or refute this idea. Most of the evidence for and against appears in the
context of other arguments. In their analysis of the venture-capital financing of biotech ventures,
for example, Morgan and Abetti (2004) argue that high technology ventures are so risky that they
can only be financed by venture capital and private equity sources, a view that supports the
theory that riskier firms in the infancy, adolescence and go-go life stages should use more equity.

So far, research conducted on these issues has suggested, in line with static trade-off theory, that
debt ratios should follow a low-high-low pattern over the firms life. Firms in infancy, go-go and
adolescence have a high business risk and cannot afford financial risk, while firms in prime and
stable can afford the extra risk that accompanies debt financing. Firms in the declining life stages
would again experience a growth in business risk and would need to decrease their exposure to
debt.

Information Asymmetry Theory

Stephen Ross developed the information asymmetry theory of capital structure by removing
another assumption underlying Modigliani and Millers value invariance theory, namely, that

12
the market possesses full information about the activities of firms (Ross, 1977). If instead, we
assume that managers possess information about the firms future prospects that the market does
not have, then managers choice of a capital structure may signal some of this information to the
market, according to the same author.

Increasing leverage, Ross reasoned, would signal to the market that the firms managers are
confident about being able to pay interest in future. Hence, they are confident about prospects for
future earnings. Increasing leverage would, therefore, increase the value of the firm by signalling
to investors the size and stability of future cash flows. Fama and French (1988), on the other
hand, countered by pointing to the fact that more profitable firms tend to have lower levels of
debt. They argued that increasing debt actually signals poor prospects for future earnings and
cash flow as there will be less internal financing available to fund development.

Therefore, while it has been argued that information asymmetries decrease over the lifetime of a
firm (Baeyens & Manigaart, 2003), there is insufficient clarity on exactly how signaling (within
the context of information asymmetries) affects capital structure decisions. Thus, we cannot look
directly to information asymmetries, and how they change over time, as an explanation of why
capital structure.

In conclusion, much of the ground-breaking work in the field of corporate finance has focused on
why firms choose differing proportions of debt and equity to finance their operations. Today,
there are five major sub-theories within capital structure theory which attempt to explain why
capital structure matters and how it contributes to the overall value of the firm. None of the
research has proved conclusive, however, and the question is still vigorously debated.

Guiding Principle of Capital structure Decision

A financial manager has to plan the pattern of capital structure for the firm in such a way that
owners interest is maximized. Accordingly, that pattern of capital structure should be chosen
which may minimize cost of capital and maximize value of the stocks. Broadly speaking, there
may be three fundamental patterns of capital structure in a new concern. These are: financing of
capital requirements exclusively by equity stock; financing of capital requirements by equity,
preferred stock; and financing of capital needs by equity, preferred stock and bonds.

13
While choosing a suitable pattern of capital structures for the company, a financial manager
should keep into consideration some fundamental principles. These principles are militant to
each other (Srivastava, 2003).

Cost Principle

Cost principle is the first guiding principle for making decision on type of capital structure to
choose among other types of the structure. According to this principle, ideal pattern of capital
structure is the one that tends to minimize cost of financing and maximize earning per share
(EPS) (Srivastava, 2003).

Risk Principle

As known, business firms operate in risk prone working environment. Risk principle suggests
that such a pattern of capital structure should be devised so that the company does not run the
risk of bringing on a receivership with all its difficulties and losses (Srivastava, 2003).

[[ Control Principle

The designing of capital structure in a business firm considers control principle. While designing
appropriate capital structure for the company and for that matter choosing different types of
securities, a finance manager should also keep in mind that controlling position of residual
owners remains undistributed (Srivastava, 2003).

Flexibility Principle

According to flexibility principle, the management should strive toward achieving such
combinations of securities that management finds it easier to manage sources of funds in
response to major changes in need for fund. Not only are several alternatives open for
assembling required funds but also bargaining position of the corporation strengthened while
dealing with suppliers of funds (Srivastava, 2003).

Timing Principle

Timing is always important in financing and more particularly in a growing concern. The
principle is sought to be adhered to in choosing the types of funds so as to enable the company to
seize market opportunities and minimize cost of raising capital and obtain substantial savings.

14
Depending on business cycles, demand of different securities oscillates. In time of boom, when
there is all-round business expansion and economic prosperity; investors have strong desire to
invest. It is easier to sell equity shares and raise ample resources. However, in periods of
depression, bonds should be issued to attract money because investors are afraid to risk their
money in stock which is more or less speculative. Thus, timing may favour debt at one time and
common stock (preferred stock) at other time (Srivastava, 2003).

The Target or Optimal Capital Structure

Firms should first analyze a number of factors and then establish a target capital structure. This
target might change over time as conditions change, but at any given moment, management
should have a specific capital structure in mind. If the actual debt ratio is below the target level,
expansion capital should generally be raised by issuing debt, whereas if the debt ratio is above
the target, equity should generally be issued.

Capital structure policy involves a trade-off between risk and return using more debt raises the
risk borne by the stockholders. However, using more debt generally leads to a higher expected
rate of return on equity. Higher risk tends to lower a stocks price, but a higher expected rate of
return it raises. Therefore, the optional capital structure must strike a balance between risks and
return so as to maximize the firms stock price.

Four primary factors influence capital structure decisions. These include: business risk, the
firms tax position, financial flexibility, and managerial conservatism or aggressiveness. Let us
describe each of them one by one.

Business risk: on the riskiness inherent in the firms operations if it used no debt. The greater the
firms business risk, the lower its optimal debt ratio.

The firms tax position: A major reason for using debt is that interest is deductible, which
lowers the effective cost of debt. However, most of a firms income is already sheltered from
taxes by depreciation tax shields, by interest on currently outstanding debt, or by tax loss carry-
forwards, its tax rate will be low. So, additional debt will not be as advantageous as it would be
to a firm with a higher effective tax rate.
[[

15
Financial flexibility: It is also the ability to raise capital on reasonable terms under adverse
conditions. Corporate treasures know that a steady supply of capital is necessary for stable
operations, which is vital for long-run success. They similarly know that when money is tight in
the economy, or when a firm is experiencing operating difficulties, suppliers of capital prefer to
provide funds to companies with strong balance sheets. Therefore, both the potential future need
for funds and the consequences of shortage influence the target capital structure - the greater the
probable future need for capital and the worse the consequences of a capital shortage, the
stronger the balance sheet should be.

Managerial conservatism or aggressiveness: Some managers are more aggressive than others;
hence, some firms are more inclined to use debt in an effort to boost profits. This factor does not
affect the true optimal or value maximizing capital structures but does influence on the
managers determined target capital structure.

The above-stated four factors largely determine the target capital structure. But operating
conditions can cause the actual capital structure to vary from the target (Brigham and Houston,
2001).

Reserve Requirements as a Powerful Tool for Capital Structure

Reserve requirements are considered to be a powerful tool for capital structure. The reserve
requirement (or cash reserve ratio) is a central banks regulation that sets the minimum reserves
each commercial bank must hold (rather than lend out) of customer deposits and notes. It is
normally in the form of cash stored physically in a bank vault (vault cash) or deposits made with
a central bank.

The required reserve ratio is sometimes used as a tool in monetary policy for influencing the
country's borrowing and interest rates by changing the amount of funds available for banks to
make loans with.

Reserve requirements are also a powerful instrument of monitory policy to effectively and
efficiently control the countrys central bank reserve without keeping too much or too little cash.
It has to balance between profitability and safely.

In a liquidity crisis, the reserve requirements offer an avenue for maintaining bank solvency. In
non-crisis situations, they can be used to ease or tighten financial market. If the federal

16
government reduces reserve requirements, almost all of the freed reserves are invested banks,
easing credit conditions and stimulations the economy.

High reserve requirements, for instance, tend to increase the federals control over bank deposit
multiplication. Required reserves are a pool of funds that can be tapped in a liquidity crisis.
[

Required reserve reduces the profit of institutions compelled to hold them. (Smith, 1991)

Ratio Analysis

There are many ratios that can be calculated from the financial statements of a business firm
pertaining to a company's performance, activity, financing and liquidity. Some common ratios
include the price-earnings ratio, debt-equity ratio, earnings per share, asset turnover and working
capital. There is a tool used by individuals to conduct a quantitative analysis of information in a
company's financial statements. This is ratio analysis. Ratios are calculated from current year
numbers and are then compared to previous years, other companies, the industry, or even the
economy to judge the performance of the company. Ratio analysis is thus predominately used by
proponents of fundamental analysis.

The purpose of calculating financial ratio is to assess the position and performance of a business.
An assessment of current and past position and performance is useful in determining whether or
not the managers of the business have used the resources available in the efficient and effective
manner. It can also help in formulating views about the future which should be extremely
valuable when making decisions. Ratios are important and widely used as tools of financial
analysis.

Users of Ratio Analysis

Ratio analysis is used by three main groups such as managers, credit analyst, and stock analyst.
Managers, who employ ratio analysis of their companies financial statements, help them to
analyze, control and thus improve their respective firms operations.

Credit analyst, including bank loan officers and bond rating analysis, who analyze the ratio help
them to ascertain a companys ability to pay its debt; and stock analyst, who are interested in
companys efficiency, risk and growth prospect employ ratio analysis in general.

17
Capital Structure Ratios

The term capital structure refers to the extent to which a firm employs debt and capital to finance
its operation. These ratios are used to identify sources of funds in that they indicate whether the
firm finances all its sources from debt or equity or not. One measure of the degree of risk
resulting from debt financing is provided by these ratios. Debt to equity ratio and debt to asset
ratio are among the ratios that reflect capital structure.

Debt to Equity Ratio

Investors and creditors are interested not only in the short run liquidity of a company but also in
its solvency or in its ability to remain in business over the long run. The capital structure of a
company is a focal point in making this determination. All companies need to make a minimum
investment by the owner to start a new business. Many businesses benefit by incurring debt,
however, finding the right mix of debt and equity is an important factor to a business in
managing working capital in the short run. One common measure of long run viability is debt
equity ratio.

That is, Debt Equity Ratio = Total debt_

Total Equity

The ratio of debt to equity varies according to the nature of the business and the volatility of cash
flows. An electric utility, with very stable cash flows, will usually have a higher debt ratio than a
machine tool company, whose cash flows are far less stable. A comparison of the debt ratio for a
given company with those of similar firms gives us a general indication of the credit worthiness
and financial risk of the firm (Van Horne, 1998).

Debt Ratio

The debt ratio which is the ratio of total debt to total assets measures the percentage of the firms
assets financed by creditors (borrowing).

i.e., Debt Ratio = Total debt

Total assets

The total debt includes current liabilities and long-term debt. Creditors prepare low debt ratios
because the lower the ratio, the greater the cushion against creditors losses in the event of

18
liquidation. The owners, on the other hand, can benefit from leverage because it magnifies
earnings, and thus, the return to stockholders. But too much debt often leads to financial
difficulty, which eventually might cause bankruptcy (Weston et al., 1996).

[ Limitations of Ratio

While ratio analysis can provide useful information concerning a companys operations and
financial condition(s), it does have certain limitations that necessitate care and judgment. Many
large firms operate in different divisions and in different industries, and for such companies it is
difficult to develop a meaningful set of industries, on average. Therefore, ratio analysis is more
useful for small, narrowly focused firms than for large, multidivisional ones.

Most firms want to be better than average. However, a mere attainment of average performance
is not necessarily good. As a target of high-level performance, it is best to focus on the industry
leaders ratio (bench-marking helps in this regard).

Inflation may have badly destroyed firms balance sheet recorded value are often substantial
different from true value. Further, since inflation affects depreciation charge and inventory
cost, profit are also affected. Thus, a ratio analysis for one firm over time, or a corporative
analysis of firms of different age, must be interpreted with judgment. Firms can employ
window-dressing techniques to make their financial statement look stronger. It is difficult to
generalize about whether a particular ratio is good or bad.

A firm may have some ratios that look good and others that look bad which, in turn, make it
difficult to tell whether or not the company is balanced, strong or weak. However, statistical
procedures can be used to analyze the net effect of a set of ratios. Many banks and other lending
organizations use such procedures to analyze firms financial ratio, and then to classify them
according to their probability of getting into financial troubles.

Therefore, ratio analysis is useful, but analysts should be aware of these problems and make
adjustments as necessary. Ratio analysis conducted in mechanical, unthinkable manner is
dangerous, but if it is used intelligently and with good judgment, it can provide useful insights
into firms operations (Brigham & Houston, 2001).

19
Research Design and Methodology

Research Design and Methods

The study employed descriptive survey method using interviewing techniques. In addition,
documentary analysis was used to generate secondary data from pertinent documents produced
by the Bank. In order to collect relevant data for the study under consideration, both primary and
secondary data were collected from respective sources.

Sampling Methods

As the study is on capital structure of Wegagen Bank S. C. and only the concerned personnel
may give us the required data and/or information, we resorted to employ purposive sampling
technique (which is one type of non-random sampling) in collecting the data.

Data Collection: Tools and Procedures

In this study, both interview guide/protocol and documentary analysis checklist were used to
collect both primary and secondary data which could be suitable for the successful
accomplishment of the research design. The primary data was collected by holding formal and
structured interviews with key informants who are highly-posted official (s) of the Bank in order
to get first-hand pieces of information from the reliable sources. Besides, secondary data was
collected from the Companys documents, various types of literature, companys annual reports,
published and unpublished materials of the Bank using the checklist.

Methods of Data Analysis

The study employed both quantitative and qualitative data analysis methods. The quantitative
data were analysed using vertical analysis, horizontal analysis, and ratio analysis supported by
univariate statistical techniques such as frequency distribution to produce tables with frequencies
and percentages, figures and graphs as required according to the objectives and nature of
variables under investigation in the study.

Data Presentation, Analysis and Interpretation

This part of the paper is classified into two main parts based on the sources of the data used for
the analysis. Accordingly, the first part of the data presentation, analysis and interpretation is on

20
data gathered from the officials of Wegagen Bank through structured interviews. The second part
presents data generated from documentary analysis of pertinent and different types of documents
of the Wegagen Bank Share Company and other related literature.

As any type of business firm, the Bank also needs financing to keep existing projects going and
to take new projects. As can be understood from the Finance and Treasury Departments
responses, based on different sources of the assessment studies conducted on the financial
statements of Wegagen Bank, the Bank has got intricate problems, as stated by concerned
officials of the Bank:

The interest of the Bank is to increase its sources of finance; it doesnt consider any risk
associated with it. The Bank doesnt consider its ability to pay creditors interest and to
repay the principal. This means that, the probability of the Banks failure to pay
creditors interest and the principal is very high for the future even if it doesnt confront
ant solve this problem to date. Therefore, inflexibility of the Bank is high to meet the
changing conditions.

As it can be understood from the above excerpts taken from the structured interviews, the finance
manager has to be concerned with how to determine the best and reasonable finance mix or
capital structure for the Company. That is, the mangers decision to finance a project with debt
and equity must consider the ability of the Company to pay creditors interest, its flexibility to
meet changing conditions and risk associated with choices of each sources of finance. If the
financial manager does this properly, the Bank can operate without facing any difficulties.

There are also many factors that affect the Bank from raising the required equity capital. As per
their response from one of the Banks Managers, the absence of capital market decreases the
Banks Earning per Share (EPS) of the existing shareholders and increases in cost of capital. In
addition, the behaviour or attitude of the society to involve in investment is also the other factor
in raising the required amount of equity capital.

On the other hand, factors that affect raising the required debt are the expansion of the branch
networks, the attitude of the society in choosing bank and the level of income. Similarly, the
existing competition among banks and also governments regulations like that of huge reserve
required by National Bank of Ethiopia also affect amount of debt that will be used to finance its
assets.

21
 The following tables show vertical and horizontal analyses made on Wegagen Banks Balance
Sheets for the last four years starting from the Fiscal Year 2007 up to the Fiscal Year 2010.

Table 1- Wegagen Bank S .C. Balance Sheet of Vertical Analysis of the Data (as of June 30,
2007 for the Year ended on June 30, 2010 (Eth. Birr)

2007 2008 2009 2010

Description Amount % Amount % Amount % Amount %
Assets - - - - - - - -
Cash &Bank Balance 486043345 13.97 785096919 19.03 1953689386 38.17 1130263762 19.68
Reserve in NBE 131388527 3.78 393388527 9.54 528388527 10.32 598388527 10.42
Deposit in Foreign 702374258 20.18 624911230 15.15 433470784 8.47 1107079525 19.28
Banks
Treasury Bills in NBE - - - - - - 199990000 3.48
Loans and Advances 2060606127 59.21 2207928130 53.53 1983747131 38.76 2375625606 41.37
Stocks of supplies 6094277 0.18 10370787 0.25 10334237 0.20 29083956 0.51
Other Assets 43757435 1.26 45989245 1.11 134754442 2.63 202190283 3.52
Deferred Charges 597068 0.02 815801 0.02 16289148 0.32 16546518 0.29
Leasehold Land 15835026 0.45 15835026 0.38 15835026 0.31 15835026 0.28
Property, Plant and 33629327 0.97 40556241 0.98 41802778 0.82 66933372 1.17
Equipment.
Total Asset 3480325390 100.00 4124891906 100.00 5118311459 100.00 5741936575 100.00
Liabilities
Deposit from 2236583813 64.26 2567876386 62.25 3550855857 69.38 3815751230 66.45
Customers.
Deposit from Financial 487087044 14.00 398453771 9.66 177526300 3.47 107047487 1.86
Institutions.
Other Liabilities 153783036 4.42 228878979 5.55 251652599 4.92 329984826 5.75
Margin Held on 144467640 4.15 260159917 6.31 214384740 4.19 332174840 5.79
Letters of Credit
Provision for Taxation 41305813 1.19 51153448 1.24 75499105 1.48 94187072 1.64
Leasehold Land 13892078 0.40 12920604 0.31 11978274 0.23 11065089 0.19
Payable
Total Liabilities 3077119424 88.41 3519443105 85.32 4281896875 83.66 4690210544 81.68
Capital &
Reserves
Paid up Capital 233139000 6.70 370825000 8.99 517618000 10.11 633170000 11.03
Share Premium 5241450 0.15 9679450 0.23 14243500 0.28 21415250 0.37
Legal Reserve 73622138 2.12 108331528 2.63 153482102 3.00 209317331 3.65
Special Reserve 7972089 0.23 12484693 0.30 15619220 0.31 20317764 0.35
Retained Earnings 83231289 2.39 104128130 2.52 135451762 2.65 167505686 2.92
Total Capital and 403205966 11.59 605448801 14.68 836414584 16.34 1051726031 18.32
Reserves
Total Capital, 3480325390 100.00 4124891906 100.00 5118311459 100.00 5741936575 100.00
Reserves and
Liabilities
Source: Wegagen Bank, Annual Reports, 2007-2010.

22
As shown in Table 1, Wegagen Banks capital structure illustrates a mixed appearance. In the
years 2007and 2008, it was in liquid state but the Bank had shown some sort of improvement in
the consecutive years. It can be concluded that the Bank is liquid enough to meet its debts
obligations because its total asset to total liability was found to be 1.13:1 which is more than the
minimum acceptable standard ratio 1:1. In addition, this finding is below the generally desired
ratio of 2:1 which is again considered as satisfactory.

Regarding vertical analysis of the Banks data as of June 30, 2008; the findings indicate that the
Bank has failed to meet its obligations of debts. We can conclude that the Bank is liquid enough
to meet its obligations because its total asset to total liability was found to be 1.17:1 which is
more than the minimum acceptable standard ratio 1:1.

In the same framework, the vertical analysis of the data collected from the Bank as of June 30,
2009 comes up encouraging improvement. One could observe this in Table 1 in that Wegagen
Bank had been trying its best to be in at status of encouraging improvement. The Bank showed
its ability of solving its liquidity problems because the current total asset to total-liability had
become 1.2:1.

At the positive side of the continuum, one can also notice such an improvement in the Banks
endeavour to solve its problem of liquidation in 2010. The vertical analysis of the data as of
June 30, 2010 is a case in point. The data analysis of these data showed that total asset-to-total
liability ratio was found to be 1.22:1. If we scrutinize the findings of the study based on the data
generated for the last three years, the overall trend of the vertical analyses has shown an
improvement to solve liquidity problems on the part of Wegagen Bank.

Table 2 shows data as of June 30, 2007 for horizontal analysis of the Wegagen Bank Share
Company. Its liquidity also increases. In the case of the horizontal analysis of the data as of June
30, 2008; total asset to total debt ratio increases by 3.54% from the base year of 2007. Based
on this finding of the study, it is assumed that the Banks liquidity problem will increase.

The horizontal analysis of the data as of June 30, 2009 further reveals that Wegagen Bank has
used more of the equity finance. The total asset to total debt ratio increases by 5.3% from the
base year of 2007 and this shows that the Company has been using more of equity financing than
debt financing to finance its asset.

23
Table -2 Wegagen Bank S. C. Balance Sheet Horizontal Analysis for the Years June 30, 2007 -
June 30, 2100

2007 2008 2009 2010

Description Amount % Amount % Amount % Amount %
Assets

Cash & Bank Balance 486043345 100.00 785096919 61.52 1953689386 301.96 1130263762 132.54

Reserve in NBE 131388527 100.00 393388527 199.41 528388527 302.16 598388527 355.43

Deposit in Foreign Banks 702374258 100.00 624911230 -11.03 433470784 -38.28 1107079525 57.62

Treasury Bills in NBE - 100.00 - - - - 199990000 0

Loans and Advances 2060606127 100.00 2207928130 7.15 1983747131 -3.73 2375625606 15.288

Stocks of supplies 6094277 100.00 10370787 70.17 10334237 69.573 29083956 377.23

Other Assets 43757435 100.00 45989245 5.10 134754442 207.96 202190283 362.07

Deferred Charges 597068 100.00 815801 36.63 16289148 2628.2 16546518 2671.3
Leasehold Land 15835026 100.00 15835026 0.00 15835026 0 15835026 0
Property, Plant &Equipment 33629327 100.00 40556241 20.60 41802778 24.305 66933372 99.033
Total Asset 3480325390 100.00 4124891906 18.52 5118311459 47.064 5741936575 64.983
Liabilities
Deposit from Customers. 2236583813 100.00 2567876386 14.81 3550855857 58.762 3815751230 70.606
Deposit from Financial
Institutions. 487087044 100.00 398453771 -18.20 177526300 -63.55 107047487 -78.02

Other Liabilities 153783036 100.00 228878979 48.83 251652599 63.641 329984826 114.58
Margin Held on Letters of
Credit 144467640 100.00 260159917 80.08 214384740 48.396 332174840 129.93
Provision for Taxation 41305813 100.00 51153448 23.84 75499105 82.781 94187072 128.02
Leasehold Land Payable 13892078 100.00 12920604 -6.99 11978274 -13.78 11065089 -20.35
Total Liabilities 3077119424 100.00 3519443105 14.37 4281896875 39.153 4690210544 52.422
Capital and Reserves
Paid up Capital 233139000 100.00 370825000 59.06 517618000 122.02 633170000 171.58
Share Premium 5241450 100.00 9679450 84.67 14243500 171.75 21415250 308.57
Legal Reserve 73622138 100.00 108331528 47.15 153482102 108.47 209317331 184.31
Special Reserve 7972089 100.00 12484693 56.61 15619220 95.924 20317764 154.86
Retained Earnings 83231289 100.00 104128130 25.11 135451762 62.741 167505686 101.25
Total Capital and Reserves 403205966 100.00 605448801 50.16 836414584 107.44 1051726031 160.84
Total Capital, Reserves and
Liabilities 3480325390 100.00 4124891906 18.52 5118311459 47.064 5741936575 64.983

Source: Wegagen Bank, Annual Reports, 2007 - 2010.

In addition, horizontal analysis of the data as of June 30, 2010 collected from the Banks
documents indicates its efforts to reduce the problems of debt financing and financial risk so that

24
the Bank can increase equity sources of finance in its day-to-day activities. The total asset to
the total debt ratio of the Bank was found to increase by 7.96% when compared to that of the
base year of 2007. Thus, Wegagen Bank has been trying its best to reduce its debt financing and
its financial risk by increasing its equity sources of finance since 2007.

Liquidity Requirements

With respect to the liquidity requirements, the National Bank of Ethiopia (NBE) has laid down
the directive that enforces any bank in Ethiopia to maintain at least 15% of its total liabilities.
From this percentage, the bank should cover at least 5% of the requirements by primary reserves
(cash and bank balance in the NBE) and at most 10% by secondary reserve (balance held in
licensed banks in Ethiopia).

In the banking business, liquidity requirements are imposed on banks by the central bank of a
given country, like the National Bank of Ethiopia. The trend of the liquidity requirements in the
sample bank is presented in Table 3. This table shows the trend of liquidity requirements for the
sampled cross-sectional years beginning from the year June 30, 2007 to the year ended June 30,
2010.

Table - 3 Trend of Liquidity Requirements of Wegagen Bank S.C. over the Last Four
Years: June 30, 2007 - June 30, 2010 (Eth. Birr).

2007 2008 2009 2010

Description Amount % Amount % Amount % Amount %
Reserve in NBE 131388527 4.27 393388527 11.18 528388527 12.34 598388527 12.76
Legal reserve 73622138 2.39 108331528 3.08 153482102 3.58 209317331 4.46
Special reserve 7972089 0.26 12484693 0.35 15619220 0.36 20317764 0.43
Total primary reserve 212982754 6.92 514204748 14.61 697489849 16.28 828023622 17.65
Deposit in foreign bank 702374258 22.83 624911230 17.76 433470784 10.12 1107079525 23.6
Treasury bill in NBE _ - - - - - 199990000 4.26
Deposit in local bank 486043345 15.80 785096919 22.31 1953689386 45.63 1130263762 24.10
Total secondary reserve 1188417603 38.63 1410008149 40.06 2387160170 55.75 2437333287 51.97
Total liabilities 3077119424 100.00 3519443105 100.00 4281896875 100.00 4690210544 100.00

Source: Wegagen Bank, Annual Reports, 2007 2010.

From Table 3, it could be clearly observed that the Bank had had no problem of liquidity
requirements. That is to say, it has already fulfilled the liquidity requirements in both primary
and secondary requirements. Therefore, it can be said that the Bank is very reliable in its ability

25
to honour its debt (obligations) because in all the years considered in the study, the data which
had been extracted from the audited balance sheets showed the existence of excess liquid assets
in both primary and secondary reserves. However, it is not advisable to have excess reserve.
Therefore, the Bank has to try to reduce this excessive reserve in some allowable investment
areas.

Reserve Requirements

Historically, many countries restricted entry into the banking business by granting special
charters to select firms. While the practice of granting charters has become obsolete, many
countries effectively limit or prevent foreign banks or subsidiaries from entering their banking
markets and thereby insulating their domestic banking industries from foreign competition. One
of the forms of bank regulation consists of laws enforcing mandatory cash reserves requirement
on the part of the banks. Minimum cash reserves have been a long-established form of bank
regulation. The requirements that each bank maintain a minimum reserve of base money has
been justified on the grounds that it reduces the bank's exposure to liquidity risk (insolvency),
aids the central bank's efforts to maintain control over national money stocks (by preserving a
more stable relationship between the outstanding quantity of base money (which central banks
are able directly to regulate, and the outstanding quantity of bank money), and it helps the central
bank to secure government revenue. In contrast, some economists have challenged the concept of
legal reserve requirements by arguing that they are not necessary for effective monetary control.
More than a dozen countries, unlike Ethiopia, had got encouraged by such an argument,
abolished mandatory reserve requirements starting in the mid-1980s.

According to the National Bank of Ethiopia (NBE) (2010), any licensed bank is expected to
maintain 5% of its demand, saving and time deposit in balance held with NBE. Deficiencies in
reserve balance, however, are subject to penalty. The penalty will be assessed at a rate twice
the current average rate of interest fixed on loans and advances from time to time based on
deficiency in reserve to be computed over the period covered by the report.

Table 4 presents summary of the trend of the amount of the reserve requirements on the part of
Wegagen Bank for the years commencing from the year 2007 to the year 2010. It is shown that
the Bank has met it required reserves (i.e. five percent of the total deposit) in National Bank of
Ethiopia (NBE).

26
Table - 4 Trends of Wegagen Bank Reserve Requirements over the Last Four
Consecutive Years: June 30, 2007 - June 30, 2010 (Eth. Birr).

Year Required reserve (5%) Total deposit Actual Excess (deficit)

2007 111829191 2236583813 131388527 19559336
2008 128393819 2567876386 393388527 264994708
2009 177542793 3550855857 528388527 350845734
2010 190787562 3815751230 598388527 407600966
Source: Wegagen Bank, Annual Reports, 2007-2010.

According to the qualitative findings of the study, the maintenance of reserve requirements on
the part of the Bank has paramount importance in solving its problem in insolvency during a
liquidity crisis. One of the senior officials in the Share Companys Finance and Treasury
Department had such opinions, as the official stated: Increasing the reserve with the National
Bank of Ethiopia offers avenue for maintaining bank insolvency during a liquidity crisis. In non-
crisis situation, they can be used to easy or tighten financial market. From qualitative analysis
of this excerpt of interviews, we can understand that if the Federal Government of Ethiopia
reduces the amount of reserve requirements, almost all of the freed reserve is then invested in
banks, easing credit conditions and stimulating the economy.

From Table 4, it can be seen that the Bank has met its required reserve in the National Bank of
Ethiopia (NBE). Nevertheless, the reserved cash in the National Bank has been found to be
excess in all those years. Therefore, excess reserve should be invested in some alternative and
productive investment areas like treasury bills; they could have generated significant earning to
the Bank. As clearly observed, the Bank has incurred high opportunity cost in failing to invest its
idle cash with regard to excess reserve. Thus, Wegagen Bank has to assess short-term and long-
term investment opportunities and should then invest its idle cash to maximize the wealth of its
shareholders.

Capital Structure Ratio Analysis

In order to facilitate the analysis of capital structure of the Bank, let us consider ratio analysis as
well as leverage ratios of the Share Company.

Ratio Analysis

A firm's balance sheet contains many items that (taken by each of them separately) have no clear
meaning. Financial ratio analysis is a way of appraising their relative importance. The ratio of

27
current assets to current liabilities, for example, gives the analyst an idea of the extent to which
the firm can meet its current obligations. This is known as a liquidity ratio. Financial leverage
ratios (such as the debtasset ratio and debt as a percentage of total capitalization) are used to
make judgments about the advantages to be gained from raising funds by the issuance of bonds
(debt) rather than stock. Activity ratios, relating to the turnover of such asset categories as
inventories, accounts receivable, and fixed assets, show how intensively a firm is employing its
assets. A firm's primary operating objective is to earn a good return on its invested capital, and
various profit ratios (profits as a percentage of sales, of assets, or of net worth) show how
successfully it is meeting this objective.

Generally, ratio analysis is used to compare a firm's performance with that of other firms in the
same sector or with the performance of sector in general. It is also used to study trends in the
firm's performance over time and thus to anticipate problems before they develop to full-fledged
scale. Therefore, ratio analysis applies to a firm's current operating posture. But, a firm must also
plan for future growth. Next, let us consider leverage ratios which are important inputs for
financial ratio analysis of the data collected from the Bank.

Leverage Ratios

Leverage ratios measure the extent of the firms total debt burden. They reflect the Companys
ability to meet its short and long term debt obligations. Leverage ratios are thus computed either
by relating the debt and equity (stock holders) items or debt (creditors) and total asset items from
the balance sheet.

Debt Equity Ratio

[ Debt-equity ratio measures the balance of fund provided by creditors and shareholders. It is
calculated by dividing the total debt to total owners equity. As illustrated in Table 5 and Figure
1, the trends of the debt-equity ratios for the years starting from 2007 to 2010 have shown a
decreasing pattern.

28
Table -5 Trends of Debt- Equity Ratio over the Last Four Years: June 30, 2007- June 30,
2010 (Eth. Birr).
Years
Description 2007 2008 2009 2010
Total debt 3,077,119,424 3,519,443,105 4,281,896,875 4,690,210,544

Total equity 403,205,966 605,448,801 836,414,584 1,051,726,031

Debt-equity ratio 7.63 5.81 5.12 4.46

Source: Wegagen Bank, Annual Reports, 2007-2010.

Figure 1-- Debt-Equity Ratios

Source: Own survey, 2011.

As indicated above, on average, the debt equity ratio was found to be about 5.76. This ratio
shows that creditors have covered 84.31% financing which is very high contribution. This shows
that lenders have contributed more funds than owners, that is, lenders contribution is 5.76 times
that of the owners contribution. This indicates that, from the point view of creditors, it
represents an unsatisfactory situation since a high portion of debt provides a low margin of safety
for them. During the period of low profit, the debt servicing will prove to be high burdensome
for the share Company. However, from the shareholders point of view, there is an advantage
during the period of good economic activities. This high debt-equity ratio will provide high rate

29
of earnings to shareholders when the cost of capital is less than the Companys overall rate of
return on investment.

Debt Ratio

It is debt-to-total asset ratio which measures the proportion of borrowed funds used to acquire
the Companys asset. The following debt-to-total asset ratios of the Wegagen Bank are
calculated based on data collected for the last four years 2007-2010. The calculation is given as
follows:

Debt ratio= Total liability/Total Asset

Debt-asset ratio also measures how much of the Banks assets are financed by creditors. Table 6
and Figure 2 show the trends of debt ratios of the Bank for the last four years starting from 2007
to 2010.

Table 6 Trends of Debt-Ratios of Wegagen Bank over the Last Four Years: June 30, 2007
- June 30, 2010 (Eth. Birr).

Item Years
2007 2008 2009 2010
Total debt 3,077,574,424 3,519,443,105 4,281,896,875 4,690,210,544
Total asset 3,480,280,390 4,124,891,893 5,118,311,459 5,741,936,575
Debt ratio 0.88 0.85 0.84 0.81

Source: Wegagen Bank S.C., Annual Reports, 2007-2010.

30
 Figure 2 -- Debt Ratio of Wegagen Bank S.C.
Source: Own survey results, 2011.

As indicated in Table 6, the debt ratio was found to be 0.87, on average. It represents that
84.31% of the total assets are financed by using debt or external sources and finance. The
remaining, 15.69% represent equity sources of finance. In this ratio, we can say that the claim of
creditors is greater than that of the shareholders. This high debt ratio introduces inflexibility in
the Banks operations to the extent of increasing interference and pressure from creditors. This
also capacitates Wegagen Bank to borrow funds on very restrictive terms and conditions.
Sources and finance are highly dependent on debt; it is exposed to financial risk like credit risk,
liquidity risk and foreign exchange risk. During a period of low profit, because of this high debt
ratio, it suffers great strains and it cannot even pay the interest charge of creditors.

Summary, Conclusion and Recommendation

Summary

Wegagen Bank Share Company needs source of finance to engage in its operational activities
and for the achievement of its objectives. The long term source of financing of the Bank (that is
equity and debt) showed increasing growth rate from year to year and the Bank also tried to have
much source of finance. The interest of the Bank is to increase its source of financing; it doesnt
consider risk associated with the source of financing such as financial and business risk.

31
The Bank has high inflexibility to changing conditions in striving towards achieving such
combinations of securities. Hence, the management of the Bank finds it easier to manage sources
of funds in response to major changes in need for fund.

The absence of capital market and the behaviour or attitude of the society to involve in
investment is main factors that affect the bank in raising the required equity capital. The
expansion of the branch network, the attitude of the society in choosing banks, the level of
income, competition among the banks and government regulations are also other main factors
that affect raising the required debt.

There has been more and more increase in the total asset-to-total liability ratio (to measure
liquidity) in Wegagen Bank Share Company throughout the four years. The minimum standard
for total asset-to-total liability ratio is 1:1. However, the ratio has shown a decreasing trend
which is unsatisfactory one for those years considered.

The leverage ratio has decreased throughout the four years. Based on the leverage ratios
calculated for the Bank, the Company has total debt burden. Thus, Wegagen Bank may not be
able to meet its short and long term debt obligations.

The Bank has fulfilled rules and regulations set by the by National Bank of the Ethiopian
Government concerning liquidity and reserve requirements. But the amount of cash reserved by
the Bank in the NBE has been excess in all those years.

Finally, Wegagen Bank S.C. is exercising high debt proportion in its capital structuring; that is,
lenders contribution is much higher than that of the owners.

Conclusion

The objective of the study was to assess the role of capital structure and its impact on different
activities of the Wegagen Bank S. C. It generally intended to assess Banks capital structuring
role and to examine its impact on returns, customers willingness to deposit and liquidity
problem.

By way of conclusion, the Bank is generally characterized by high degree of inflexibility,

decreasing shareholders EPS and increased cost of capital, a combination of factors that has
affected its efforts of securing the required amount of debt for financing its operations, being
liquid enough to meet its debt obligations, and its liquidity state is considered to be

32
unsatisfactory albeit it has shown some sort of improvement since 2009, has been consuming
more of its equity finance, fulfills both liquidity and reserve requirements imposed by the
National Bank of Ethiopia, incurs, high opportunity cost in failing to invest its idle cash at the
NBE, has also experienced a declining pattern of debt-equity ratio, and then the Banks capital
structure is exercising high debt proportion.

In order to increase its sources for financing its operations without considering risks associated
with such endeavours, Wegagen Bank gets involved in debt. In addition, in this framework, there
is a high degree of inflexibility to cope up with the changing conditions. The absence of capital
market decreases the existing shareholders Earning per Share (EPS) which, in turn, increases
cost of capital.

In the Bank, combined effects of factors affect its efforts to generate the required amount of
equity capital. The societys attitude or behavior to get involved in investment is the other factor
which have created problem in raising the required amount of equity capital for the Banks
operations. Similarly, the expansion of the branch offices networks, the attitude of the society in
choosing bank, and the level of income on the part of the dwellers of the city of Addis Ababa
have combined and, consequently, limited Wegagen Bank required debt from various sources
for structuring its capital. In addition, the existing competition among banks and the Ethiopian
Governments regulations, particularly the huge amount of reserve requirements in the NBE
seriously affect the amount of debt to finance its assets.

The vertical analysis of the Banks balance sheet shows that it has been experiencing up and
down for the last for years. For example, in the years 2007 and 2008, Wegagen Bank was in
liquidity state. However, it has started some sort of improvement in solving this problem since
2009.

On the contrary, the Bank is liquid enough to meet its debt obligations because its total asset to
liability was found to be a bit greater than the minimum acceptable standard ratio (1:1) and
below generally desired ratio (or satisfactory level). Thus, the Banks liquidity state is considered
to be unsatisfactory. The overall trend of the vertical analysis has shown an improvement to
solve the existing liquidity problem of Wegagen Bank Share Company.

The horizontal analysis, on the other hand, clearly indicates that the Company has been utilizing
more of its equity finance (i.e. as the total assets to total debt ratios have shown an increase for
the last four consecutive years.

33
Regarding liquidity requirements, Wegagen Bank has no problem of fulfilling the requirements
because it has already fulfilled both primary and secondary requirements imposed by the NBE
under the auspices of the Ethiopian Government. Therefore, the Bank has excess liquidity assets
in both primary and secondary reserves which should be channeled and reduced by legally
permitting the Company to invest such resources in allowable areas.

Moreover, the Bank fulfills its imposed reserve requirements which may play significant role in
solving its problem of liquidity crisis. Nevertheless, this has some repercussions on banks
investment activity, its efforts of easing credit conditions and stimulating the countrys economy.
Consequently, the Bank incurs high opportunity cost in that it has failed to invest its huge
amount of idle case at the NBE. It is concluded that the Bank has to assess short- and long-term
investment opportunities in order to do so and then to maximize the stakeholders wealth.

With regards to capital structuring in terms of debt-equity ratio, the Wegagen Bank Share
Company has experienced a decreasing trend of debt-equity ratio from 5.18 in 2007 to 4.46 in
2010. The Bank, on average, has had 5.76 debt-equity ratio during those four years of operations.
Therefore, the leaders contribution was 5.78 times that of the shareholders during the said time
period. Wegagen Banks debt ratio (i.e. debt-to-total asset ratio) was, on average, 0.87. This
means that about 84% of the total assets are financed by using debt or external sources of
finance; while 16% of accounts for equity as sources of financing its overall operations. The
latter ratio, in turn, indicates that the creditors claim is greater than that of the shareholders
during those years.

On the whole, Wegagen Bank is on the verge of risk in terms of a number of pertinent factors
that should be considered in deciding on the type of capital structure to follow. Even if the Bank
doesnt experience the risks (both financial and business risks) to date, it does not mean that the
situation will not occur in the future. This implies that the Bank is not in a good position to
consider one of the basic guiding principles (risk principle) in capital structure formation.

The inflexibility of the Bank is high in response to major changes in need for funds. The
Company is not using the flexibility principle in capital structure which implies that the
bargaining position of the Bank is not good while dealing with suppliers of funds.

Ass there is an increase in asset-to-total liability ratio, it can be concluded that the Bank is
improving its capacity to overcome liquidity problems. The decrease of the leverage ratios may

34
indicate that the Bank has been trying its best to finance its assets more from equity than it does
from debt. These are favorable conditions for the Bank, unlike the existing condition..

The Bank abides to the rules and regulations set by the Ethiopian Government concerning
liquidity and reserve requirements set by NBE. Although fulfilling the liquidity and reserve
requirements is advantageous for the operation of the Bank, the excess amount of cash kept
above the requirements is not advisable. The excess reserve of Wegagen Bank in the NBE
implies that the Bank has been inefficient in investing its idle cash in alternative and legally
permitted investment areas.

The bank is also exercising high debt proportion; that is, the lenders contribution is much higher
than that of the owners. From the point view of creditors, this represents an unsatisfactory
situation since a high portion of debt provides a low margin of safety for them. During the period
of low profit, the debt servicing will prove to be high burdensome for the Company. However,
from the shareholders point of view, there is an advantage during the period of good economic
activities. This high debt-equity ratio provides high rate of earnings to the shareholders when
the cost of capital is less than the Companys overall rate of return on investment. In conclusion,
the Banks leverage ratios clearly show that it has suffered from great strains which may
tantamount to its failure to pay the creditors interest charges. Therefore, Wegagen Bank Share
Companys structure has been dominated by debt or has a mix of more of debt than equity in
financing its operations. Thus, concerned officials of the Bank, the NBE, and policy makers at
different levels in the country should take into account this package of empirical findings and the
conclusions reached while working on issues related to capital structure of such marketing and
banking firms in various socio-economic contexts.

Recommendations
Based on the data-supported empirical findings and conclusions made, the researchers forward
the following recommendations:
The Banks finance manager, in his decision to finance projects with debt and equity
should consider:

The Banks ability to pay the creditors interest and to repay its principal;

Its inflexibility to meet changing conditions;

Risks associated with choosing each sources of finance;

35

Although the Bank fulfills its required level of reserve set by the NBE, it should
reduce its excess reserve and then invest it in some short-term investment like
treasury bills and in other non-fixed income securities; and

The Bank has to reduce its debt in order to reduce its financial risk and business
risk by performing one or more of the following:
The Bank should pay some of its debt;
The Bank should put more of its profits back into the Company (that is
increasing the amount of its retained earnings);
The Bank should increase its assets from new equity contribution; and
The Bank shall issue additional shares.
As the financial objective of the Bank is to maximize the value of its assets, the
management body of Wegagen Bank, therefore, has to give due attention in determining
the best and reasonable financing mix for the achievement of its objective. That is, the
decision to finance its operations with debt or equity capital has to consider financial
risks associated with choices of each source of financing.
Even if the leverage ratio is decreasing, it does not mean that the bank is free of risk. So,
the researchers recommend that the bank should prepare itself to overcome unforeseen
risks some time in the future.
It is also suggested that further studies on the creditors and the shareholders attitudes
towards and perception of the existing capital structure of Wegagen Bank and/or other
private and government owned firms using some of the influential theories of capital
structuring both vertically and horizontally in Addis Ababa in particular and in Ethiopia
in general.

36
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39
 ASSESSING THE EFFECTIVENESS OF ADVERTISING AT DASHEN BANK SHARE
COMPANY IN ADDIS ABABA

Eskedar Dibekulu

Abstract

The study assessed the effectiveness of advertising in the Dashen Bank Share Company in Addis
Ababa, Ethiopia. In the era of globalization where free-market economic system operates and
extremely competitive market environment prevails in most countries of the world, advertising
has paramount importance in both private and public sectors. More than ever before,
advertising has become an integral part of the social and economic systems of most societies in
the world. Cognizant of the importance of advertising, business organizations use appropriate
advertising strategies and methods to effectively and efficiently communicate with customers in
different financial institutions, including Ethiopia. In all Area Branches of Dashen Bank, female
customers were found to be dominant ones with more than half (51.4%) of the representation in
the study. The majority of the respondents (67.3%) were in the age category of 18-37 years
which could relatively be considered as young adults from both sexes. A considerable proportion
of the sampled regular customers of Dashen Bank have already achieved a dip0loma
educational status. About 71% of the respondents were found to have access to TV as advertising
media. The most significant proportion of them also considered TV as the most widely used
media by the Bank. The same advertising media was chosen as the most influential media (about
80%). In the same framework, the same media was further the most preferred form of advertising
media (75%) among the various types of media used by the Bank. TV which is the most liked
advertising media by the responding customers is the influential media to motivate them to
become customers of the Bank (r=.622). On the other hand, there exists negative relationship
between the most accessible media type and the most influential advertising media which are
used by the Bank. Therefore, the most accessible media identified by the customers may not
necessarily be influential one to motivate the respondents to become customer of Dashen Bank.
The relationship between the most accessible media type and the most liked type of advertising
media is not statistically significant. In addition, TV advertisings are the ones which are more
recalled by the sampled customers than other types of adverting. Thus, advertisings on TV of the
Bank are the most effective media in reaching to the customers and to stay longer in their minds.
The broadcast (TV and radio) advertising media used by the Bank were liked most by those
people who participated in the study (85%). The same proportion of the respondents expressed
the believability of the messages advertised on TV and radio media because they had showed
either strong agreement or agreement to the attractiveness of the Banks advertising messages
communicated. Generally, the Banks advertisings have helped the sampled customers to become
positive deviants in order to develop positive attitude towards the Banks service qualities, to
know it in general and then to get influenced and convinced positively to become its customers.
Similarly, the findings of the descriptive data analysis were found to be consistent with those
above-stated observations. However, the customers knowledge of the Banks service qualities
has no significant effect on their positive action-oriented decisions to become customers of
Dashen Bank S.C. Based on the information provided by the Officials in the Marketing
Department of the Bank, the study has found out that problems in the Banks advertising
strategies and methods used as well as in allocating well-planned budget for adverting.
Therefore, the study concludes that Dashen Bank S. C. has been effective in the implementation
of various types of advertisings on TV and radio in that it uses rational and appealing messages

40
in its advertisings which are believed to be the most effective ones in terms of persuading and
convincing customers to take reasonable decisions of joining the bank. It is also recommend that
the Bank should use various types of adverting on different types of media and should frequently
assess their effectiveness by allocating research-based budget for the advertisings to bring
improvements in all aspects of its operations in the future.

Introduction

Background of the Study

In the era of globalization where free-market economic system operates and extremely
competitive market environment prevails in most countries of the world, advertising ones
products and/or services has come to be the most significant task of organizations in both the
private and public sectors. In this regard, Belch and Belch (2003, p.16) defined advertising as
any paid form of non-personal communication about an organization, product, service, or idea
by an identified sponsor. On top of this, Brett (2008) also stated that advertising is
a form of commercial mass communication intended to persuade an audience (viewers, readers,
or listeners) to purchase or consume or take some action upon products, services, or ideas on
behalf of an institution or organization. It usually includes the name of a product or service and
how that product or service could benefit the consumer, to persuade a target market to purchase
or to consume that particular product or service.

These days, more than ever before, advertising has become an integral part of the social and
economic systems of most societies. Almost every one of us in this modern world is influenced
by advertisements. Organizations have recognized that the ability to communicate effectively
and efficiently with the customers by using appropriate advertising strategies and methods is
critical to their success. That is why companies ranging from large multi-national corporations to
small retailers increasingly rely on advertising to promote marketing of their products and
services. Accordingly, consumers have also come to rely on advertisings for information they
can use in making decisions to purchase products or use services of different companies (Belch
& Belch, 2003, p. 5).

In Ethiopia, the importance of advertising is also growing after the new free market economic
system has been implemented in the country. The new economic policy in Ethiopia was
introduced by the Ethiopian government in November 1991 which ended the implementation of
the command economic system thereby heralding the establishment of a market-oriented

41
economic system. This change in economic policy has created conducive environment and
opportunity for the emergence of private financial institutions aimed at the beginning of a
meaningful economic role in the development efforts of the country. In this respect, Dashen
Bank is one of the private financial institutions which was established as per the intent of the
new economic policy and the Ethiopian Investment Code (Dashen Bank, 2010, p.1-3).

Dashen Bank is a share company which was originally founded by 11 businessmen and
professionals who agreed to combine their financial resources and expertise to form a new
private bank. It came into existence on September 20, 1995 according to the 1960 Commercial
Code of Ethiopia and the licensing and supervision of banking business Proclamation No.
84/1994 (Dashen Bank, 2010). The Bank was established with an authorized and subscribed
capital of Eth. birr 50 million, and recently its paid up capital and legal reserve (primary capital)
has recorded over Eth. birr 787 million. Since its establishment, the Bank has been expanding its
service outreach. Currently, it has 55 Area Banks, 5 Forex Bureaus, 40 ATM sites and more than
550 Point of Sale Terminals (POS) (Dashen Bank, 2009, p. 1-5).

Similar to other companies operating in Ethiopia, Dashen Bank has also been employing its own
advertising strategies and methods in order to communicate with the available consumer market.
To this end, the study intended to assess the effectiveness of advertising in the Dashen Bank
Share Company.

Statement of the Problem

Advertising is one of the crucial factors for the survival and success of a business. Among other
benefits, effective advertising enables a company to attain wide ranges of objectives such as
improving its public image, capturing the attention of its consumers, and triggering its sales and
profits. Hence, these days, it is within these frameworks that many companies spend a huge sum
of budget in their advertising programs (Belch & Belch, 2003, p.16-18).

As more and more products and services of varying qualities are being available in the market,
effectively advertising the special features and benefits of ones products and services as
compared to others, particularly for companies whose products and services are targeted at mass
consumer markets, is very essential. However, selecting and employing the most effective
advertising that fits to the business needs of a company and that appropriately provides
customers with the information that they need is not an easy task. It is rather a difficult task that
requires a companys great attention and efforts to assess and to evaluate the effectiveness of its

42
entire advertising programs and the basic elements such as the advertising missions, media,
message, money and measurement (Clow & Baack, 2003, p. 251-253).

Assessing the effectiveness of its advertisements helps a company to determine whether or not its
advertisements are working and how well they are working relative to other options. It
particularly offers a number of advantages such as avoiding costly mistakes of advertising,
evaluating alternative advertising strategies, determining if advertising objectives are achieved or
not, and increasing the efficiency of advertising in general. Therefore, assessing the effectiveness
of the basic components of advertising program should be taken as a critical element in the
planning process of advertisings of a company (Belch & Belch, 2003, p. 621).

As one of the private financial institutions operating in the extremely competitive market-based
economy of Ethiopia, the survival and success of Dashen Bank is dependent not only on the
quality of services that it renders, but also on the effectiveness of its advertisement programs in
communicating with its potential market. In this respect, the Bank has been employing different
advertising strategies. It has been disseminating messages about its services using almost all sorts
of the advertising media such as broadcast, print and out-doors in order to communicate with its
customers and to achieve its overall marketing and communication objectives.

Though this had been the case, it was learnt from the Banks organizational structure that an
independent body responsible for administering the marketing and communication activities of
the Bank in general and its advertising programs in particular has not been organized so far. By
a preliminary observation of the Bank, the student researcher also discovered that the bank had
been running its advertising programs with no clearly set guidelines as to how it administers its
advertising missions, money, media and messages. Furthermore, it was learnt from the
observation that much has not been done so far to assess and to evaluate the effectiveness of the
Banks advertising program in general and its advertising missions, messages and media in
particular. Therefore, it was because of all these problems that the student researcher was
initiated to conduct this study. Thus, the study intended to assess the practice of advertising in
the Dashen Bank Share Company and to evaluate its effectiveness in helping the Company to
achieve its overall marketing and communication objectives.

43
Research Questions

In this study, the student researcher attempted to find answers for basic questions related to the
advertising programs and activities of the Dashen Bank Share Company. In this regard, the major
research questions of the study include the following.

What types of adverting strategies has the Bank been employing to communicate with its
potential customers in the market?

What types of advertising methods has the Bank used to advertise its overall activities?
Which of the advertising media and messages of the Bank are the most effective ones in
convincing its customers and in contributing to the attainment of its marketing and
communication objectives?
How effective are the advertisements of the Bank in line with its set marketing and
communication objectives?
What types of problems exist in the advertising strategies and methods of the Bank? and
How does the Bank allocate its advertising budget and evaluate its impact on the
effectiveness of the advertisements?

Objectives of the Study

The student researcher tried to attain both general and specific objectives of the study in order to
assess and to evaluate the advertising programs and activities of the Dashen Bank Share
Company. In this respect, the general objective of the study was to assess the effectiveness of the
overall advertising strategies and practices of the Dashen Bank Share Company. Specifically, the
study intended to:

Identify the advertising media used and messages of the Bank which are the most
effective methods in convincing its customers and in contributing to the attainment of its
set marketing and communication objectives;
Examine to what extent the advertisements of the Bank are effective in achieving its
marketing and communication objectives;
Identify the major problems which existed in the advertising strategies and methods of
the Bank used; and

44
 Evaluate the practice of advertising budget setting in the Bank and its impact on the
effectiveness of its advertisements.

Significance of the Study

The results of this research will hopefully contribute a lot to the Dashen Bank and other similar
companies that are operating in the ever growing competitive market of the financial sector of
Ethiopia. Among others, the research will have the following major significance: The findings
will help the bank to identify the strengths and weaknesses which exist in its advertising
programs and strategies; to recognize those major factors which may determine the effectiveness
of its advertising programs and strategies; and to take appropriate measures that help the Bank to
improve the effectiveness of its advertising programs and strategies. Furthermore, the empirical
findings of this study will be used as inputs to policy makers, practitioners, existing knowledge
reservoir and other similar studies on different aspects of the issue under investigation by other
researchers who are interested to conduct further studies on related problems in the future.

Delimitation of the Study

Advertising is practiced in three broad categories of media classes such as broadcast, print and
outdoor. In Ethiopia, television, radio, billboards, newspapers, and magazines are the
most frequently used types of advertising media. Various companies which are operating their
businesses in the country use different media types that they think are appropriate to effectively
communicate with their customers. In this regard, Dashen Bank has been employing almost all of
those major advertising media types available in Ethiopia.

As the broadcast advertising media is the one which is widely used in Ethiopia and it is also the
one that reaches to massive number of people, the student researcher is interested to examine this
particular advertising media of the Dashen Bank. Hence, this study was limited to the assessment
of the effectiveness of the broadcast media (television and radio) advertisements of the Bank.
The study also included only the banks regular customers in Addis Ababa. In this respect, the
student researcher believed that narrowing the scope of the study helps make thorough
investigation of the problem under consideration.

45
Limitations of the Study

When the student researcher actually conducted this study, some problems and challenges were
faced. These are lack of cooperation on the part of most of the staff in the Marketing Department
of the Bank to participate in the interviews and to provide pieces of information required for the
study. Therefore, an interview was conducted only with the Marketing Manager of the Bank and
this may limit the scope of date to be collected in the Department about the Bank.

A few of the Banks customers who were participated in the study had failed to return back the
questionnaires that they took to fill out. Thus, the researcher was not in a position to collect
primary data and/or information from the proposed 150 customers of the Company.

In addition, lack of cooperation on the part of other officials of the Bank to get access to
information about the advertising budget that it has been allocating in different times was the
other problem which faced in the actual of data collection. In this regard, it was only through the
interview held with the Marketing Manager of the Bank the researcher managed to get very
general information about the nature of the advertising budget. Therefore, the researcher may not
to claim that this study was conducted thoroughly, but the study could shed some light on the
effects of the Banks advertising budget allocated on the effectiveness of its advertising program.

Review of Related Literature

The Definition of Advertising

It is hard to find a satisfactory definition of the term advertising. This is mainly because of the
very broad nature of the word and the very dynamic nature of the advertising industry. In this
respect, it is stated that advertising is a very broad and an omnibus term conveying different
ideas to different people. Besides, the advertising industry has been advancing so rapidly through
its various changes that even the latest dictionaries and encyclopedias are out of date in their
attempts to define it. This is because the advertising of yesterday is not the advertising of today
(Prida, 2010, p.1).

Though this is the case, various scholars have been trying to offer definition that they think is
appropriate for the term advertising. For instance, Scholasticus (2010, p. 5) considered
advertising as an important aspect of promoting almost any product, service or brand and defined
it in the following ways. Advertising refers to:

46
 An activity that involves the public promotion of goods and services, or a brand or a
company or an establishment; a business of drawing public attention to goods and
services and their merits; a process that calls attention to a particular good or service; and
a process that makes publicity for a said subject such as a good, service, product, brand,
person, establishment, company or firm.

Prida (2010, p.1) also defined advertising as a mode of communication designed with the
attempt to convince people to begin or to increase the use of a product or service. According to
him, every attempt to secure the sale of a product or service is advertising. In other words,
advertising includes all forms of attempts that seek to attract peoples attention to a product or a
service that is for sale. On top of this, Nakate (2009, p.1) stated that advertising is one of the
different forms of communication which helps in selling products or services of a particular
brand or a company.

Thus, from the above definitions, it can be deduced that advertising is a task that involves
making the public aware and conscious about the subject that is being advertised. Besides, it is a
task that helps secure and increase the sale or the use of a given product or service. However,
those definitions given by the scholars seem to be very broad as they do not include the basic and
distinctive features of advertising in its modern context.

Brett (2008, p. 3), in the modern sense, defined advertising as a form of commercial mass
communication designed to promote the sale of a product or service, or a message on behalf of
an institution, organization, or candidate for political office. From this definition, we can infer
the following distinctive features of advertising. First, because it is a paid form of
communication, being commercial is one of the features of advertising. Second, since it is
targeted to communicate with large group of people, mass communication is the other feature of
advertising. Third, advertising includes transference of a message on behalf of an institution or
organization, which seeks to promote an idea or influence behaviour upon certain products,
services, or ideas. This is to mean that advertising is designed to include a message that is
intended to persuade people to promote purchase of products or consumption of services of
business firms or take some other actions on various issues related with socio-political and
economic situations.

Belch and Belch (2003, p. 16-17) have also defined advertising as any paid form of non-
personal communication about an organization, product, service, or idea by an identified
sponsor. As elaborated by the scholars, since the space or time for advertising message must

47
generally be bought, advertising is usually a paid form of communication. However, they have
pointed out that there are certain occasional exceptions like the public service announcement in
which advertising space or time is donated for free by the media. The non-personal nature of
advertising is also explained in such a way that advertising involves mass media (TV, radio,
magazines, newspapers, and billboards) that can transmit a message to large group of
individuals, often at the same time; with no opportunity for immediate feedback from them.

Furthermore, other scholars defined advertising as a paid, non-personal communication about

an organization and its products that is transmitted to a target audience through a mass medium
such as television, radio, newspapers, magazines, direct mail, out-door displays, or mass transit
vehicles (Lee & Johnson, 2003, p. 3). Some other scholars have also tried to explain advertising
in the context of the prevailing modern global conditions in which advertising messages are
transmitted via new media such as online advertisings through the Internet.

In general, we can deduce from the above mentioned and other definitions that the
paid/commercial, non-personal/mass communication, mass medium, message transmission,
influencing audiences, and increasing the sale and use of products and services are the most
common and essential features of modern advertising.

Research Design and Methodology

Research Design

In this study, the student researcher attempted to assess the overall practice and effectiveness of
broadcast (television and radio) advertisings in the Dashen Bank Share Company. The Banks
advertising which includes advertising objectives, advertising messages, advertising media, and
advertising budget, are the major variables that the student researcher is more interested to deal
with. However, the student researcher also tried to identify and to include some other variables
that are relevant to the study. In relation to the Bank, in particular, the student researcher
attempted to describe the nature of the identified variables, to evaluate their actual performance,
to analyze the existing relationships between them, and to identify the existing problems. To this
end, the student researcher therefore employed both descriptive survey research method through
interviewing and documentary analysis methods of research.

48
Population, Sample Size and Sampling Techniques

Target Population

In order to gather appropriate information relevant to this study, the target population of the
study was composed of the employees of the Dashen Bank who are particularly involved in the
marketing and communication activities of the Company. In addition, all the regular customers
of the Bank in its various Area Branches located in Addis Ababa were considered to draw
sample of respondents for this study. For the purpose of this study, the student researcher
precisely defines and uses the term regular customer as a customer who has been continuously
using the services of the Bank for a minimum of two years.

Sample Size

Regarding the customers of the Bank, it was difficult for the student researcher to get
information about the exact number of the regular customers of those Branches under the
auspices of Dashen Bank. Hence, it was not possible to determine the actual sampling frame.
Therefore, according to Malhotra (2006, p. 364-385), when there is no sample frame, the sample
size that is usually taken for studies conducted particularly on advertisement is 150. For this
reason, this study included 150 regular customers of the bank in the different area branches of
Addis Ababa. Furthermore, the study also included two of the top officials of the Dashen Bank
who are particularly responsible for the marketing and communication activities of the Bank.

Sampling Technique

The student researcher used purposive sampling technique to select those top officials of the
Dashen Bank who are responsible for the marketing and communication activities of the Bank.
This is to mean that the researcher purposely identified and contacted with two officials of the
Marketing and Communication Department of the Bank.

On the other hand, to select the regular customers of the bank, the student researcher employed
both quota and convenient sampling techniques. In this regard, the following procedures were
used.

Step 1- Of the 25 Area Branch Banks under the auspices of Dashen Bank S.C. which are found
in Addis Ababa, the nearest five Branch Banks were selected.

49
Step 2- Quota sampling technique was used to distribute the 150 total respondents into the five
selected Area Branch Banks. In the study, the researcher used equal quota for each Area Branch
Bank This, therefore, resulted in a total of 30 respondents from each Area Branch of the Dashen
Bank in Addis Ababa.

Step 3- Those respondents in each selected Area Branch Bank were selected again based on an
equal quota of males and females, which ended up with 15 males and 15 females as samples of
the study from each Area Branch of the Company.

Step 4- Finally, convenient sampling technique was used to select the respondents (15 males and
15 females) in each Area Branch Office.

Methods of Data Collection

The student researcher employed structured questionnaires and interview guides to get primary
data of both qualitative and quantitative types. In this regard, the questionnaire was used to
collect relevant information from the regular customers of the Bank. The questionnaire was first
developed in English and then it was translated into Amharic. Finally, the Amharic version of the
questionnaire was distributed to the respondents to collect the data required.

In addition, an in-depth interview through probing was held with two of the top officials who are
mainly responsible for the marketing and communication activities of the Bank. The interview
was conducted in Amharic. The student researcher got permission to use a tape recorder so that
all pieces of information can be recorded and made available in their entirety for further verbatim
transcription and then qualitative data processing and analysis.

The student researcher also gathered secondary data from the available documents of the bank
such as broachers, magazines, news letters, and so on. The television and radio ads that the bank
has been using were also used as important sources of information on the media strategies,
message variables and source factors.

Data Collection: Types and Procedures

The student researcher believed that both qualitative and quantitative data are relevant to this
study. Hence, both of these types of data were collected from both primary and secondary data
sources.

50
The student researcher mainly used questionnaire and interview guide/protocol as research
instruments to collect the primary data from different primary sources. The structured
questionnaire, which included important questions about the advertisings of the Bank, was
distributed to 150 regular customers of the Company. However, the student researcher was able
to get back a total of 144 questionnaires were filled out by the customers. The remaining six
questionnaires were not returned back. The response rate for this study became 96%. Therefore,
it was possible to proceed to actual data analysis and interpretation of the major findings which
was conducted based on the responses of the 144 customers of the Bank.

An in-depth interview through probing was conducted using interview guide/protocol, which
consisted of questions about the various aspects of the Banks advertisings. The qualitative data
generated was then organized to triangulate the findings of the descriptive survey that may help
strengthen the overall empirical findings of the study. Although the plan was to organize
interviews with two of the top officials of the Banks Marketing Department, due to certain
inconveniencies, the student researcher was forced to conduct the interview only with the
Marketing Manager of the Bank.

Methods of Data Analysis

In order to analyze the quantitative data obtained from the questionnaires, the student researcher
used descriptive statistical techniques. Moreover, documentary analysis method was to analyze
secondary data generated from different secondary sources of data, including relevant documents
which are available in the Banks Offices. The major statistical tools used were frequencies,
percentiles, measures of central tendency mainly mean, measures of dispersion mainly standard
deviation, and measures of associations mainly coefficient of correlations.

The qualitative data obtained from the interviews and other secondary sources were first
categorized into themes, and then analyzed accordingly. Particularly, narrative approach is used
to present the results of the interviews.

Data Presentation, Analysis and Interpretation

This section of the research report presents both quantitative and qualitative data, analysis of the
data, and their interpretation. It deals with general socio-demographic characteristics of the
respondents, the advertising media and messages of the Bank in terms of believability of the
advertising messages, attractiveness of the advertising messages,, completeness of the messages

51
communicated, convinceability of the advertising messages, and the Banks practice of
advertising time and frequency. In addition, it presents and examines the effects of advertisings
on the Banks customers. For the purpose of triangulation of the survey findings, the student
researcher also describes the major findings of the qualitative research approach used in the
study.

General Characteristics of the Respondents

The general socio-demographic characteristics of the respondents are presented in Table 1

through Table 3. Table 1 shows the age composition of the customers of Dashen Bank sampled.
In all Area Branches of the Bank, female customers were dominant with over 50%
representation.

Table 1- Distribution of the Respondents by Sex

Sex f %
Male 70 48.6
Female 74 51.4
Total 144 100.0

Source: Own survey, 2011.

As Table 1 depicted, the majority of the respondents (67.3%) were in the age category between
18 and 37 years, while the remaining 32.7% were above the age of 37 years. More specifically,
those respondents who are in the age bracket between 18 and 27 years accounted for 34.7% of
the total respondents, followed by those who were in the age category between 28 and 37 years.
In contrast, the lowest proportion of the respondents was found to be in the age above 47 years.

Table 2- Distribution of the Respondents by Age

Age category f %

18-27 50 34.7
28-37 47 32.6
38-47 29 20.1
Above 47 18 12.5
Total 144 100.0
Source: Own survey, 2011.

52
As far as the educational status of the respondents is concerned, the majority of them were found
to be diploma graduates, followed by first degree and above graduates, which accounted for
44.4% and 37.5% respectively. However, there were also few respondents who were found to be
certificate holders (10.4%) and completed secondary school graduates (5.6%). In the three
indicators, there is a reasonable difference among the customers in the sampled Area Branches of
Dashen Bank in Addis Ababa.

Table 3- Distribution of the Respondents by Educational Status

Educational status f %
Secondary education 8 5.6
Certificate 15 10.4
Diploma 64 44.4
First degree and above 54 37.5
No response 3 2.1
Total 144 100.0

Source: Own survey outputs, 2011.

The Advertising Media and Messages of the Bank

The Advertising Media of the Bank

The respondents were asked to identify the most accessible media, advertising media of the
Dashen Bank that they had liked most, and advertising media of the Dashen Bank that had
influenced the respondents most to take action to be a regular customer to the Company. Their
responses for each question are presented in Table 4, but are analyzed one by one using
frequency distributions. In what follows, data analysis in terms of coefficients of correlation for
relevant variables in the study will be presented.

53
Table 4 - Responses Given about the Advertising Media of the Bank

Items Advertising Media %

TV 90.2
Advertising media of the Dashen Bank that the
respondents like most Newspapers 4.9
Billboards 4.9
Total 100.0
TV 70.8

The most accessible advertising media Newspapers 19.4

Magazines 4.9
Internet 4.9
Total 100.0
TV 79.9
Advertising media of the Dashen Bank that has Newspaper 10.4
influenced the respondents most
Other 9.7
Total 100.0
Source: Own Survey Results, 2011.

Table 4 displays the responses given by the sampled respondents for those questions asked about
different aspects of the advertising media. In this regard, most of them (70.8%) responded that
television had been the most accessible media for them. Furthermore, 90.3% of the respondents
indicated that among the various advertising media of the Dashen Bank, the one that they like
most is television. Besides, the same media (television) is identified by most respondents
(79.9%) as the most influential one in convincing and influencing them to take action to be a
customer of the Bank.

The respondents were also asked to choose the type of advertising that they had liked most
among the various advertisings which had been used by the Dashen Bank. In this respect, the
study came up with mixed findings. Different proportions of the respondents responded that
television ads, newspaper ads, billboard ads, and Internet ads in descending order were found to
be their most preferences. However, as figure 3.2 shows, television ads of the bank are the one
that the vast majority (75%) of the respondents indicated to prefer or like most.

54
Figure 1--Types of Adverting Media used by Dashen Bank which the Respondents Like Most

Source: Outputs of own survey, 2011.

Table 5 - Correlations of Responses Given for Questions about the Advertisement Media of
the Dashen Bank Share Company

Types of advertising Correlation The most Advertisings that Advertising media of Advert Media of
media coefficient accessible the respondents the Dashen that You Dashen Bank
used advertising like most Like Most that influenced
media to take Action
The most Pearson Correlation 1 .355(**) -.025 -.172(*)
accessible
advertising media
Sig. (2-tailed) .000 .762 .039
N 144 144 144 144
Advertisings that Pearson Correlation .355(**) 1 .490(**) .321(**)
you like most
Sig. (2-tailed) .000 .000 .000
N 144 144 144 144
Advertising media Pearson Correlation -.025 .490(**) 1 .662(**)
of the Dashen Bank
that you like most
Sig. (2-tailed) .762 .000 .000
N 144 144 144 144
Advertising media Pearson Correlation -.172(*) .321(**) .662(**) 1
of Dashen that
influenced the
respondents to take
action
Sig. (2-tailed) .039 .000 .000
N 144 144 144 144
Source: Findings of own survey, 2011.
55
As illustrated in Table 5, the strongest positive relationship with a correlation coefficient of
0.662 was found between the responses given for media of the Dashen Bank that they had liked
most and the advertisement media of the Dashen Bank that influenced them to take action to be a
regular customer. In this regard, one can conclude that the type of advertising media of the
Dashen Bank they have liked most (television) is the one which influences most of the customers
to take action and become a regular customer of the Bank. On the other hand, the correlation
coefficient -0.172 indicates that there exists negative relationship between the variable on the
most accessible media type and the most influential advertising media used by the Bank. This
shows that the media that the sampled respondents identified as the most accessible advertising
media may not necessarily be the one that has influenced them to take action to be a customer.
In addition, based on the value of the level of significance (0.762), one can also deduce that the
relationship between the most accessible advertising media and the most like advertising media
of the Bank is not statistically significant.

In order to examine the effectiveness of the broadcast advertisings of the Bank, the respondents
were also asked to answer whether they are able to recall any of the broadcast advertisings of the
Bank or not and also inquired to indicate the type of broadcast advertisings (TV ads or Radio
ads) that they could recall most. The responses given for these questions are summarized in the
Table 6..

Table 6 - Responses Given for Recall of Broadcast Advertisings of the Bank

Statistics Statistics
Do you recall any Which one do you recall
TV or Radio Ads of f % most? f %
the Dashen Bank
Yes 123 85.4 TV Ads 123 85.4

No 21 14.6 Not Applicable 21 14.6

Total Total 144 100.0

144 100.0

Source: Own Survey Results, 2011.

As depicted in Table 8, the vast majority of the respondents (85.4%) responded that they could
have recalled the broadcast advertisings of the Bank and the same proportion of the sampled
customers indicated that television advertisings had been the ones which could be recalled by

56
them better than others. On the other hand, the remaining, 14.6% indicated that they could not
have recalled any of the broadcast (TV and radio) advertisings of the Dashen Bank. From these
empirical findings, one can conclude that television advertisings of the Bank are the most
effective in terms of reaching to the customers and staying long in their minds.

To make specific and further investigation of the likeability of the broadcast advertising media
(TV and Radio) of the Bank, the respondents were also asked to determine the scale of their
agreement and disagreement on the statement I like the broadcast advertising media of Dashen
Bank. In this regard, their responses are summarized in the following table.

Table 7- The Likeability of the Broadcast Advertising Media of the Bank

Statistics
I like the broadcast adv media of the Bank f %
Strongly disagree 0 0.0
Disagree 0 0.0
Neutral 7 4.9
Agree 40 27.8
Strongly Agree 97 67.4
Total 144 100.0

Source: Own Survey, 2011.

As illustrated in the above table, about 85% of the respondents reflected that the broadcast (TV
and radio) advertising media of the Bank had been likeable. Although there were very few
(4.9%) respondents who had shown neutral or undecided position on the issue, none of the
sampled customers disagreed with the likeability of the broadcast advertisings of the Dashen
Bank S.C.

The Advertising Messages of the Bank

Respondents were asked varieties of questions that deal with the advertising messages of the
Dashen Bank. The questions were particularly concerned with the believability, completeness,
attractiveness, and convinceability of the broadcast (TV and radio) advertising messages of the
Bank. The respondents were informed to indicate the level of their agreement or disagreement
with different statements related to each of the aforementioned aspects of the advertising
messages of the Dashen Bank. In this respect, the responses given for each aspect are first
analyzed and then the linear relationship or correlation between all aspects will be analyzed.

57
Believability of the Advertising Messages

To examine their views about the believability of the Banks advertising messages, the
respondents were asked to indicate the degree of their agreement or disagreement on the
statement the broadcast advertising messages of the Bank are truthful. Accordingly, figure 3
displays the results of their responses.

Figure 2 Respondents Positon on the Believability of the Advertising Messages

Source: Outputs of own survey data analysis, 2011.

As illustrated in the above figure, nearly 50% and 35% of the respondents strongly agree and
agree with the truthfulness of the advertising messages of the bank respectively. However, there
were few (5%) respondents who had expressed their strong disagreement to the believability of
the advertised messages of the Bank.

Attractiveness of the Advertising Messages

The respondents in the survey were asked to indicate the level of their agreement or
disagreement on the statement the broadcast advertising message appeals of the Dashen Bank
are attractive. As depicted in Figure 3, about 80% of the respondents indicated their support for
the statement with around 47% of them were found to express their strong agreement and 33%

58
agreement. In contrast, nearly 5% of the respondents reflected their strong disagreement with the
attractiveness of the Banks advertising message appeals.

Figure 3 Respondents Positions on the Attractiveness of the Advertising Message

Appeals of the Dashen Bank

Source: Own survey outputs, 2011.

In relation to the message appeals, they were also inquired to indicate the kind of advertising
message appeals that they like most in general and the advertising message appeals of the
Dashen Bank in particular. Their responses are presented in the following table.

Table 8 - The Type of Advertising Message Appeals that the Respondents Like Most

Statistics

Message Appeals that the respondents like Most f %

Emotional 11 7.6

Rational 76 52.8

Both 50 34.7

DN 7 4.9

Total 144 100.0

Source: Own survey, 2011.

59
As shown in Table 8, more than half (52.8%) of the respondents reflected their preference to
advertising message appeals that are rational in their content and enable them to make rational
decisions. Contrary to this, there were also few (7.6%) respondents whose preference was found
to be emotional and appealing advertising messages. However, about 35% of the respondents
reflected their preference to both rational and emotional types of advertising message appeals.

Completeness of the Advertising Messages

In order to investigate the opinions of the respondents on whether the advertising messages of
the Bank are complete or not, the student researcher asked the subjects to indicate the degree of
their agreement or disagreement on the statement the broadcast advertising messages of the
Dashen Bank provide adequate information. Accordingly, the results of the survey are presented
in the following figure.

Figure 4 Respondents Opinions on the Completeness of the Advertising Messages of the Bank
Source: Outputs of own survey data analysis, 2011.

As displayed in Figure 4, the absolute majority (about 84%) of the respondents believed that the
advertising messages of the Dashen Bank had provided them with adequate information about
the Bank and its services. However, there were few (nearly 5%) respondents who had not
believed in the completeness of the advertising messages of the Bank.

60
Convinceability of the Advertising Messages

The respondents opinions on the convinceability of the advertising message appeals of the Bank
were examined by the degree of their agreement or disagreement on the statement the
advertising messages of the Dashen Bank are convincing. In this regard, almost ninety percent
of them had expressed their agreement for the convincing nature of the banks advertising
messages; with 44.4% strong agreement and 45.8% agreement. However, nearly 10% of the
respondents believed that the banks advertising messages are not convincing.

Figure 5 Respondents Opinions on the Convinceability of the Advertising Messages of the Bank
Source: Own survey outputs, 2011.

Next, let us present and discuss about correlations of the respondents opinions on the
characteristics of the advertising messages of the Dashen Bank communicate. The results of the
data analysis are illustrated in Table.

61
Table 9 Correlations among the Characteristics of the Advertising Messages of the Bank

Variables Statistics Variables

Ads are Message appeals Ads give adequate Ads are
truthful are attractive information convincing
Ads are truthful Pearson
1 .790(**) .756(**) .877(**)
Correlation
Sig. (2-tailed) .000 .000 .000
N 144 144 144 144
Message appeals are Pearson
.790(**) 1 .651(**) .869(**)
attractive Correlation
Sig. (2-tailed) .000 .000 .000
N 144 144 144 144
Ads give adequate Pearson
.756(**) .651(**) 1 .741(**)
information Correlation
Sig. (2-tailed) .000 .000 .000
N
144 144 144 144
Ads are convincing Pearson
.877(**) .869(**) .741(**) 1
Correlation
Sig. (2-tailed) .000 .000 .000
N 144 144 144 144
Source: Outputs of own survey data analysis, 2011.

The findings of the study show that there are close relationships between the majorities of pair of
the variables presented in Table 9. The results of the study indicate the presence of strong and
positive linear relationship between the respondents opinions given for the different aspects of
the advertising messages of the Bank. However, the strongest linear relationship or correlation,
with a correlation coefficient of 0.877, is the one that exists between the respondents opinion on
the truthful and convincing nature of the banks advertising messages. This is to mean that most
respondents have similar degree of agreement or disagreement regarding the truthful and
convincing nature of the banks advertisings. As discussed above, the majority of the
respondents strongly agreed that the banks advertising messages are truthful and convincing.
On the other hand, with a correlation coefficient of 0.651, the opinion that the respondents gave
on the attractiveness of the advertising message appeals and the adequacy of the advertising
message information of the bank is the one with the relatively weakest positive linear
relationship or correlation. In other words, the respondents have a relatively higher divergence
of opinions about the attractiveness and completeness of the message appeals of the Bank.

62
Furthermore, the lowest significant levels of all pairs of variables demonstrate the existence of
very significant linear relationships between the variables. For instance, from the 0.000
significant level of the relationship between about the truthful and convincing nature of the
advertising messages of the bank, we can deduce that there is significantly positive linear
relationship or correlation between the respondents opinion about variables.

The Advertising Time and Frequency of the Bank

To evaluate whether the advertising time and frequency of the broadcast advertisings of the
Dashen Bank are suitable for the customers or not, questions related to these issues were
included in the questionnaire. The respondents were asked to indicate the broadcast advertising
time that they had preferred most. Then, the responses obtained are summarized in as follows in
Table 10.

Table 10 - TV and Radio Advertising Time that the Respondents Prefer Most

TV and Radio Advert Time that You Prefer Most Statistics

f %
Night Time 109 75.7
Any Time 21 14.6
Other 14 9.7
Total 144 100.0
Source: Own survey, 2011.

As shown in the above table, the broadcast advertising time preference of the majority (75%) of
the respondents was found to be night time, albeit there had been some respondents who
reflected that they preferred to watch or to listen to the advertisements at any time. In addition,
there were some respondents who indicated weekends and holidays as their most preferable time
for the advertisements.

Table11 - Respondents Opinions about the Broadcast Advertising Time of the Dashen Bank

Statistics
I like the time of the bank's advertising transmission f %
Strongly Disagree 14 9.7
Disagree 7 4.9
Neutral 14 9.7
Agree 51 35.4
Strongly Agree 58 40.3
Total 144 100.0

Source: Own survey, 2011

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Specifically, the respondents were also asked to express their opinions about the advertising time
of the Dashen Bank. In this case, they were provided with the statement I like the time of the
Dashen Banks broadcast advertising, and then instructed to indicate the level of their
agreement or disagreement with the statement. As Table 12 illustrated, about 75% of the
respondents reflected their support for the suitability of the broadcast advertising time of the
Bank; with 40.3% of the respondents expressed strong agreement and 35.4% agreement with the
above-stated statement.

Table12 - Respondents Opinions about the Frequency of the Transmission of Broadcast

Advertisings of the Bank

Statistics
I like the frequency of the bank's broadcast ads f %
Strongly disagree 0 0.0
Disagree 0 0.0
Neutral 21 14.6
Agree 58 40.3
Strongly Agree 65 45.1
Total 144 100.0
Source: Own survey data analysis outputs, 2011.

Regarding the broadcast advertising frequency of the Dashen Bank, the same procedure was used
to gather the opinions of the respondents. For this purpose, the student presented a statement that
dealt with it, I like the Dashen Banks broadcast advertising frequency, was included in the
questionnaire and the respondents were asked to indicate the level of their agreement or
disagreement. As Table 12 depicted, about 85% of the respondents reflected that they had liked
the frequency of the broadcast advertisings of the bank.

Effects of Advertisings on the Customers of the Bank

Questions were presented to the sampled customers in order to examine the effectiveness of the
banks advertisings in terms of influencing them to develop positive attitude towards the Bank,
in terms of helping them to know about the Bank in general and the quality of its services in
particular, and in terms of convincing them to positive take actions to be a customer of the Bank.
In short, this section of the study tries to address all those elements of the advertising objectives
that the Bank has been aspiring to achieve through its Advertising Programs.

64
The following figure summarizes the responses of the respondents on the effects of the Banks
advertisings on their attitude towards the Bank, knowledge about the Bank and its services as
well as on their positive actions to be a regular customer of the Dashen Bank S.C.

Ads helped 8.30%

Know service
to 91.70%
Qualities
Ads contributed to 13.90%
Develop positive 86.10%
Attitude
Ads contributed to 33.30%
Know about the 66.70% No
Bank
Yes
Ads influenced to 70.80%
be a customer 29.20%

Figure 6 -- Effects of the Banks Advertisings on the Respondents

Source: Own survey, 2011.

It is possible to support the aforementioned claims from the illustration of Figure 6. The
advertisings of the Bank as reflected by the agreement of 91.7% of the respondents were found
to be more effective in terms of helping them to know the quality of its services. With the
agreement of about 86 percent of the respondents, the advertisings of the Bank had also been
effective in influencing the sampled customers to develop positive attitude towards the Bank. In
contrast, most respondents (70.8%) believed that the advertisings of the Bank had not been the
major reasons for their positive actions to be regular customers of the Dashen Bank S.C. In this
regard, only 29.2% of the whole respondents agreed that the advertisings of the Bank were found
to be effective in influencing and convincing them to take affirmative action to become regular
customers of the Bank.

Table 13 - Descriptive Statistics of the Effects of the Bank Advertisings on the Respondents

Variable Mean Std. Deviation N

Ads Influenced to be a Customer 1.71 .456 144
Ads Contributed to Know About the Bank 1.33 .473 144
Ads Influenced Towards Positive Attitude 1.14 .347 144
Ads Helped Know Service Qualities 1.08 .277 144
Source: Outputs of own survey data analysis, 2011.

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As shown in Table 13, the two alternative values provided for each variable i.e. 1 for yes and 2
for no, the mean or the average value of the responses given by the respondents varies from 1.08
for ads helped to know service qualities to 1.71 for ads influenced to be a customer. The two
extreme average values indicated that the vast majority of the respondents had been agreed on
the effectiveness of the Banks advertisings in helping them to know the quality of services
delivered by the Bank, while the vast majority of them were found to show their disagreement
with effectiveness of the advertisings to convince and to influence them to take action to be a
customer of the Bank. The standard deviation values, on the other hand, show the variability
(spread) of the responses given. Relatively speaking, based on the standard deviation values
calculated, the Banks advertisings (std. dev.=0.473) contributed in making the respondents to
know about the Bank in general, followed by the responses given (std. dev.= 0.456) for the
question on whether the Banks advertisings influenced them to take action to be a customer or
not. The same responses were almost given by most of the respondents for the questions on
whether the advertisings contributed to know service qualities or not. This is indicated by the
lowest standard deviation value (std. dev=0.277) as depicted in Table 13.

Table 14- Correlations between the Effectiveness of the Bank's Advertisings and Their
Effects on the Respondents

Variables
Ads Contributed Ads Influenced Ads Helped to
Ads Influenced to to Know About Towards Positive Know Service
Variables Statistics be a Customer the Bank Attitude Qualities
Ads Influenced to be a Pearson
1 .454(**) .258(**) .193(*)
Customer Correlation
Sig. (2-tailed) .000 .002 .020
N 144 144 144 144
Ads Contributed to Pearson
.454(**) 1 .227(**) .426(**)
Know About the Bank Correlation
Sig. (2-tailed) .000 .006 .000
N 144 144 144 144
Ads Influenced Pearson
Towards Positive Correlation .258(**) .227(**) 1 .751(**)
Attitude
Sig. (2-tailed) .002 .006 .000
N 144 144 144 144
Ads Helped to Know Pearson
.193(*) .426(**) .751(**) 1
Service Qualities Correlation
Sig. (2-tailed) .020 .000 .000
N 144 144 144 144

Source: Own survey results, 2011.

66
The value of the Pearson product-moment coefficient correlation (r=0.751) depicted in Table 14
shows that there has been positive and strong relationship/association between the advertisings
which helped the sampled customers to know about the Banks service qualities and advertisings
influenced them to develop positive attitude towards the Bank. This implies that as the level of
the customers knowledge about the quality of services delivered by the Bank increases, their
attitude towards the Bank will become more and more positive. Therefore, the relationship
between these variables under consideration was found to be statistically significant. On the
other hand, the lowest correlation coefficient (r=0.193) was found between the advertisings
which helped the customers to know service qualities and advertisings influenced to be a
customer of the Bank. This finding indicates that the relationship between these variables is
considered to be the weakest one. The relationship between knowledge of the Banks service
qualities and influence to become its customer was not found to be statistically significant. Thus,
customers knowledge about the quality of the banks services has no significant effect on their
decision and action to be a customer.

The small significant levels (less than 0.05) for almost all pairs of variables indicate that the
correlation in all pairs is significant and the two variables in each pair are linearly related. For
instance, the significance level or p-value for the correlation of knowledge about quality of
services and attitude towards the bank is 0.000, which indicates a very low significance. This
small significance level indicates that the two variables are significantly positively correlated.
However, the relatively higher significant level (0.02) for the correlation of knowledge about
service qualities and actions to be a customer, the correlation or linear relationship between the
two variables is the least significant of all relationships between the other variables.

Advertising Objectives and Programs of the Bank

It is obvious that any organization or company that desires to communicate with its potential
customers through advertising is required to begin its advertising programs with carefully
designed advertising strategies. For appropriate implementation of the strategies, the company
should also set advertising objectives that are specific and measurable. For this reason, question
was raised in order to understand the prevailing situations related to the advertising objectives of
the Dashen Bank.. Accordingly, the Marketing Manager stated:

67
 As you know banking is intensely competitive now a day, as a result people need to
gather as much information as possible so as to choose the right bank that provides the
most appropriate services. Therefore, our Banks main advertising objective is creating
awareness among our potential customers, influencing them to develop positive attitude
towards the bank, and arousing their interest of visiting the bank and taking action to be
our customer.

Therefore, the Bank has clearly set specific advertising objectives. As described by the Marketing
Manager, advertising has been playing significant roles for the Bank in reaching the potential
customers and in attaining its advertising objectives. As he said:In our marketing plan, we set an
objective that aimed to increase our customer base in a certain rate and advertising is one of our
tactics which has been helping us to achieve our objectives through reaching our potential
customers.

As it has been discussed earlier, the effective contribution of the Banks advertisings in terms of
enabling the Bank to reach its potential customers and to achieve its advertising objectives is also
reflected in the findings of the study based on the information collected from the regular
customers of the Bank.

A question about the advertising message creative strategy of the Bank was also forwarded to the
Manager. Accordingly, he stated:

I would say that you cannot expect to just create message from scratch, it is all about what
you want to transfer to the audience so as to make them our customer, as you know the
massage should arouse the audiences interest at first hand. So we believe that .. It
should be some how dramatised but the main objective of the advertising is to attract
customer so it has to carry strong message. Therefore, our creative strategy is highly
concentrated on the sales message and we also make it dramatise through the
collaboration with the advertising firm/agency that we use.

Questions were also raised about the opinions of the responsible personnel on the advertising
messages of the Bank in general and the appropriateness in particular, as well as the type of
message that the Manager thinks as the most effective in convincing the audience to become
customers of the Bank. Consequently, he responded:

I think it is so appropriate since we develop our advertising message in a way that it

contains as much needed information that can make our potential customers to be
convinced and so as to drive them to be our loyal customers. In the banking industry,
there are various factors that the customers take into consideration before they make

68
 decisions and actions of being a customer. So, in our advertising messages, we try to
incorporate all these potential factors. Among others, the diversified types banking
services, the quality of our services, the banking technology that we are using, the
interest rate, etc are the most convincing factors that we try to include in our advertising
messages. These, I think, help the audience to make decisions and take actions rationally.
Therefore, when I say that our advertising messages are appropriate and effective, it is
because they provide customers with information, which is true, adequate, convincing,
and attractive. In general, we believe in the provision of information that enables our
potential customers to make reasonable decisions.

In this regard, the findings of the study collected also supported the responses of the Marketing
Manager about the effectiveness of the advertising messages of the Bank. As already discussed,
most of the customers included in the study had believed that the Banks advertising messages
are truthful, adequate, convincing, well structured, and rational.

The other important element of an advertising program is media selection and execution strategy.
Regarding this, the marketing manager was asked to tell about the advertising media selection
and execution strategy of the Dashen Bank. As he said:

As you know very well, there is no adequate choice of media in our setting and since our
desire is using electronic media, we are using Ethiopian Television (ETV). The rationale
behind our choice is that we believe that we can reach massive number of people through
our advertising campaign.

With regard to his opinion about the advertising media selection and planning of the bank and the
type of media that he thinks as the most effective in enabling the bank to achieve its advertising
objectives, he responded in the following ways.

We were done our best to choose the right media from the available media options and
we have been using ETV, as I have already mentioned earlier. So, we do not have a
bench mark or parameter that enables us to judge as this media is the best, but, I think, in
our cases ETV is the best choice.

In this regard, we can also refer from the findings of the study resulted from the responses of the
customers that the vast majority of the customers included in this study have also indicated that
television is their most accessible media. In addition, most of them reflected that television is the
most effective advertising media of the bank in terms of influencing them to take action of being
a customer.

69
Discussion was also held with the marketing manager about how the bank sets its advertising
budget and the following general response was given accordingly. The advertising budget is
part of our overall marketing budget and it is certain portion of this aggregate marketing budget,
which I cannot tell you the percentage right now, is used for advertising.

The resource person was also asked to tell the effects of the advertising budget on the
effectiveness of the overall advertising programs of the bank. In this respect, he said that: Our
advertising budget has a positive impact on the effectiveness of our advertisings and we believe
that we allocate adequate amount of finance for our advertising campaign.

The marketing manager was also asked to identify and tell the problems exist in the overall
advertising program of the bank. As he said:

There is always some sort of obstacles in every sector and the same is true in the banking
industry. Our major problem now a day is that there are various private and government
owned banks here in our country and most of them use ETV as a media for their
advertising campaigns and when doing so most of the messages have similar contents that
can put the customers in dilemma of making the right decisions and I think it has an
impact on their choices.

Finally, the marketing manager was asked about his general assessment of the effectiveness of
the banks advertising program. Consequently, he said that:

As you know in our setting there is no such trend as measuring the effectiveness of the
advertising campaign and it is also the same in our case as well but we can see some
visible improvements regarding the number of new customers we have been getting since
we have started to conduct an advertising campaign. So we can say that it is some how
effective.

Summary, Conclusion and Recommendation

Summary

The major findings of the study are summarized in the following ways:

Around 91.7% of the customers included in the study indicated that the Banks advertisings have
been effective in terms of helping them to know the type and quality of services delivered by the

70
Bank. Moreover, 86.1% of the customers believed that the advertisings of the Bank have been
effective in terms of influencing them to develop positive attitude towards the Bank. However,
only 29.2% of the customers stated that the advertisings of the Bank have been effective in terms
of influencing them to take actions of being a customer.

Most of the respondents (around 75.7%) reflected their agreement with the suitability of
the time at which the broadcast advertisings of the Bank are transmitted, with particularly
40.3% strong agreement and 35.4% agreement. In this regard, it is only 14.5% of the
respondents who indicated their disagreement with the suitability of the transmission time
of the broadcast advertisings of the Bank. In addition, night time is identified by 75.7% of
the respondents as their most preferable time to watch or listen to the advertisings of the
Bank.
Based on the information provided by the Officials in the Marketing Department of the
Bank, the study has found out that though the Banks advertising budget has been
adequate, it has not been set and allocated by using careful techniques and procedures of
setting and allocating advertising budget. Instead, it has been allocated randomly as part
of the aggregate marketing budget of the Bank. However, the Bank generally believes
that its advertising budget has been positively affecting the overall Advertising Program
of the Bank.

Conclusion

This study was intended to assess the effectiveness of advertisings in the Dashen Bank Share
Company. Specifically, the study has emphasized on finding answers for the four research
questions, stated in the chapter one, which are particularly related to the nature of the Banks
advertising objectives and the role that advertising has been playing in achieving them, the
effectiveness of the advertising messages and media of the bank, the nature of the advertising
budget setting and its effects on the effectiveness of the Banks advertisings, and the problems
exist in the Banks overall advertising program.

In addition to the advertising objectives, the study has also used the advertising messages of the
bank as variables used to evaluate the effectiveness of the Banks advertisings. In this respect,
the study has particularly tried to evaluate the truthfulness, adequacy, attractiveness, and
convince ability of the advertising messages of the Bank. In addition, for further evaluation of
the advertising messages, the study has also included other factors such as customers ability to

71
recall the advertising messages of the Bank and customers reflection for the type of advertising
message appeals that the bank usually uses.

The study has demonstrated that the Bank believes in the appropriateness and effectiveness of its
advertising messages due to the reason that the messages are created and executed in a way that
they provide customers with true, adequate, convincing, and attractive information. As stated by
the top official of the Banks Marketing Department, the Bank always tries to use rational types
of advertising message appeals in its advertisings due to the belief that such types of message
appeals are the most effective ones in terms of persuading and convincing customers to take
reasonable decisions of joining the bank. Due to this, therefore, in its advertising messages, the
bank always tries to include all the required information such as the diversified types of its
banking services, the quality of its services, the banking technology that it uses, the interest rates,
and so on, which enable customers to make decisions and take actions rationally.

Recommendations
Based on the major findings and conclusions reached, the following recommendations are
forwarded:
The bank is required to work more in its advertising program and strategies in order to
bring about more achievements in the effectiveness of its advertising programs to attain
its advertising objectives in general and to impose more influences in its potential
customers actions of joining the bank in particular.
The banks organizational structure should include an independent marketing and
communication department.
The bank should have clearly set guidelines and procedures to run its advertising program
appropriately.
In addition to television, the bank is also required to work more on the improvement of
the effectiveness of the other advertising media such as radio, newspaper, magazine,
internet, billboard, etc.
Although the appropriateness of the banks advertising budget is indicated by the
marketing manager, the technique that the bank has been using to determine its
advertising budget is random and not clear. So that, the bank should employ clear
procedures and methods of allocating and distributing the advertising budget.
In order to avoid boredom and to get attention of the audience, the bank is required to
frequently revise its broadcast advertisements in order to come with new advertisings.
72
 The bank is required to communicate its advertisings by using different communicators
or advertising agencies in different courses of time.
The bank should try to increase the frequency of the transmission of its broadcast
advertisements.
The bank should frequently assess the effectiveness of its advertisings in order to bring
improvements in the future.

73
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Borkar, K. (2010). Effective marketing strategies: Advertising vs. public relations. Retrieved
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Brett, R. (2008). Advertising. Microsoft Encarta 2009 [DVD]. Redmond, WA: Microsoft
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Clow, K. E., & Baack, D. (2003). Integrated advertising, promotion and marketing
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Dashen Bank S.C. (2009). The 2009 company profile of the Dashen Bank. (Unpublished
Document). Head Office of Dashen Bank S.C., Addis Ababa, Ethiopia.

______.( 2010). The 2010 company profile of the Dashen Bank. (Unpublished Document). Head
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articles/ advertising.html

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______. (2010). Objectives of advertising. Retrieved from http://www.buzzel.com /articles/

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Platania, V. (2010). The advantages and disadvantages of advertising. Retrieved from http://
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Scholasticus, K. (2010). Importance of advertising. Retrieved from http://www.buzzel.com

/articles/advertisng.html

75
 ASSESSMENT OF SERVICE RECOVERY PRACTICES IN THE
ETHIOPIAN AIRLINES, ADDIS ABABA

BY

Genet Abebe
Abstract

This study tried to look into the service recovery practices which had been observed at the Head Quarter
of Bole International Airport in Addis Ababa from January 2010 to June 2011. One of the major
functions of a service giving organization is service recovery practice. It is becoming a source of
competitive advantage in the airline industry. Airlines, which are effective in handling customer
complaints and recover their service failure will be the most desirable in the airline industry and enjoyed
by several advantages that originated as a result of delivering best service recovery practice. To this end,
airlines need to have a well organized service recovery strategy to satisfy their customers and to be
profitable out of the global competitive environment. Even though the Ethiopian Airlines is one of the
known airlines in the airline industry because of its safety record, there are some customer complaints in
its service recovery practice. Among those customers complaints, delay flight or cancelled flight
management, denied boarding compensation, misconnecting flights and incidental payment for lost or left
behind baggage are some of them. The goal of service recovery is to identify customers with issues and
then to address those issues to the customers' satisfaction to promote customer retention. However,
service recovery doesn't just happen. It is a systematic business process that must be designed properly
and implemented in an airline may result in effective service recovery practice. Even though the
Ethiopian Airlines has service recovery package of programs, there is a gap between its strategy
and performance in Addis Ababa. The Ethiopian Airlines is one of the known Airlines in the airline
industry and it has a good service recovery strategy. However, there are some customer complaints in its
service recovery practice. Deviation such as delay without notification, loss of baggage and lack of
proper handling to unsatisfied customers had been the scenarios which initiated this research. The
method of research that was used in this study is descriptive survey research method using convenient
sampling technique in order to gather pertinent data from passengers who had consumed the service. In
addition to the passengers, two station mangers were interviewed using interview guide/protocol as
research instrument. In this study, the student researcher managed to collect both primary and secondary
data from the respective sources. Quantitative and qualitative data analysis techniques were also used to
summarize the data in this study. There were 160 participants in the final sample for this study; all the
respondents were traveled by Ethiopian Airlines. Among the total respondents, 151(94%) experienced a
service failure. A total of 98(61%) of the respondent customers did not present their complaints about the
service failure which they had experienced. Seventy-three (46%) of the respondents had an experience of
traveling with other airlines while the remaining 87(54%) had no experience of other airlines. A total of
82(51%) of the respondents who had had other airline experience believed that the Ethiopian Airlines
had got an effective and unique service recovery practice different from its competitors, while the
remaining 78(49%) didnt have such a belief. The Ethiopian Airlines is a huge Airline which is in need of
well organized customer service that can fill the gap between its image in the mind of outsiders and those
who experienced the service. Besides, there are unused capacities such as financial strength and physical
facilities that could be utilized to build a well organized service recovery practice.

76
Introduction

Background of the Study

It is obvious that one of the major functions of a service giving organization is service recovery
practice. Perhaps, it is the most challenging function as it deals with the most important part for
the existence of the organization (Magnini, 2007).

For Zelthaml, (2000), service recovery refers to the actions taken by an organization in response
to a service failure. Failures occur for all kinds of reasons - the service may be unavailable when
promised, it may be delivered late or too slowly, the outcome may be incorrect or poorly
executed, or employees may be rude or uncaring. All of these types of failures bring about
negative feelings and responses from customers. If these are left unfixed, they can result in
customers leaving, telling other customers about their negative experiences, and even
challenging the organization through consumer rights organizations or legal channels. Moreover,
Christopher (2004) indicated that service recovery is an umbrella term for systematic efforts by a
firm to correct problem following a service failure and retain a customers good will.

Kurtz (2002) also said that the successful service recovery will diminish the negative impact of
the original poor or failed service. It will normally cause consumers to alter their attributions as
to the cause of the service failure.

Service recovery is becoming a source of competitive advantage in the airline industry. Airlines,
which are effective in handling customer complaints and recover their service failure will be the
most desirable in the airline industry and enjoyed by several advantages that originated as a
result of delivering best service recovery practice. To this end, an organization to satisfy its
customers and come up profitable out of the global competitive environment needs to have a
well organized service recovery strategy.

Ethiopian Airlines was founded on December 21, 1945 and with the inauguration of service from
Addis Ababa to Cairo using Douglas DC-3 Aircraft, started its operations on April 8, 1946 G.C.
It was fully owned by the Government of Ethiopia. The number of employees was 377 at that
time and the average passengers uplift was 22,347 per year. On the 3rd of April 1954, Ethiopian
Airlines started flight to Athens (its first destination in Europe) with a Covair CV-240 Aircraft.

77
In 1957, it initiated and developed its own comprehensive aircraft maintenance and engine over-
haul base, which was the first in African history.

The Airline is currently working with a commercial fleet of 45 Aircrafts and still fully owned by
the Government of Ethiopia. Its current total number of employees becomes 5,555 and the
average passengers uplift reached 3.2 million per year.

Even though the Ethiopian Airlines is one of the known airlines in the airline industry because of
its safety record, there are some customer complaints in its service recovery practice. Among
those customers complaints, delay flight or cancelled flight management, denied boarding
compensation, misconnecting flights and incidental payment for lost or left behind baggage are
some of the empirical reasons to conduct this study.

Statement of the Problem

Mistakes are a critical part of every service. Hard as they try, even the best service companies
cannot prevent the occasional late flight, burned steak, or missed delivery. The fact is, in
services, often performed in the customers presence, errors are inevitable. While companies
may not be able to prevent all problems, they can learn to recover from them. A good recovery
can turn angry, frustrated customers into loyal ones (Hart, 1995)

[ The goal of service recovery is to identify customers with issues and then to address those issues
to the customers' satisfaction to promote customer retention. However, service recovery doesn't
just happen. It is a systematic business process that must be designed properly and implemented
in an organization. Perhaps more importantly, the organizational culture must be supportive of
idea that customers are important and their voice has value.

Today, there are a number of airlines in the world with different technologies and new airline
services. Hence, customers choice becomes wide in preference to one airline from other.
Moreover, customers can be obtained by using the opportunity to benchmark once service
quality against the other and by using different parameters in the industry such as standards and
service recovery dimensions.

In the Ethiopian Airlines, Service Recovery Program with the following package of components
is being implemented in order cover the following aspects of service recovery:

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 Delay/cancelled Flight Management

Flight delays or disruptions equal to or exceeding 24 hours shall be considered cancelled and the
compensation scheme for Denied Boarding passengers shall apply. Passengers originating from
the airport of departure as local are not entitled to free hotel accommodation whether they are
checked in for the flight involved or not. However, assistance may be given, if needed, in
transportation.

Denied Boarding Compensation (DBC)

Denied Boarding Compensation on domestic flights shall be ETB 150 for C-9 and ETB 100 for
Y-class (economy class). Children aged 2-12 years are entitled for 50% of the applicable DBC
scheme.

Misconnecting Flights

Passengers, who misconnect their fight at transit due to delay of their incoming ET-flight shall be
provided with hotel accommodation (HOTAC) until the next (first available) flight;
communication (3 minutes international call or fax service); and ground transport to and from the
hotel.

Incidental payment for lost or left behind baggage:

For international flights

The Ethiopian Airlines pays an incidental payment of USD 100 for C-9 (business class) and
USD 75 for Y-class (economy class) or equivalent in local currency per passenger for the first
day.

For domestic flights:

The Airlines pays an incidental payment of ETB 150.00 to be given immediately upon arrival
(The incidental is to be paid for all passengers missing one or all of their bags at time of arrival).
Even though the Ethiopian Airlines has those service recovery package of programs, there is a
gap between its strategy and performance at the Head Quarter in Addis Ababa. Deviations, such
as delay without notification, loss of baggage and lack of proper handling to unsatisfied
customers had been the scenarios which initiated this study.

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Definition of Terms

Denied boarding refers to a situation where an airline due to overbooking has more passengers
than the aircrafts available seat capacity. It is a technical term for what might more commonly
be described as flight dumping or being dumped off a flight.

Misconnecting flights: When there is cancellation, delay or denied boarding, the next ladder of
flight couldnt be pursued. If the first flight is delayed into a connecting city, theres well a good
chance of misconnecting once being there. In this case, it is considered to be misconnecting
flights.

Incidental payment: this is the payment made to passengers as compensation to their left behind
or lost baggage.

Basic Research Questions

This study attempted to address the following major research questions in the case of the
Ethiopian Airlines:

1. What does the service recovery of the Ethiopian Airlines look like?
2. To what extent, does the Ethiopian Airlines currently offer good service recovery to its
customers?
3. What are the problems faced by Ethiopian Airlines currently in practicing a good service
recovery practice? and
4. To what extent, its customers are satisfied in relation to the service recovery practice of
Ethiopian Airlines?

Objectives of the Study

The general objective of this study was to assess service recovery practices with reference to the
Head Quarter of the Ethiopian Airlines in Addis Ababa, Ethiopia. Based on the aforementioned
general objective, the student researcher specifically tried:

To assess the implementation of service delivery practice of the Head Quarter of the
Ethiopian Airlines in Addis Ababa;
To investigate the problems being faced by the Ethiopian Airlines to effectively practice
an organized service recovery to satisfy its customers;

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 To identify those factors affecting the quality of the service recovery practice of the
Ethiopian Airlines;
To determine whether the Airlines has been offering good service recovery or not; and
To identify the best quality service recovery practice that may help the Ethiopian Airlines
to build good relationships with its customers from all corners of the world.

Significance of the Study

The empirical findings of this study have significance for the managing practitioners, economic
policy makers, and in contributing to the knowledge reservoir in the field of study. This study
came up with empirical issues that may suggest the management of the Airlines to take some
corrective actions for the errors made. These, in turn, would result in giving a clear
understanding about those factors that have created the gap between the service failure and
service recovery practice; in identifying the needs and the methods of adopting its existing
service recovery methods in accordance to its core competitors; in ensuring that the existing
service recovery practices have focused on customers needs and wants. Besides, the findings of
this research will initiate other researchers to conduct studies on either different aspects of the
topic under investigation or the same issues investigated in better and in-depth manner on a
wider scale.

Delimitations of the Study

The scope of this study was specifically delimited to assess the service recovery practices at Bole
International Airport, the Head Quarter of the Ethiopian Airlines in Addis Ababa. This study
tried to look into the cases which had been observed from January 2010 to June 15, 2011. But , it
is believed that the research could be done on a wider scale for a better and in-depth study
covering wider areas. As the research is conducted for educational purpose and as it is not on a
wider scale, the sample size is sufficient to conduct the study.

Limitations of the Study

The student researcher came across a number of problems and challenges that may have
influence on the findings of the study. Among these, shortage of relevant and latest books and
previous domestic research work conducted in the area of the study at the University College.

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Besides, some of the customers did not cooperate with the student researcher to fill out the
questionnaires.

Organization of the Research Paper

The research paper consists of five parts. The first part introduces the background of the study,
statement of the problem, significance of the study, scope of the study, and definition of key
terms in the paper.. The second chapter deals with the review of related literature. Next, paper
describes research design and methodology which mostly emphasizes presentation, analysis, and
interpretation of the data. The last part tries to summarize and draw conclusions based on major
findings which are well-supported by empirical data and then forwards recommendations.

Review of Related Literature

Meaning of Service and Service Recovery

Meaning of Service

Zetihaml (2003) indicated that services are all economic activities whose output are not a
physical product or construction, are generally consumed at the time it is produced, and provides
added value in forms such as convenience, amusement, timeliness, comfort, or health that are
essentially intangible concerns of its first purchaser. Moreover, Lovelock, (2004) also defined
service as an economic activity that creates value and provides benefits for customers at specific
times and places by bringing about a desired change in, or on behalf of, the recipient of the
service.

Services are a type of economic activity that is intangible, is not stored and does not result in
ownership. A service is consumed at the point of sale. Services are one of the two key
components of economics, and the other being goods (Tetra Technology Company, 2010).

Meaning of Service Recovery

Lovelocks (2004) defined service recovery as an umbrella term for systematic efforts by a firm
to correct a problem following a service failure and retain a customers goodwill. According to
Zeithaml (2003) service recovery is the action taken by an organization in response to a service
failure. Moreover, service recovery is defined by Johnston and Hewa (1997) as the action of a
service provider to mitigate and/or repair the damage to a customer that results from the
providers failure to deliver a service as it is designed. Micheal (2001) also indicated that
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service recovery efforts embrace proactive, often immediate, efforts to reduce negative effects on
service evaluation.

Service recovery is the step that should follow a mistake. You must apologize, take responsibility
for the error or the inconvenience, and give the customer something of value as compensation,
something that says, "We value you as a customer and want you to continue to do business with
us." What product or service can you give that will cost you little or nothing but that has value in
the eyes of your customers? A hotel can upgrade a disgruntled guest to a suite. A restaurant can
give offer a free appetizer. A cell phone company can offer 500 free minutes, according the same
Companys web-based document.

Customers Expectation about their Complaints

According to Lovelock (2004), whenever a service failure occurs, people expect to be adequately
compensated in a fair manner. However, recent studies indicated that many customers felt that
they had not been treated fairly and did not receive adequate justice. When this happens,
customers reactions tend to be immediate, emotional, and enduring. The followings are the three
dimensions of fairness:

Procedural justice: It has to do with the policies and rules that any customer will have to go
through in order to seek fairness. Here, customers expect the firm to assume responsibility,
which is the key to the start of a fair procedure, followed by a convenient and responsive
recovery process that includes flexibility of the system and consideration of customer inputs in to
the recovery process.

Interactional justice: This justice involves the firms employees who provide the service
recovery and their behaviour toward the customer. Giving an explanation for the failure and
making an effort to resolve the problem are very important. However, the recovery effort must
be received as genuine, honest, and polite.

Outcome justice: It pertains to the compensation that a customer receives as a result of losses
and inconveniences incurred because of service failure. This includes compensation for not only
the failure but also the time, effort, and energy spent during the process of service recovery.

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Service Recovery Program (Managing Customer Complaints)

Service recovery program is nothing but it is a design by the service firm to close the gaps
between what the customer expects and what the actual performance of the company is. Here are
some important points as indicated: by Gerson (1993). These are:

Apologies: Let your customer know that you are sorry for the inconvenience. Even if it was not
your fault, and regardless of who is at fault, ask first apologies to the customer. Tell him or her
that you are going to take full responsibility for resolving the complaint.

Urgent Restatement: You restate the complaint in your own words to make sure that you
understand the exact nature of the complaint and that you and the customer are in complete
agreement. Tell the customer again, and show him or her, if possible to resolve the problem.

Empathy: You clearly communicate to the customer that you understand the problem and
appreciate the way he or she feels. Also, you emphasize that you are glad that he or she has
brought this to your attention because it gives you opportunity to correct the situation.

Restitution: You do whatever it takes at this point to satisfy the customer whatever he/she needs
or wants or expects from you to resolve the complaint without giving away the chop. After you
have resolved the complaint, go to the extra mile and give the customer something else: a
discount coupon, a free gift or allow him or her to purchase another item at a sale price. Do
something extra to add value to what might have been a bad situation.

Follow up: You should check with all customers before they leave to make sure that they are
satisfied. Then phone them and write them a note within a week of the complaint resolution to
make sure that they are still satisfied. You may even want to make sure that they are still
satisfied. You may even want to include a discount voucher with your note. Make sure that you
continue to keep in touch the customer.

Principles of Effective Service Recovery Systems

As Lovelock (2004) indicated, the following are the five guiding principles of effective service
recovery: make it easy for customers to give feedback; how can managers overcome unhappy
customers reluctance to complain about service failures? The best way is to address the reasons
for their reluctance directly; enable effective service recovery recovering from service failures

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takes more than pious expressions of determination to resolve any problems that may occur; and
it requires commitment, planning, and clear guidelines.

Service recovery should be proactive: Service recovery needs to be initiated on the spot,
ideally before customers have a chance to complain. Recovery procedures need to be planned
contingency plans have to be developed for service failures, especially for those that can occur
regularly and cannot be designed out of the system.

Recovery Skills must be taught: Customers easily feel insecure at the point of service failure
because things are not turning out as anticipated. Effective training arms frontline staff with the
confidence and competence to turn distress into delight.

Recovery Requires Empowered Employees: Service recovery efforts should be flexible, and
employees should be empowered to use their judgment and communication skills to develop
solutions that will satisfy complaining customers.

Establish Appropriate Compensation Level: How much compensation should a firm offer
when there has been a service failure? Or would an apology be sufficient instead? The following
rules of thumb can help to answer these questions:

Service Recovery Paradox

Magnini, et al. (2007) pinpointed that service recovery paradox states that with a highly effective
service recovery, a service or product failure offers a chance to achieve higher satisfaction
ratings from customers than if the failure had never happened. A little bit less academically, this
means that a good recovery can turn angry and frustrated customers into loyal customers. In fact,
it can create even more goodwill than if things had gone smoothly in the first place.
[

Henrique (2007) outlined that not all service recovery efforts will lead to increase satisfaction
ratings as several studies have already shown. The key is to understand that there are certain
situations when it is highly likely that a service recovery will lead to increased customers
satisfaction. Service recoveries that are likely to be efficient are obviously those where the
service failure is perceived to be not systematic or that the company has little control over it. But
even in cases when there is a systematic failure and the company has control over the failure,
there is a benefit when service recovery activities are put into action to ensure that one can win
back customers and that the source of failure is eliminated.

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Is the Service Recovery Paradox Real, or Myth?

At this juncture, one may pose the following question: Do customers who have had an issue
resolved really generate more loyalty than those that have never had an issue? Magnini, et al.
(2007), in their paper titled The service recovery paradox: justifiable theory or smoldering
myth? set out to determine if, when and how the service recovery paradox operates. Their
findings are instructive not just on how to leverage this idea, but also in reminding us that it is
not a savior for bad service. What is most interesting about their research is that the service
recovery effect is moderated by several attributes of the failure. Their key findings in this area
include:

It doesnt work as well for customers who have prior failures: This is logical. If the
organization has repeated service failures then the customer will not be satisfied with repeated
service recoveries. The implications of this are clear. Service recovery processes are special
event responses and should not be relied upon to deliver good service.

It doesnt work as well for big failures: If a customer misses a major personal event due to a
delayed flight, no amount of discounted flight coupons is going to raise their level of
satisfaction.

If works just as well for old customers as new customers: Long-term customers who
experience a service recovery will have their loyalty improved about the same amount as new
customers.

It works better if the customer believes it was beyond your control: Where a customer can
see, or you can show them, that the issue was beyond your control, a service recovery process
has a better chance of improving customers loyalty. So, if you can provide a third party
explanation of the failure you may be better off. Take, for example, delayed flights by airlines.
Saying, as airlines seem to do all the time these days, this flight is late because it was late
departing is less likely to invoke the service recovery paradox than saying this flight is late
because of bad weather. Here the implication is that staff should be taught to manage
customers expectations when the service issue is truly beyond company control.

It works better if customers perceive the issue was not reasonably foreseeable: If your local
supermarket doesnt have enough aisles open late Sunday afternoon, when everyone does their

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last minute shopping for the week ahead, customers are less likely to be wowed by your service
recovery.

It seems to me that all of these findings are consistent and lead to a clear view of service
recovery. Service recovery is like your favorite donut: It is a sometimes event, not an everyday
event.

Long-term you need to work on your customer experience management processes to ensure that
you deliver consistent and reliable service to your customers. If occasionally you do make a
mistake, customers will forgive you, subject to the areas noted above. And, proactive service
recovery will lift customers loyalty. However, you do not rely on service recovery processes as
your service processes.

Lovelock (2004) also said that service recovery paradox refers to the sometimes observed effect
those customers who experiences a service failure and then have it resolved to their full
satisfaction are more likely to make future purchase than are customers who have no problem in
the first place. However, the best strategy is to do it right the first time. Service Recovery is
tuning a service failure into an opportunity you wish you never had. It is critical that service
recovery be well executed, but failures cannot be tolerated. Unfortunately, empirical evidence
generally shows that a large proportion of customers are dissatisfied with the outcome of their
complaints.

Research Design and Methodology

Research Design

In this study, the student researcher employed quantitative research approach, particularly
descriptive sample survey, which was selected for its appropriateness. Besides, interview method
or interviewing technique was used to conduct individual in-depth interviews through probing to
generate qualitative data that could triangulate the findings of the descriptive survey. Moreover,
documentary analysis method was used. As it is helpful to describe the present status of an area
of investigation to cover a wider magnitude, the student research employed a screening device.

Target Population and Sampling

Even though the Ethiopian Airlines has huge customers inside and outside of the country, the list
of customers was not available. According to Matholtra (2007), a total number of 200 customers

87
were taken as a reliable sample size and the study considered the stated sample size. Passengers
and station managers of the Company were considered as units of the study or units of analysis.
Convenience sampling technique was used to select the sampling elements or units and then to
gather data from those passengers who had consumed the services. In addition, two station
mangers participated in the survey as key informants and they were interviewed.

Types of Data

In this research, both primary and secondary data sources were used to collect pertinent data. The
primary data were collected from passengers (customers) and concerned station managers.
Secondary data were also generated from published materials such as books, journals, internal
reports, memorandum, and publications of the organizations manuals, Internet and the
Companys current Service Recovery Program. In addition, unpublished documents from various
resource centres were used.

Methods and Tools of Data Collection

The primary data were collected by the researcher using structured questionnaires and interview
guide/protocol as research tools/instruments. The questionnaires were distributed to randomly
sampled and selected passengers and the interviews were conducted with two concerned station
managers using the interview guide.

The secondary data were similarly collected through consulting books, journals, internal reports,
memorandum, and publications of the organizations manuals, internet and other published as
well as unpublished materials related to the objectives of the study using documentary analysis
checklist. Besides, the companys current service recovery program had been reviewed to enrich
the findings.

Data Analysis Method

Quantitative and qualitative data analysis techniques were used in this study. Quantitative data
analysis, especially descriptive data analysis techniques were used to summarize the data which
was collected through the structured questionnaires. The questionnaires were then verified for
their completeness, analyzed and presented in the form of tables in order to illustrate and clarify
the findings. The student researcher also employed qualitative data analysis technique such as
content analysis and thematic analysis and then conveyed the results accordingly.

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Data Presentation, Analysis and Interpretation

In this survey, two major groups of respondents were involved; customers and station managers.
Questionnaires were prepared for two hundred customers (passengers) and an in-depth interview
was conducted with two station managers who are responsible for handling of customers
complaints. Both quantitative and qualitative data are presented in this part of the research report.

Socio-demographic and Economic Characteristics of the Sampled Customers

Some 200 customers were conveniently selected and given questionnaires, out of which 160 of
them participated to fill out the instruments which makes the response rate to be 80%. As the
significant majority of the respondents filled out and returned the questionnaires, it is possible to
proceed to data analysis and interpretation. Their responses are summarized in the following
consecutive tables.

Table 1- Socio-demographic and Economic Characteristics of the Responding Customers

Customers response
Item Variables (Questions)
f %
Male 125 78.0
1 Gender Female 35 22.0
Total 160 100.0
20-30 7 4.0
31-40 67 42.0
2 Age 41-50 69 43.0
51 -60 12 8.0
Above 60 5 3.0
Total 160 100.0
Government/public service 27 17.0
Employed in a private firm 8 5.0
Business owner 75 47.0
3 Occupation Student 7 4.0
Others 43 27.0
Total 160 100.0
Source: Own survey findings, 2011.

As shown in item 1 of Table 1, a total of 125 (78%) of the sampled respondents were males and
the remaining 35 (22%) were females. In the Ethiopian Airlines, the majority of the respondents
who had had complaints regarding service failure were males during the said period of time. .

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With regard to the age distribution, 7(4%) of the complaining customers ages were between 20
and 30; 67(42%) were between 31 and 40; 69(43%) were between 41 and 50; 12(8%) were
between 51 and 60; and the remaining 5(3%) were above 60 years as shown in item 2 of Table 1.
The age profiles of the customers with complaints to the Airlines were adults in their working
age categories whose ages lie between 31 and 50 years.

Concerning occupation of the respondents as depicted under item 3 of Table 1, 27(17%) were
government/ public employees, 8(5%) were employees of private firms, 75(47%) were business
owners, 7(4%) of the respondents were students and the rest which accounts for 43(27%) were
engaged in humanitarian and religious activities. These findings of the study show that most of
the customers who had presented their complaints to the Ethiopian Airlines were business
persons.

Table 2 - Customers Reasons and Frequency of Travel by Ethiopian Airlines

Customer response
Item Variables (Questions)
f %

Official visit & Training 49 31.0

Vacation 15 9.0

1 Reason for travel Business 82 52.0

Educational visit 7 4.0

Medical 7 4.0

Total 160 100.0

Once in a week 32 20.0

2 How often do you travel by Once in a month 39 24.0

Ethiopian Airlines?
Quarterly 65 41.0

Once in a year 24 15.0

Total 160 100.0

Source: Outputs of own survey data analysis, 2011.

According to item 1 of Table 2, which indicates customer respondents reasons for travel varies
and, hence, 49(31%) of the respondents said that they had traveled through the Ethiopian

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Airlines for official visits and trainings, 15(9%) for vacation, 82(52%) were for business
undertakings, and the remaining travelled for educational visits and for various reasons 7(4%)
each respectively. From these empirical findings, one can deduce that most of respondents used
the Airlines to do their respective business.

The last item of Table 2 shows the respondents frequency of travel by the Ethiopian Airlines. As
per the response generated, 32(20%) of them indicated that they had been flying once in a week,
39(24%) travelled once in a month, 65(41%) of them had had a trip quarterly, and 24(15%) of
the respondents did fly once in a year. Based on the evidence generated in the study, one can
state that most of the sampled customers of the Airlines had had a trip more than once in a year
or quarterly.

Table 3 - Customers Reasons for Choosing Ethiopian Airlines

Customers Response
Item Question
f %
Reason for choosing Ethiopian?
1 Cheap fare 18 11.0
Safety 74 46.0
Good in-flight service 29 19.0
Hospitability 39 24.0
Total 160 100.0
Source: Own survey results, 2011.

As shown in Table 3, 18(11%) of the respondents chose the Ethiopian Airlines due to its cheap
fare, 74(46%) of them said because of its safety records, 29(19%) believed in its good in-flight
services, and 39(24%) of them chose the Airlines for hospitability of the crew members. Based
the results of the survey, it can be deduced that most of the respondents had chosen the Ethiopian
Airlines because of its good safety records.

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Table 4 - Customers Responses on Ethiopian Airlines Service Failure Status

Customers response
Item Question
f %
1 Did you experience service failures during the past one and
half year?
Not at all 9 6.0

Only for one time 11 7.0

Two times 37 23.0

Three times 92 57.0

More than three times 11 7.0
Total 160 100.0
Source: Own survey, 2011.

The above table shows experiences of customers towards Ethiopian Airlines service failure
position. In view of that, 9(6%) of the respondents indicated that they had not experienced any
failure, 11(7%) said they had experienced only for once, 37(23%) had experienced two times,
92(57%) had experienced three times, and 11(7%) of the respondents had experienced more than
three times during the past one and half years. These results show that most of the respondents
have experienced a service failure three times during the past one and half years.

Table 5 - Customers Response on Types of Service Failure experienced

Customers Response
Item Question
f %
1 What type of service failure do you experience?
Time delay 83 48.0
Baggage loss 55 30.0

Denied boarding 22 15.0

Total 160 100.0
Source: Own survey results, 2011.

Table 5 indicates customers response on nature of the Ethiopian Airlines service failure.
Accordingly, 83(48%) of the respondents pointed out that they had experienced a time delay,
55(30%) baggage loss, 22(15%) encountered denied boarding. Generally, it can be observed that
about 138(86) % of the respondents have experienced both baggage loss and time delay types of

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service failure. In conclusion, one can deduce that most of the customers have experienced both
time delay and baggage loss.

Table 6 - Customers Complaint on Service Failure experienced

Customers
Customers Response
Response
Item Questions Yes No Total
f % f % f %
1 Did you complain about service failure/s experienced? 62 39.0 98 61.0 160 100.0
2 Did you get fast response whenever you complain? 71 44.0 89 56.0 160 100.0
3 Do you have an opportunity to travel with other 73 46.0 87 54.0 160 100.0
airlines?
4 Do you think the Ethiopian Airlines has an effective
service recovery practice more than its competitors 82 51.0 78 49.0 160 100.0
dont have
Source: Outputs of own survey data analysis, 2011.

Item 1 of the Table 6 shows that 62(39%) of the respondent customers said that they had
presented their complaints to the concerned Office(s) of the Ethiopian Airlines. However, the
rest, 98(61%) of the respondent customers had not presented their complaints. This result shows
that most of the customers did not complain about the failure which they had experienced.
According to Lovelock (2004), the customer who did not complain about the service failure
which s/he had encountered is very dangerous because he decided not to come again.

In Table 6, Item 2 indicated only 71(44%) of the respondents had got fast and immediate reply
and the remaining, 89(56%) did not get fast reply. Accordingly, more than half (56%) of the
responding customers did not get fast reply for their complaints by the concerned Office(s) of the
Airlines.

Item 3 of Table 6 depicted that 73(46%) of the respondents had had an experience of traveling
with other airlines; while the remaining, 87(54%) had not had experience of other airlines. From
these findings, it can be understood that more than half of the respondents have had no reference
point to compare the Ethiopian Airlines service recovery practice with others.

With respect to item 4 of Table 6, 82(51%) of the respondents who had had experience of
travelling by other airlines believed that Ethiopian Airlines had got an effective service recovery

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practice, which is unique from its competitors, while the remaining, 78(49%) didnt have such a
belief. This implies that more than half of the customers have felt that Ethiopian Airlines does
not have unique feature more than its competitors. In addition, it gives a take care alarm for the
Companys management to revise its service recovery practice and to build good relationships
with its loyal as well as new customers.

General Issues Related to Respondents Personal Opinions

Ultimately, the respondents were given a chance by the student researcher to forward their
suggestions, comments and/or opinions related to service recovery practice of the Ethiopian
Airlines. Their points are summarized and indicated as follows: (1) The first task of the
management should be to take into consideration is to develop a communication between the
departure and arrival point based on well advanced technology; and (2) There has to be a
customer complaint form which can be filled by the customer. Thus, all the complaints should be
analyzed so that a proper correction can be taken by the management based on research informed
findings. Finally, very fast way of information dissemination has to be developed and used
whenever the delay occurs.

Customers Complaints Management at the Airlines

Individual in-depth interviews were conducted with two selected station managers with special
emphasis to the customer handling section. Regarding the question on how does the Ethiopian
Airlines handle customers complaint? One of the Station Mangers replied: The Ethiopian
Airlines has a well-organized service recovery manual and customers complaints are being
handled based on the statements in the manual. This quoted material was supported by the
student researchers observation.

The other two points that the student researcher asked the managing key informants were: Which
service recovery strategies does the Ethiopian Airlines follow? And how does the Ethiopian
Airlines measure the effectiveness of its service recovery practices. In the words of the key
informants, The Company has its own service recovery manual which is prepared based on the
International Air Transportation Associations (IATA) standards. Thus, the Airline measures its
service recovery practice by collecting customers feedbacks. However, this qualitative data on
practice of the Airlines was not supported by concrete evidence.

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In what follows, the study also posed the question about what actions were taken by the
management of the Airlines to maximize its efforts to address the customers appeals for service
recovery failure and then the level of its customers satisfaction. One of the Station Mangers of
the Ethiopian Airlines replied:

The objective of the Ethiopian Airlines is being familiar with technological advancement of the
area, giving the service in a more standardized way and tries to do things right first with zero
failure as much as possible. But, for some reasons, when failure occurs, the Company revised its
ways of handling customers complaints with the best service recovery practice.

The last but not the least point which was raised to the managing key informants was: What
kinds of activity their Company has been undertaking in developing the capacity of its
employees in effectively and efficiently dealing with service recovery. Another Station Manager
has to say the following, as he stated:

The Ethiopian Airlines staffs that are working tasks which are related to passengers
complaint handling service have been trained by the Company itself in its School of
Marketing. Therefore, they have basic skills of handling customers complaint. Besides,
the Airline gives adequate trainings both in-house and abroad for its employees to
familiarize them with recent developments related to service recovery practice.
Based on the qualitative analysis of the above-stated statements, there exists a gap between what
the Station Manger of the Ethiopian Airlines have been claiming and what is the reality on the
ground. It can be deduced that the Ethiopian Airlines has well-organized manual on how to
handle the customers service recovery complaints appealed. This Manual which was prepared
based on the standards of the International Air Transportation Association (IATA). In addition,
the Company collects customers feedbacks in order to measure its level of effectiveness in
handling the issues under consideration on a continuous basis. However, there was no concrete
evidence on the ground which could serve as justifications for the practice claimed. In order to
maximize its efforts to effectively address the customers appeals for service recovery failure and
then the level of their satisfaction, on the other hand, has been engaged in revising the then ways
of handling the complaints in the light of the best service recovery practice. Consequently, the
Company established School of Marketing for in-house training and even sent its employees for
such trainings abroad.

In the final analysis, even though the Ethiopian Airlines has internationally-informed Manual for
handling the customers service recovery complaints, trained personnel both home and abroad
for this purpose and for collecting feedbacks from its customers on a continuous basis; the

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findings of the survey find no practice evidence and complete truth on the ground, except the
IATA-well informed Manual.

Summary, Conclusion and Recommendation

Summary

In this study, the respondents were generally diversified in gender, age, and occupation. Thus,
based on the findings, 125(78%) of the respondents were males; the remaining 35(22%) were
females. Besides, the majority of the respondents ages were between 31 and 50 and they were
also business persons.

All the respondents were travelers by the Ethiopian Airlines. However, 73(46%) of the
respondents had had an experience of traveling with other airlines, while the remaining 87(54%)
had had no experience of traveling by other airlines.

A total of 82(51%) respondents who had had other airlines experience believed that the
Ethiopian Airlines had got an effective service recovery practice which could be considered
unique from its competitors, while the remaining 78(49%) didnt have such a belief.

[[[ Less than half of the respondents, 74(46%) believed that safety had been considered as the most
important quality in the airline industry. In addition, the majority of the respondents had
identified qualities such as safety, reduced fare, quality service, and trained staff in the Ethiopian
Airlines. Among those who respond positively to the above-stated question, 74(46%) of them
believed that the Ethiopian Airlines had been the safest Airline.

Regarding the service failure position of the Ethiopian Airlines, out of those sampled
respondents, 151(94%) had the experience of a service failure. Consequently, 83(48%) of the
them experienced flight time delay, 55(30%) baggage loss, and 22(15%) encountered denied
boarding. Generally, it can be observed that about 138(86%) of the respondents have
experienced both baggage loss and time delay type of service failure.

With regard to presenting their complaints, 62(40%) of the customers presented their complaints
but the other 90(60%) of the customers did not present their complaints. This result shows that
most of the customers did not complain about the failure which they had experienced.
Accordingly, 71(44%) of the respondents got fast and immediate reply, but the remaining

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89(56%) did not get such responses. This implies that more than half of the respondents did not
get fast reply for their complaints.

As to the experience of traveling with other airlines, 73(46%) of the respondents had an
experience of traveling with other airlines, while the remaining 87(54%) had no such an
experience. From these results, we can observe that more than half of the respondents had no a
reference points to compare the Ethiopian Airlines service recovery practice with that of others.

Based on in-depth interviews and documentary analysis, the Airlines had a well-organized
Manual on Service Recovery Practice which was prepared based on the International Air
Transportation Associations (IATA) and African Airlines Association (AFRAA) standards in
order to handle the customers complaints for service failure.

Concerning the companys attempt to measure its effectiveness in handling its customers
satisfaction in terms of its service recovery practice, the findings of the study indicated mixed
picture. However, as this practice was not supported by concrete evidence, the Ethiopian Airlines
was not effective in handling such a failure of complaints. In contrast, the Airlines Senior
Officials claimed that the Company had been trying to take best service recovery action to
handle customers complaints. In the same framework, the Ethiopian Airlines tried its best to
build the capacity of its employees by sending them either to get the trainings at its School of
Marketing or to abroad for further studies on recent developments related to service recovery
practice in the aviation industry in the world.

Conclusion

Based on the summary of the major findings which are supported by the empirical data, the
conclusions are drawn regarding the implementation of the service delivery practice, problems
faced on the part of the Airlines to effectively implement its manual, factors affecting the
provision of quality services in relation to complaints for service delivery failure on the part of
its customers, and the best qualities that should be in place regarding effective delivery of such
services in Addis Ababa by taking into account the socio-demographic and economic
characteristics of the customers.

The age profiles of the customers with complaints to the Airlines were adults in their working
age categories whose ages lie between 31 and 50 years. Most of those customers who have

97
presented their complaints to the Ethiopian Airlines are business persons traveling from Addis
Ababa to elsewhere in most parts of the world to do their respective business.

Based on the evidence generated in the study, one can also conclude that most of the customers
of the Airlines have had a trip more than once in a year or quarterly. These passengers have
chosen the Ethiopian Airlines because of its good safety records.

The implementation of the service delivery practice is characterized as ineffective in that there
are interconnected problems faced on the part of the Ethiopian Airlines. In the Ethiopian
Airlines, the management of service delivery failure is implements based on collection of the
customers feedbacks but without using the appropriate and standard form developed for this
purpose. The first task of the management should be to take into consideration and to develop a
communication between the departure and arrival points based on well advanced technology.

Most of those customers of the Airlines experienced a service failure three times during the past
one and half years. They experienced both time delay and baggage loss. Notwithstanding, most
of these customers do not complain about the failure which they have experienced.
Consequently, the Ethiopian Airlines may lose its customers through time; according to
Lovelock (2004), the customers who did not complain about the service failure which s/he had
encountered is very dangerous because s/he decided not to come again.

Accordingly, more than half of the complaining customers do not get fast reply for their
complaints by the concerned Office(s) of the Airlines. Therefore, this gives a take care alarm
on the part of the Airlines management to revise its service recovery practice and to build good
relationships with its loyal as well as new customers.

There is no customers complaint standard form which can be filled by the customers with
complaints for service delivery failure. Therefore, all the complaints appealed may not be
analyzed so that an appropriate corrective action can be taken by the management.

The management of the airline admits those deficiencies indicated by respondents such as delay,
baggage loss, denied boarding and lack of motivation of related personnel.

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The complaint handling system expressed through commitment, fairness, effectiveness,
accessibility and accountability, is not seen to be strong enough to bring back the unsatisfied
customers and prevent them not to shift to challenging competitors.

Among the customer service judgment variables expressed through reliability, assurance,
tangibility, empathy and responsiveness, the responsiveness for customers complaints and ways
of communication is viewed by customers to be improved in a standardized way.

The gap between the promised and perceived service recovery practice and through the company
service recovery manual, the aggressive pricing strategy of competitors and the uncontrolled
external factors are some of the problems facing the airline in its endeavor to satisfy its
customers.

The Airlines does not use very fast way of information dissemination has to be developed and
used whenever the delay occurs. On the whole, the claimed practice of the Airlines regarding
service delivery failure is not supported by concrete evidence. There exists a gap between what
the Station Management Offices of the Ethiopian Airlines claim and what is the reality on the
ground. It can be deduced that the Ethiopian Airlines has well-organized manual on how to
handle the customers service recovery complaints appealed. This Manual which was prepared
based on the standards of the International Air Transportation Association (IATA). In addition,
the Company collects customers feedbacks in order to measure its level of effectiveness in
handling the issues under consideration on a continuous basis. However, there was no concrete
evidence on the ground which could serve as justifications for the practice claimed. In order to
maximize its efforts to effectively address the customers appeals for service recovery failure and
then the level of their satisfaction, on the other hand, has been engaged in revising the then ways
of handling the complaints in the light of the best service recovery practice. Consequently, the
Company established School of Marketing for in-house training and even sent its employees for
such trainings abroad.

Even though the Ethiopian Airlines has internationally-informed Manual for handling the
customers service recovery complaints, trained personnel both home and abroad for this purpose
and for collecting feedbacks from its customers on a continuous basis; the findings of the survey
find no practice evidence and complete truth on the ground, except the IATA-well informed
Manual.

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Finally, the study concludes that there is a strong competitive environment in which the
Ethiopian Airlines is operating that makes the Company to loose its goodwill. Unless the
available gaps in addressing service delivery failure is filled through currently available unused
capabilities, restructuring and reorganizing the customer service delivery based on experiences
from other effective airlines in the world, the Airlines may lose its customers and benefits
generated from them. In conclusion, the Ethiopian Airlines particle of service delivery is,
relatively speaking, inefficient because it has faced some problems, there are factors affecting its
quality service delivery in this regard, and does not fulfill those standards which are considered
to be best qualities in the practice.

Recommendation

This study suggests the following recommendations based on the major findings and conclusions
drawn from them:

The Company should search for the point(s) of dissatisfaction and strive for more to
make them stay with the Airlines.
The Company should deal with customers dissatisfaction through well-organized and
designed feedback system to countercheck whether customers satisfaction is assured or
not. When the Airlines starts implementing proper feedback system such as toll free
telephone lines, suggestion box and online feedback systems, it can minimize the areas of
deficiencies in the service recovery practice.
The Ethiopian Airlines should enhance the best practice of customer service recovery to
the position that approaches its external image and shouldnt loose the already built
goodwill.
The management should pay due attention to the interpersonal skills and responsiveness
of the employees and the trainings offered to them so as to bring their skills and
responsiveness to an excellent level.
The management should identify unsatisfied customers on a continuous basis and should
give a distinguished service recovery to keep them stay. This action helps the Airlines to
attract other customers which, in turn, make the Company competitive enough in the
industry.

100
 REFERENCES

Anonymous. (2009). Ethiopian service recovery program. (Unpublished program document).

Ethiopian Airlines Head Office, Addis Ababa, Ethiopia.

Anderson, K, & Zemke, R.(1998). Tales of knock your socks off Service. New York: AMACON.

Levelock, C. (1995). Service marketing. New York: McGraw-Hill.

_________. (2004). Service marketing(3rd ed.). New Delhi: McGraw-Hill.

Friedman, L. (1994). The dynamics of customer relationship. New York: Lexington Books.

Henrique, J.L. (2007). Service recovery paradox: A meta analysis. Oxford: Oxford University
Press.

Investor Words. (2011). Service. Retrieved from http://www.investorwordswords.com/

6664/service.html#ixzz1Gei0aP6N.

Kurtz, D.L. (2002). Service marketing. New York: McGraw-Hill.

Magnini,V.P.(2007). Service marketing. New York: McGraw-Hill.

Michael, L. (2001). How to win customers and keep them for life. New York: Berkley Books.

Nancy, Y (2003). Negative emotions and their effect on customer complaint behaviour.
Nosrway: Hedmark University College.

Tetra Technology Company. (2010). Definition of what is service? Definition and meaning.
Retrieved from http//www.customerfocus consult.com. 9:20, 3/5/11.

World Article United States. (2011). Sales- marketing. Retrieved from http//www.answerstal
.com/articles 5:38, 11/3/11.

Zelthaml, V.A. (2000). Service marketing (3rded.). New Delhi: McGraw-Hill.

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 MONITORING AND EVALUATION OF CORHA-BASED NGOS IMPLEMENTING
SEXUAL AND REPRODUCTIVE HEALTH PROJECTS IN ADDIS ABABA:
PRACTICES AND CHALLENGES
BY

Tewodros Birhanu

Abstract

Projects of organization mostly failed to attain their objectives because of inadequate and weak
monitoring and evaluation (M & E) practices. Conducting project M & E requires well qualified staff
with sound knowledge and expertise in the area. Besides, this organization needs to have good
infrastructure for conducting it, as project M & E is so critical to the success of the project. There are
many reasons why a project fails and understanding them will give us insights on how to avoid future
failure. The following research questions were raised and addressed in this paper. How effectively has
been the M & E process done on RH/FP projects implemented by CORHA-based NAGOS? What are the
challenges they have faced in M & E of their projects? How organizations are collecting, organizing,
analyzing and interpreting data generating from the projects? What are the major factors that affect M &
E of the project? In line with this, the study used both qualitative and quantitative research methods.
Primary data were also collected through interviews using interview guide/protocol and structured
questionnaires from selected CORHA member NGOS as well as from CORHA. From data analysis,
summary of findings conclusion and recommendation were made. Findings suggest that there exist
problems related to lack of expertise, in adequate management information system (MIS) and lack of
baseline data. Based on these findings, solutions were recommended to concerned stakeholders.

Introduction

Background of the Study

The need for project monitoring and evaluation is important to analyze the progress of the
project towards achieving its goals and objectives, to determine whether or not the resources
provided by the donors are being efficiently and effectively used to change the life of the target
community, whether or not the projects are within schedule and also to determine any problems
that may be hampering the implementation. Determination of efficient management of resources
is a factor of project monitoring and there is also a need to determine whether or not the set
objectives were achieved and the extent of achievement of these objectives. Monitoring and
evaluation is also important to capture any lessons learned from the implementation of the
projects to aid another future projects and programming (Mark, 2007, p.14).

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Plans are essential but they are not set in concrete (totally fixed). If they are not working, or if
the circumstances change, then plans need to change, too. Monitoring and evaluation are both
tools which help organizations to check if projects are progressing as per the plans and to see
whether project objectives are able to be met or not, with the current performance of the
organizations. They give the required information to the management so that it can make
decisions about the project or organization, about changes that are necessary in strategy or plans.
Doing something wrong is not a crime, but failing to learn from past mistakes because of failure
of not monitoring and evaluating is much worse (Shapiro, 2004, p.5).

Consortium of Reproductive Health Association (CORHA) began as a loose affiliation of the

few Ethiopian and international NGOs that were then offering integrated services in maternal
and child health promotion, family planning and other reproductive health (MCH/FP/RH)
services in the country. However, subsequent to the launching of Ethiopias National Population
Policy in April 1993, many of the then NGOs operating in the country had realized that they
were now mandated to assist in meeting the national objective of addressing and closing the gaps
in high population growths by integrating RH/FB into their ongoing community- based
development and/or other initiative. They thus formed CORHA (formerly known as COFAP)
in July 1993. However, it was in 1995 the seven founding members (FGAE, EECMY, MSIE,
NACID, GSFCS, EGT, and SCF- USA) ratified and signed consortiums memorandum of
association.

CORHAs vision is to see vibrant, dynamic, and proactive member of the civil society with
broad-based membership and center of excellence in coordination, capacity building and
advocacy in reproductive health and rights in Ethiopia. CORHAs mission is a member driven
umbrella organization of NGOs committed to the provision of compressive, integrated,
sustainable RH information services and rights in Ethiopia. Its ultimate goal is improving the
overall RH status and quality of life for all the people, thereby contributing to national
development; CORHA strives for equity and empowerment of communities and members
through effective partnership and participatory processes in reproductive health and rights in
Ethiopia (CORHA, 2010, p. 1).

CORHA is currently implementing four projects the first one is enhancing gender gap through
advocacy in Ethiopia. The second one is on enhancing coordination, networking and advocacy

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role of CORHA projects to integrate RH and HIV/AIDS for better outcome. The last one is
Project on HIV/AIDS, RH and environmental protection.

Membership in CORHA was, and remains, open to all NGOs, Ethiopian and international
organizations, working on FP and RH issues. The only requirement is that members must fulfill
all the requirements and criteria set by CORHA. Currently, CORHA has a total of 101 member
organizations which are implementing Reproductive Health and Family Planning Projects. To
this end, the student researcher tries to assess the project monitoring and evaluation practices and
challenges of the CORHA-Based NGOs which have been implementing Sexual and
Reproductive Health Projects in Addis Ababa, Ethiopia.

Statement of the Problem

[[ Organizations projects mostly failed to attain their goals and objectives because of inadequate
and weak monitoring and evaluation practices. Conducting project monitoring and evaluation
requires well qualified staff with sound knowledge and expertise in the area. Besides, this
organization needs to have good infrastructure for conducting M & E, as project monitoring and
evaluation is so critical to the success of the project. There are many reasons why a project fails,
and understanding them will give us insights into how on avoid future failures (Martin et al,
2001:1).

A lot of donors resources are provided to NGOs in Ethiopia to implement Sexual and
Reproductive Health Projects. Not only does best practice requires that projects are monitored
for control but also project stakeholders require transparency, accountability for resource use and
impact, good project performance and organizational learning (to benefit future projects).

Despite the huge amount of resources provided to the NGOs to implement Sexual and
Reproductive Health Projects and the fact that these projects play a significant role in the fight
against poverty in the community, it is highly significant to assess clearly how monitoring and
evaluation have been done on those projects which have been implemented by NGOs. The
preliminary research reviewed by the student researcher shows that problems have occurred due
to lack of expertise, inadequate management information system, lack of well designed
monitoring and evaluation indicators and lack of baseline data on those projects.

104
Therefore, the purpose of this study was to investigate the main challenges on project monitoring
and evaluation practices of CORHA-based NGOs and to forward possible solutions by raising
the following core questions:

Research Questions

This study attempted to raise and address the following questions:

How are the CORHA-based NGOs implementing the M & E of the Sexual and RH
Projects in Addis Ababa?
How those organizations are collecting, organizing, analyzing and interpreting data
generating from the projects?
How effectively are the monitoring and evaluation processes done on RH/FP projects
which have been implemented by CORHA-based NGOs?
What are the challenges faced by CORHA-based NGOs which are practicing monitoring
and the evaluation their projects?
What are the major factors that have been affecting the practice of monitoring and
evaluation of those projects?

Objectives of the study

The general objective of the study was to investigate project monitoring and evaluation
practices and challenges encountered by CORHA-based NGOs which have been implementing
the Sexual and Reproductive Health Projects in the country. The study also has the following
specific objectives:

To assess the practice of M & E of the Sexual and RH Projects by the CORHA-based
NGOs through collecting, organizing, analyzing and interpreting data generating from the
projects;
To determine the level of effectiveness of the monitoring and evaluation processes
conducted on RH/FP projects which have been implemented by CORHA-based NGOs;
To identify challenges faced by CORHA-based NGOs while practising monitoring and
evaluation their projects; and
To identify major factors affecting the practice of monitoring and evaluation of those
projects.

105
Significance of the Study

This research is significant because the findings of the study contribute to professionals
endeavours in monitoring and evaluation of development projects/programs, to development
policy makers. The study also serves as empirical inputs for the improvement of the existing
problems related to M & E of the CORHA-based NGOs in particular and as reference to other
development interventions at different levels in general. It may further serve as reference for
other interested researcher who wants to engage in similar topic in different contexts and/or
development projects/programs. It will be important for development practitioners in that this
gives research-based informed knowledge and skills for M & E of development projects. In
addition, the empirical findings may serve as a stepping stone for further studies on similar topic
in different context or on different subjects in any parts of the country.

Limitations of the Study

Although the student researcher had planned ahead of time to overcome any risks and problems
in attempting the research undertaking, some constraints which emanated from various sources
occurred. These constraints may limit the findings of the study in one way or another. As the
data collected in this study was from staffs who are working in those organizations, the study did
not involve perspectives of the beneficiaries, the partners and key stakeholders in the projects.
The study was confined to indigenous NGOs found in Addis Ababa and those solely engaged in
RH and FP interventions. Therefore, the results obtained from this study cannot be generalized to
other NGOs in other localities or to other NGOs which have been engaged in other development
interventions. In the study, document analysis was not conducted because of the reluctance of
the sampled NGOs to give access to relevant published and unpublished documents. Therefore,
these constraints or limitations tantamount to influence the validity of some of the data generated
in order to address questions partly related to one or two specific objectives of the study.

Delimitations of the Study

The scope of this study is delimited by geography, project type and time.

Geographical Delimitation

The scope of the study was restricted to sexual and reproductive health projects implemented by
CORHA member NGOs stationed in Ethiopia's capital city, Addis Ababa. The restriction is due
to its geographical convenience and cost consideration.

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Project Delimitation

It was found difficult to conduct project monitoring and evaluation in order to assess practices
and to identify challenges at all members of CORHA and in all projects they have been
implementing in Addis Ababa. To this end, the researcher also wanted to delimit the study on
their projects nature and by giving emphasis to sexual and reproductive health projects.

Time Delimitation

It was difficult to conduct an assessment study on monitoring and evaluation practices and
challenges in all projects that CORHA member NGOs have been implementing for the past ten
or more years. Hence, the student researcher needs to delimit the study on time basis. Therefore,
the study was delimited by selecting those projects that had been implemented for the last five
years. This study was based on cross-sectional data of the five years. Generally, the assessment
of monitoring and evaluation practices in indigenous NGOs and then to identify challenges
which may emanate from some factors affecting effective M & E implementation and practice
in Addis Ababa, Ethiopia.

Definition of Key Terms

Monitoring

Monitoring is the routine and continuous tracking of the key elements of project implementation
performance, that is, inputs (resources, equipment, etc.) activities and outputs through
recordkeeping and regular reporting (McCoy et al., 2005).

Evaluation

Evaluation is the episodic (not continuous as the case with monitoring usually midterm and at
end of the project) assessment of an ongoing or completed project to determine its actual impact
against the planned impact (strategic goal or objectives for which it was implemented)
efficiency, sustainability, effectiveness (McCoy et al., 2005).

Organization of the Paper

The study is organized in to five parts. The first part is on background of the study, statement of
the problem, research questions, objectives of the study, definitions of key terms, limitations of
the study and organization of the paper. The next part presents review of related literature. The

107
third presents research design and methodology. It also describes target population and sampling
technique, data collection tools and procedures and data analysis methods. The fourth part
presents both primary and secondary data, their, analysis, and interpretation in the light of the
objectives of the study. The last part summarizes the most important issues in the paper and puts
together major findings in order to draw conclusions, and then to forward recommendations of
the study.

Review of Related Literature

Introduction

This part presents review of related literature in the study. It discusses about reproductive health
situation in Ethiopia, importance of monitoring and evaluation, concepts of monitoring and
evaluation, the relationship between monitoring and evaluation, monitoring and evaluation
techniques, differences between monitoring, evaluation and audit, comprehensive monitoring
and evaluation framework, approaches of monitoring and evaluation, methods of data collection
for M & E, and challenges of monitoring and evaluation. Next, let us present each topic one by
one.

Reproductive Health Situation in Ethiopia

High fertility and low use of modern contraceptive methods, like elsewhere in sub- Sahara
Africa, reflect a host of factors that have affected both the supply of contraceptive services and
the demand for them in Ethiopia. Regarding the former problem, shortage and recurrent stock-
outs of contraceptives, shortage of trained human power, poor quality of care and lack of
integration of services as well as weak Information and Education/Behavioral Change and
Communication (IE/BCC) Programs are recognized as critical challenges in ensuring quality,
integrated, and sustainable Reproductive Health/Family Planning (RH/FP) services. As to the
latter problem, massive poverty, low status of women, low rate of female literacy, and traditional
practices (such as Female Genital Cutting [FGC], early marriage, widow inheritances, and
polygamy) are some of the impediments in the health seeking behaviour of the society,
particularly among women who neither have the resources nor the decision making power
(CORHA, 2010, p.3).

In Ethiopia, maternal and infant mortality rates are the highest in the world which 871 per
100,000 and 97 per 100,000 live births in 2004/5 respectively. The socio-economic situation and

108
overburdened heath care delivery system have contributed greatly to this effect. Although access
to primary health care has increased over time, service utilization remains low due to low level
of awareness about the danger signs and symptoms during pregnancy, labor, and delivery. This
situation is further exacerbated by poor quality services and weak community support system, as
most households particularly in the rural areas do not have cash on hand that will enable them to
facilitate their decision.

The expansion and promotion of family planning service is an excellent opportunity in reducing
too frequently births, early pregnancies and the subsequently associated risks. Strengthening the
health care delivery system, increasing public awareness and organizing community support
systems should be considered as a means to reduce such an incidence in the future. Likewise,
family planning services have a far reaching impact in reducing maternal and infant mortality
rates and must be an integral part of the Ethiopias health care delivery system to achieve the
goals set by the Millennium Development Goals (MDGs) within the given timeframe. These
Goals concentrate in the reproductive age group 15 to 49 years. There is a significant gender
disparity with a high infection rate among the female population compared to their male
counterparts. The consideration of the fact that 85 percent of the Ethiopian population resides in
rural areas and the highest prevalence is among the youngest population implies how the
epidemic is threatening national development and the need for giving a serious attention to the
issue (CORHA, 2010, p. 3).

Importance of Monitoring and Evaluation

UNICEF (2005, p. 3) states that to evaluate means "to ascertain the value or worth of," according
to its Latin root. Knowing what difference development programmes are making motivates
workers and their supporters to renewed effort.

Although evaluations may be retrospective, they are essentially forward looking with regard to
their purpose. Evaluation applies the lessons of experience to decisions about current and future
programmes. Good evaluation presents alternatives for decision-makers to consider.

Too often, evaluation is perceived as threatening; it should be constructive. For example, an

evaluation can be tapped for developing human resources and improving management and
planning capabilities. Evaluation results can be used in advocacy and fundraising efforts to
obtain greater support from governments, private organizations, and the general public.

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Concept of Monitoring

What is Monitoring?

As in many other specialist circles, professional jargon abounds, including the term monitoring.
The monitor is derived from its Latin word, which means watches over and reminds.
Different authors have defined monitoring differently. However, there is some overlap and
disagreement between the operational definition of the term and the definitions given by
different authors as narrated below.

According to CRDA (2004, p. 2), monitoring is a continuous or periodic review of project

implementation focusing on inputs, activities, work schedules, outputs, etc. it is designed to
provide constant feedback to ensure effective and efficient project performance.

UNICEF (2010, p. 2) defines Monitoring is the periodic oversight of the implementation of an

activity which seeks to establish the extent to which input deliveries, work schedules, other
required actions and targeted outputs are proceeding according to plan, so that timely action can
be taken to correct deficiencies detected. "Monitoring" is also useful for the systematic checking
on a condition or set of conditions, such as following the situation of women and children.

Concepts of Evaluation

What is Evaluation?

As we just constantly conduct monitoring on a day-to-day basis, we also keep on evaluating. If

we have thrown a party, we ask ourselves and the guests how it was, what they thought of the
food, atmosphere, music, etc. Perhaps, the musicians hired for the event were fabulous, and can
be recommended to others, whereas the food might have left something to be desired, suggesting
that we should use a different supplier next time. Thus, we have carried out a minor evaluation,
systematizing our experiences for future use. However, we do not write anything down, and we
may not ask the opinions of a representative cross-section of party-goers. Had we done so, the
majority might not have been so upbeat about the music. The difference between small and
ongoing day-to-day evaluation and a project evaluation is that the latter seeks to approach the
issues as systematically and objectively as possible (DPOD, 2009, p. 35).

UNICEF (2003, p.2) defines evaluation as a process which attempts to determine as

systematically and objectively as possible the relevance, effectiveness, efficiency and impact of

110
activities in the light of specified objectives. It is a learning and action-oriented management tool
and organizational process for improving current activities and future planning, programming
and decision-making.

According to Christian Relief and Development Association (CRDA) (2004, p.3), evaluation is a
systematic periodic review of the performance, effectiveness, and impact of a project. It focuses
on making judgments on the value, outputs, and impact of the project.

Shapiro (2004) as cited by Mark (2009) emphasizes the fact that evaluation compares the project
impact with what was set to be achieved in the project plan and further argues that evaluation
examines how the project impacts were achieved and what went wrong or right for the benefit of
organizational learning. The emphasis of this approach to evaluation is on impact of the project
after it has been implemented. It does not recognize mid-term evaluations that tend to look at the
continued relevance and sustainability of the project and the impacts that the project has even
had before its completion.

The Relationship between Monitoring and Evaluation

According to UNICEF (2003, p.3), both monitoring and evaluation are management tools. In the
case of monitoring, information for tracking progress according to previously agreed on plans
and schedules is routinely gathered. Discrepancies between actual and planned implementation
of the project are identified and corrective actions taken. When findings are used to monitor the
development results (effects, and impacts), it is sometimes referred to as ongoing evaluation.

Evaluation is more episodic than monitoring. It is facilitated by monitoring but utilizes additional
sources of information. Many such sources are identified during project reviews when there is a
need to understand why inputs did not lead to planned outputs. Evaluation focuses on specific
questions related to effectiveness and impact in order to influence future programmes or services
(CF/EXD-IC, 1986, p. 8).

Research Design and Methodology

Research Design

In this study, descriptive survey research method was used. This method was used to describe
project monitoring and evaluation practices and challenges of CORHA member NGOs in Addis
Ababa. In line with this, the research method enables us to describe the phenomena at hand.

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Target Population and Sampling Technique

In this study, CORHA based-NGOs and their officials in different offices were considered as
units of study. Out of the total of 77 CORHA based NGOs that have office in Addis Ababa
23(30%) of the NGOs were contacted. In line with this, the NGOs were contacted on the basis of
stratified random sampling technique on the ground that these NGOs have different
concentration areas such as Family Planning, Adolescence Reproductive Health, Sexually
Transmitted Infections (STIs), Maternal Child Health Care, and Harmful Traditional Practices. In
addition, this technique allows the student researcher to gain unbiased estimates of the
populations characteristics. Besides, semi-structured interviews were held with two senior
officials of the CORHA in Addis Ababa. The purpose is to assess in-depth data about
monitoring and evaluation practices and challenges of the case organizations and to obtain
confirmation.

Table 1 Distribution of Strata in CORHA-Based RH/FP Project in Addis Ababa

No Strata Population 30%

(sample)
1 Adolescence Reproductive Health 13 4
2 Sexually Transmitted Infections (STIs) 32 9
3 Maternal Child Health care 8 2
4 Harmful Traditional Practices 2 1
5 Family Planning 22 7
Total 77 23

Source: CORHA, 2010, Project documents.

Once the units of study or analysis (NGOs) were classified into five strata, the student researcher
was then used systematic random sampling. The total number of NGOS which were included in
this study can be represented by N this is, the number of NGOs would be included in the
sample by n. In the study, the sampling fraction that was used to select every member of the
sampling unit or element which is represented by K can be calculated as follows:

Thus, K= N/n=77/23

Where, study population size, N=77; n is sample size which is equal to 30% of 77 which is 23.
Therefore, K=77/23 in which K=3. Every 3rd of the NGOs in the list was selected as a member
of sample until the desire sample size was met. In addition, there was a random start between 1
and 3 in the sampling frame.

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Types of Data Collected

In order to obtain relevant data and to achieve the above-stated research objectives, the student
researcher collected both primary and secondary data. The primary data was collected from
CORHA based-NGOs officials as well as project officer of the CORHAs Secretariat Office.
Further, the secondary data were collected from relevant books, published and unpublished
materials, web-based files, and files downloaded from the Internet were used to secure additional
data.

Tools and Procedures of Data Collection

In order to collect the relevant data for this study, the student researcher used structured
questionnaires and interview guide/protocol for primary data collection. Structured
questionnaires were distributed to respective samples of CORHA-based NGOs officials.
Qualitative data were gathered using individual in-depth through probing with the help of
interview guide to triangulate the quantitive data gathered which focused on gathering
information related to the research questions considered. In addition, to supplement both
quantitative and qualitative data collected and some of the findings, secondary data were
collected from documentary analysis of the NGOs, from M & E related books, manuals and
other documents through document analysis techniques.

Data Analysis Techniques

The collected data were first verified, organized, tabulated, and analyzed as per the research
questions and objectives. In order to facilitate this process, the data was further analyzed using
SPSS Version 17.0 for computerized analysis and accurate outputs for further interpretation
which help make sound conclusions and generalizations possible. The analyzed data were
edited, presented in tabular and other statistical methods like mean, percentage, standard
deviation and others were used. Furthermore, qualitative data that were obtained through semi-
structured interviews and using open-ended questions described in the structured questionnaire.
To qualitative data analysis, the data on interviews were elaborated and narrated to analyze them
using categories of themes and thematic analysis in order to triangulate the findings of the
quantitative data analysis.

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Data Presentation, Analysis and Interpretation

This part of the paper presents data analysis, major findings, interpretation, and their discussions
in the light of previous and related empirical studies. The data are presented under the following
themes, namely, profile of the respondents, types of project implemented, M & E capacity
building, primary sources of data for M & E, frequency of M & E data gathered, systems
designed for quality of data collected, report dissemination mechanisms, M & E indicators used,
challenges faced during M & E implementation, availability of M & E expertise, sound project
organization, inter-link between various activities of the project, deviation from the
implementation plan designed, estimation of resources, specific cost standards, and availability
of adequate funds in order to present empirical evidence to those questions investigated that the
survey sought to answer.

As qualitative data were gathered using in-depth interviews, qualitative data which focused on
major themes related to the research questions. Accordingly, the qualitative data generated from
the two CORHAs officials (i.e. Monitoring and Evaluation Program Officer and Population/RH
Advocacy Program Officer) are presented in this part of the paper.

General Characteristics of the Respondents

In the study, the respondents were profiled using areas of operation. Table 1 shows the profile of
the responding NGOs in terms of the nature of projects they have been implementing.

Table 2 - Projects Implemented by the NGOs

No Type of projects implemented N (23) %

1 Family Planning (FP) 16 53.3
2 Adolescence Reproductive Health (ARH) 13 42.3
3 Maternal Child Care (MCH) 8 14.0
4 Harmful Traditional Practices (HTP) 2 1.0
5 Sexually Transmitted Infections (STIs) 22 71.3
Total *61
*N.B Each of them has the possibility of running more than one project.
Source: Own survey outputs, 2011.

Table 2 illustrates that Projects on Sexually Transmitted Infections (STIs) were found to be the
most frequent interventions on those sampled Organizations. Out of the total sample
organizations involved in this study, 22(71.3%) of them were involved in implementing projects
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related to STIs prevention and treatment. This can be explained by the fact that the governments
and other donor agencies have given huge emphasis and then pledged higher resources for
prevention and controlling of STIs, particularly HIV/AIDS and mitigating its impact.

Among those projects on RH sector, Projects on Harmful Traditional Practices (HTP) were to be
given lower emphasis which accounted for only 2(1.0%) of the organizations that had been
engaged in this area of intervention. This can be attributed to the fact that the majority of the
NGOs have been operating in urban areas where the Harmful Traditional Practices (HTP) are not
a significant problem. According to the Demographic Health Survey (2005), harmful traditional
practices like female genital cutting (FGC), feeding butter for the newly born baby, etc. are not
significant problems as that of the rural parts of the country.

Table 3 - Organizational Responses on their Capacity Building

S/N Questions Asked Organizational responses (%)

Yes No
f % f %
1 Does your organization have separate M&E Department in place? 3 13.0 20 87.0
2 If Yes is the department has the necessary human resource? 0 0.0 3 100.0
If yes, what are the qualification/educational status of the M & E
employees in the sampled NGOs?

3 Masters degree and above 3 100.0 0 0.0

Degree 0 0.0 0 0.0
Diploma 0 0.0 0 0.0
Below diploma 3 100.0 0 0.0
4 Does the department have fully functioning and sound M&E system
in place? 0 0.0 3 100.0
5 Does the department having proper equipment like computers, data
gathering and processing softwares and other necessary materials? 0 0.0 3 100.0
Source: Results of own survey, 2011.

As shown in Table 4, out of the 23 organizations assessed in the study, the following results were
obtained about their capacity on M&E processes. A total of 20(87%) of the organizations
responded that they had not had separate M&E Department. Only 3(13%) of the organizations
had separate M&E Department. It shows that monitoring and evaluation practices have been
neglected among the member NGOs in Addis Ababa.

Out of the sampled Organizations which had had separate M&E Department, all of them
3(100%) replied that their Department were found not to have the necessary human resources
required for efficient M & E activities. Among those organizations which had claimed to have

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separate M&E Department, a total of 3(100.0%) responded that their employees were found to
be holder of masters degree and above in their respective professional qualifications. Even
though there had been few member NGOs which had separate M&E Department, they were
found to have sufficient number of qualified professionals. Despite the fact that the human
resources the NGOs had had were limited, it was found to be imperative that their deployment on
project activities were managed and controlled effectively. If this was the case, then the projects
would have a chance of achieving their objectives set. The fact that those NGOs did not have a
lot of human resources could be even additional reason which had compelled them to efficiently
and effectively manage to implement the project activities in those NGOs successfully. This is
one of the main functions of effective monitoring and control of projects.

Almost all 23(100.0%) of the NGOs involved in this study responded that their organizations had
had no fully functioning and sound M&E system. Meanwhile, 3(100.0%) of the NGOs replied
that their Department had not had proper equipment like computers, data gathering and
processing softwares and other necessary materials for M & E purpose. This shows how
monitoring and evaluation process, which is one of the pillars of successful organizations, are
neglected and given lower emphasis.

Table 4 - Data Collection, Organization, Analysis and Interpretation

S/N Questions Asked f %

In your organization, who are the primary
source(s) of monitoring and evaluation data?

1 Project Beneficiaries 7 30.4

Frontline project workers 0 0.0
Key stakeholders in the area 0 0.0
All these and other unstated sources 16 69.6
Sub Total 23 100.0
What type(s) of monitoring data have been
conducted in your organization in relation to
RH?
2
Quantitative 12 52.2
Qualitative 0 0.0
Quantitative and Qualitative 11 47.8
Sub Total 23 100.0
Source: Own survey findings, 2011.

According to the results depicted in Table 4, among the 23 sample organizations selected for this
study, only 7(30.4%) of the organizations responded that their sources of monitoring and
evaluation data had been project beneficiaries. The remaining, 16(69.6%) of the organizations
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claimed that their monitoring and evaluation data sources had been key stakeholders in their
areas of intervention and other unstated sources. Out of those organizations involved in this
study, 52.2% and 47.8% of them claimed to collect quantitive and to use both quantitative and
qualitative data as inputs for their M&E process indicators respectively. However, the NGOs still
do not employ triangulated data collection methods and quantitative as well as qualitative data
while implementing M & E program.

The major advantage of using both quantitative and qualitative data in monitoring and evaluation
process is that the NGOs would be able to capture both qualitative and quantitative data that may
enable them to make thorough analysis on their projects progress and made sound decisions
based on these inputs. Besides, some of the beneficiaries satisfaction level, opinion of the key
stakeholders, psychological and social achievements of the projects and unquantifiable outcomes
and impacts of the projects were able to be captured by employing qualitative approach.
Therefore, using quantitative and qualitative approach for M&E processes in the projects have
several sound advantages. As clearly illustrated in Table 4, those responding NGOs which used
both qualitative and quantitative methods in their M & E Programs were found to be lower than
those Organizations solely collecting quantitative data for their M&E processes. According to
USAID (2004, p.21), it is possible to use both quantitative and qualitative methods in a
complementary way to investigate the same phenomenon. One might use open-ended,
exploratory (qualitative) methods to investigate what issues are most important and to decide
what language to use in a structured questionnaire.

Alternatively, one might conduct a survey and find unusual results that cannot be explained by
the survey, but that might be better explained through open-ended focus group discussions or in-
depth interviews with a subgroup of survey respondents.

Regarding frequency of M & E data gathering practice in the sampled NGOs, 15(65.2%) of the
organizations gathered data every three months; while 5(21.8%) of them collected it every
month. In addition, 3(13%) of the Organizations collected such data at the end of the project.
This shows that the majority of the Organizations have collected data either every month or three
months, which is important for collecting regular data for monitoring process and also assist in
taking corrective measures sooner before unintended damage have been caused. Among 3 (13%)
of the Organizations, the required data was collected from front line project implementation
areas once per annum. This practice makes data analysis and interpretation very difficult and

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might lead to project failure because taking progressive measures based on the findings of the M
& E practice would not be applied on timely basis.

Figure 1-- Frequency of Data Gathering Practice

Table 5 - Data Quality Verification

S/N Questions Asked f %

What type(s) of M & E system are in place to verify the quality of the
data collected?

1 . Developing clear goals, objectives, indicators and research questions 17 74.0

. Planning for data collection & analysis 3 13.0
. Pre testing methods/tools 0 0.0
. Training staff in M&E, data collection 3 13.0
. Incorporating data quality checks at all stages 0 0.0
. Other(s) 0 0.0
Sub Total 23 100.0
Source: Outputs of own survey data analysis, 2011.

As it is shown in Table 6, 17(74%) of the Organizations had a system of M&E in place to verify
the quality of data and the primary tool that they had employed through developing clear goals,
objectives, indicators and research questions for the project implemented. While 3(13%) of the
sampled Organizations expressed that they had tried to boost the quality of the data collected for
M&E process through planning for data collection and analysis. Only 3(13%) of the
Organizations used holistic approach and system to verify the quality of data at all stages.

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Figure 2--Frequency of Reports

As illustrated Figure 2, 7(30.4%) of the respondent Organizations produced reports every month.
11(47.8%) of the NGOs produced it every three months or quarterly progress reports. The rest,
5(21.7%) of the Organizations produced their reports at the end of each projects.

Table 6 - Report Dissemination Mechanisms

S/N Questions Asked f %

Is there dissemination mechanism or is the report produced
on RH projects under implementation in the Organization?
1 On notice board 0 0.0
Newsletter Report 6 26.1
Report to field staff 6 26.1
No dissemination of Report 11 47.8
Total 23 100.0
Source: Own survey, 2011.

Even though the majority of the NGOs responded that their reports had been mainly
disseminated from field staff to the head office, there were still substantial number, 11 (47.8%)
of the Organizations which had no any report dissemination mechanisms and system in place.
Another 6(26.1%) of the NGOs even did not disseminate their reports to their respective field
staff. Only 6(26.1%) of the NGOs disseminated their reports through newsletters that these
Organization had been producing and disseminating them to the general audience. This indicates
that those NGOs involved in this study would need to aggressively show their efforts to the

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wider reproductive health community mainly to the donor groups and to their target beneficiaries
about their achievements and successes. These would help them to mobilize further resources
and support for their causes from key stakeholders and to promote transparency and
accountability to their target groups. Finally, it also helps them to show their endeavours to the
general public.

Table 7 Monitoring and Evaluation (M&E) Indicators

S/N Questions Asked Organizational response

Yes No Do not know
1 Are the RH projects being implemented in your (DK)
organization have clearly defined indicators? f % f % f %
16 69.9 4 17.4 3 13.0
1.1 If yes, are these indicators SMART (Specific,
Measurable, Attainable, Realistic and Time bounded)? 12 52.2 4 17.4 7 30.4
1.2 If yes, how these indicators are verified or are there
means of verification(s) designed for the RH projects
implemented by your organization? 11 47.8 6 26.1 6 26.1

Source: Own survey, 2011.

Table 7 shows that 16(69.6%) of the NGOs replied that their Organizations had had clearly
defined indicators. A total of 4(17.4%) of the respondents indicated that the member NGOs had
not had clearly defined indicators. Another 3(13%) of them expressed that they had not known
whether their Organizations had clearly defined M &E indicators or not. This information is very
vital in evaluating the projects achievement at end, for example, to determine the total number of
people reached by the project services. As this method was consistently used on projects, the
project managers were in position to determine coverage of their services in terms of numbers of
people reached. However, the big figures of the member NGOs were found not to have clearly
defined indicators.

One of the critical steps in designing and conducting an M&E system is selecting the most
appropriate indicators. Indicators should always be directly related to the projects or programs
objectives. Consequently, the process of selecting indicators can be fairly straightforward if the
projects or programs objectives have been clearly presented in terms of defining the quantity,
quality, and timeframe of a particular aspect of the program (SMART).

Even with well-defined objectives, however, the selection of evaluation indicators requires
careful thought of both the theoretical and the practical elements (USAID, 2004, p.18). As to all
other types of indicators, it is imperative to consider the degree of measurability of the indicators

120
as a key criterion when selecting which indicators to follow. Therefore, when defining each
indicator, it is essential to pay attention to the time and cost necessary to collect the data, and the
frequency with which these data could be obtained (EC, 2002, p.55).

Question 1.1 in Table 7 sought to determine whether or not the indicators are SMART amongst
the sample NGOs to carry out their monitoring and evaluation activities. As depicted in the same
table, 12(52.2%) of the responding NGOs indicated that the indicators used in M&E had been
SMART. However, 4(17.4%) of the Organizations expressed that their indicators had not been
SMART ones. Another figure, 7(30.4%) of them were found to be unaware of whether the
indicators used had been SMART or not.

Consequently, about half of the member NGOs used M&E indictors for each project under
implementation without any means of verification(s) designed for this purpose. Those NGOs
selected for this study had used M&E indicators which were not SMART to facilitate the
monitoring and evaluation activities and to crosscheck the outputs and the outcomes achieved in
implementing those RH/FP Projects. In addition, a standard deviation of 0.902 implied a narrow
variation amongst the respondents, which also indicated that the problem of designing and
implementing the SMART indicators had been the common problem prevailing among NGOs
selected for the study.

Question 1.2 in Table 7 sought to determine the means of verification(s) amongst the
respondents to carry out monitoring and evaluation activities. As indicated in Table 7, 47.8% of
the respondents replied that there had been means of verification(s). About twenty-six percent of
the sampled member NGOs stated that there had not been any means of verification. The rest,
26.1% the respondents had no any idea on a means of verification. In the same vein, this finding
of the study also clearly shows that how these NGOs have faced a challenge in designing suitable
and reliable means of verification to carry out monitoring and evaluation activities on the
projects they implemented. Moreover, a standard deviation of 0.850 implies that there has been a
narrow variation amongst the respondents and then the problem is rampant.

The qualitative data generated further supported those findings of the study. The findings
obtained from the interviews regarding key indicators in meeting the Organizations targets. One
of the sampled interviewees said that due to the complex nature of their projects, standardized,
but simple and practical system of M&E had not been in place.

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Indicators (Objectively Verifiable Indicators) describe the projects objectives in operationally
measurable terms (quantity, quality, target group[s], time, and place). Specifying Objectively
Verifiable Indicators (OVIs) helps the Organizations to check the viability of objectives and
forms the basis of the project monitoring system. The OVIs should be measurable in a consistent
way and at an acceptable cost. Sources of verification are documents, reports and other sources
providing information that makes it possible to check the indicators.

In addition, indicators should be independent of each other; each one relating to only one
objective in the Intervention Logic, i.e. to one of the overall objectives, to the Project purpose or
to one result. Indicators at the level of the results should not be a summary of what has been
stated at the activity level, but should describe the consequences. Often, it is necessary to
establish several indicators for one objective, if the single indicator does not provide a full
picture of the change expected. Together, these will provide reliable information on the
achievement of objectives. At the same time, the trap of including too many indicators should be
avoided (EC, 2002, p. 54).

In addition, the measurement and interpretation of the OVIs should be identical if they are
determined by different persons, i.e. that different persons using the indicator would obtain the
same measurements. This is more easily done for quantitative measures than for those that aim at
measuring qualitative change. The OVIs should already be defined during project identification
and appraisal, but they often need to be specified in greater detail during implementation when
additional pieces of information is available and the demands for monitoring become apparent.
Care should be taken to ensure that the OVIs for the RH/FP Project purpose - the Projects
centre of gravity - do in practice incorporate the notion of sustainable benefits for the target
group (2002, p.55).

Table 8 - Challenges Faced By NGOs during M&E Implementation

S/N Questions Asked N Mean SD

1 The report is accessible for the key stakeholders and the general public.... the 23 3.52 0.947
organization is willing to share them
2 There are tools developed in the organization for gathering monitoring and 23 3.74 0.689
evaluation data in RH Projects implemented by the organization
2.1 If there are , the instruments or tools developed are standardized and tasted 23 3.22 1.126
for specific purpose
3 There is a system for data storage and management process in relation to RH 23 3.30 1.063
Projects

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 4 Does there a database or software to assist the data organizing, analysis and 23 1.13 0.344
interpretation process?
5 The project beneficiaries participate in the M&E process of the RH Projects 23 3.57 1.121
6 The beneficiaries will get the completed report of each projects 23 2.70 0.974
7 Baseline data for each project had been gathered and analyzed thoroughly 23 3.35 1.152
before each project was designed and implemented
8 Evaluation studies would be conducted for each project 23 3.83 0.650
8.1 The beneficiaries fully participate in this evaluation studies 23 3.35 0.935

Source: Outputs of descriptive data analysis of own survey, 2011.

Table 8 shows that the mean score for the report is accessible for the key stakeholders and the
general public, the organizations willingness to share them to be 3.52. This implies that the
report has not been accessible for key stakeholders. While the standard deviation is found to be
0.947 which indicates a narrow variation that, in turn, implies the problem is still the same
amongst the member NGOs in the study.

Question 2 in Table 8 sought to determine the tools developed in the NGOs for gathering
monitoring and evaluation data in RH Projects implemented by the Organizations. As illustrated,
the mean score was 3.74 which showed that there had been tools developed in the Organizations
for gathering monitoring and evaluation data in the Projects. However, the standard deviation,
0.689 implies a narrow variation amongst the respondents and there are few NGOs which have
not developed tools for this purpose in the Projects.

Among those Organizations which responded earlier there had been tools for M&E data
gathering, the mean score was found to be 3.22 which indicated the tools were standardized.
Besides, the standard deviation 1.26 implies a wide variation. It shows that there have been some
variations among the respondents in that some of them may not standardize the tools on any
projects but others may standardize the tools on some of their projects.

In the survey, the sampled NGOs were also asked if their respective Organization would have a
system for data storage and management process in relation to RH Projects. The mean score was
3.33 which showed that there had been a challenge regarding a system for data storage and
management process. However, the standard deviation 1.063 shows that there exists a wide
variation. Generally, this finding indicates that there has been variations among the responding
NGOs with regard to the issues under investigation (i.e. some NGOs have no system on any
projects but others have a system for storing and managing the data generated for the purpose of
M&E.

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Question 4 in Table 8 sought to determine if there is a database or software to assist the data
organizing, analysis and interpretation process or not. The mean score equal to 3.13 is interpreted
to mean that this method is not used by the respondents. Based on this empirical value, those
NGOs do not have any system of data storage and management. The standard deviation of 0.99
implies a small variation among the respondents, meaning that all organization involved in this
study have either weak database or software to assist the data organizing, analysis and
interpretation process in their organization or they dont have database or software at all.

Table 8 shows that the mean score for question of whether or not the beneficiaries have
participated in the M&E process of the RH Projects is to be 3.57. This finding implies that the
Projects beneficiaries have been inconsistently participated in monitoring and evaluation
activities of the sampled NGOs. The standard deviation of 1.31 implies a wide variation between
the respondents concerning whether or not a database or software was available in the NGOs to assist the data
organizing, analysis and interpretation process in the M&E system. The implication of this finding is that
the beneficiaries have been mostly considered them only as a source of monitoring and
evaluation data without any meaningful input.

Participatory evaluation goes further. Not only does it encourage beneficiaries to voice their
views or gather information; it also entails assisting community members to analyze data
themselves and to plan actions to improve their situation as well (Feuerstein, 1986; Rugh, 1986).
UNICEF has assisted such community self-help efforts. Supporting local communities to design,
implement and evaluate their own activities has many advantages. Self-help efforts may be more
sustainable and have greater impact than others, because the people themselves are convinced of
their value and assume decision-making responsibility. Training community leaders in
evaluation can strengthen their ability to plan and carry out development activities (Feuerstein,
1986 cited in UNICEF, 2006).

According to the European Commission (2002:13) the stakeholders likely to be most important
for the project have been consulted; and target groups and other beneficiaries have been
identified. They have expressed their interest and expectations, the role they are willing to play,
the resources and capacities they may provide, also in a gender-differentiated way. The other
stakeholders have expressed general support for the likely objectives of the project. Conclusions
are drawn on how the project could deal with the groups.

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Question 2 in Table 8 sought to determine whether or not the beneficiaries will get the completed
reports of each projects. With a mean score of 2.70, this practice was inconsistently done by the
responding NGOs. The standard deviation of 0.97 implies a narrow variation among the sample
NGOs; whereas some NGOs share the report of each projects to their target beneficiaries. Some
others have never shares any report to their beneficiaries.

When selected sample Organizations were asked whether or not their respective organization
would have baseline data for each project which had collected and analyzed thoroughly before
each projects designed and implemented. The mean score was found to be 3.35 implying that this
practice had never been done and the mean score with a standard deviation of 1.52 implies a
wide variation in the practice of conducting baseline survey among the sampled NGOs. It shows
that few member NGOs have claimed they conduct baseline survey to generate baseline data.

Regarding the question on whether or not he beneficiaries fully participate in the evaluation studies, the
study came up with mean score of 3.35. This value indicated that the respondents had not
allowed the projects beneficiaries to fully participate in the evaluation studies. While a standard
deviation of 0.935 implies a small variation among the respondents. Therefore, the majority of
the sampled Organizations which have implemented the CORHA-based Projects do not allow
their respective beneficiaries to fully participate in M&E activities of the Projects. In other
wards, there is no community participatory M&E practice in those NGOs in Addis Ababa.

Table 9 - Challenges related to the Implementation of Monitoring and Evaluation

S/N Asked questions Mean SD

1 There is a lack of expertise 4.35 0.885

2 There is sound project organization 3.48 1.082
3 There is inter-link between various activities of the project 4.26 0.449
4 There is continuous anticipation of deviation from the implementation plan 3.17 0.717
5 There is a comprehensive time plan for various activities 4.17 0.576
6 Estimate meticulously the resources required for each period to realize the time
plan 3.83 0.833
7 There are specific cost standards 3.96 0.870
8 Adequate funds are available 3.83 0.388
Source: Own survey, 2011.

Availability of M&E Expertise

Question 1 in Table 9 sought to determine the respondents opinions on the level of availability
of monitoring and evaluation expertise amongst the sampled NGOs. The mean score for this

125
variable was found to be 4.35 which could be interpreted to mean that the expertise had not been
available amongst those NGOs. However, a standard deviation of 0.885 implies a very narrow
variation amongst the responding Organizations. Lack of adequate monitoring and evaluation
expertise or capacity of M&E among the local NGOs is one area that has been highlighted by
several scholars. Monitoring and evaluation requires specific skills and expertise such as
monitoring and evaluation design skills, particularly log frame design, indicators setting (both
qualitative and quantitative), design of data collection instruments, including questionnaires, and
focus discussion guides (dAeth, 2002; Gibbs et al., 2002 cited in Mark, 2004).

Kelly and Magongo (2004 cited in Mark, 2004) noted that skills such as advanced data analysis,
conducting focus group discussions, and qualitative indicators setting were found to be very
scarce amongst the local NGOs in the study. The local NGOs may not be in position to procure
the required types of M&E experts which, in turn, implies that these areas that have required
these skills are not well-staffed. Hence, monitoring and evaluation are not effectively performed
in the NGOs which participated in the study.

Thorough interviews were also held on how the organization provided training or technical
assistance, specifically in the area of research, monitoring and evaluation. The CORHA-based
Organizations were found to give training and development in relation to monitoring and
evaluation issues. However, the findings of the study in this regard show that most of the NGOs
under investigation have had serious problems on shortage of the required monitoring and
evaluation expertise.

Sound Project Organization

Question 2 in Table 9 sought to determine whether or not there is sound project organization
amongst the NGOs to carry out monitoring and evaluation activities. Table 9 shows that the
mean score was 3.48 which could be interpreted to mean that the NGOs had faced a challenge
to carry out sound monitoring and evaluation activities on the projects they implemented. These
Organizations did not have sound project organization. In addition, a standard deviation of 1.082
implied a wide variation amongst the respondents. Thus, there are few NGOs which have had
sound project organization.

Besides, all of the interviewees said:

CORHA does not have a documented monitoring and evaluation strategy in that this
Organization is not a project implementing Organization. The Organization mainly

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 focuses on coordination, networking and advocacy issues. The nature of their projects is
really difficult and not suitable for designing concrete and specific strategy document to
assist the monitoring and evaluation process.

Inter-link between Various Activities of the Project

Question 3 Table 9 sought to determine opinion of respondents on the inter-link between various
activities of the Project amongst the NGOs. The above table shows that the mean score for this
variable was 4.26. This value means that the Projects are not inter-link between various activities
amongst the NGOs. However, a standard deviation of 0.449 implies a very narrow variation
amongst the respondents. One can deduce that some NGOs have had Projects which are not
inter-link between various activities.

Continuous Anticipation of Deviation from the Implementation Plan

Question 4 in Table 9 sought to determine how often the respondents carried out continuous
anticipation of deviation from the implementation mid-term (interim evaluations) of the projects
they implemented. The variable had a mean of 3.17, implying that this practice was not done by
the respondents. The standard deviation of 0.717 implies that there was a minimum variation
amongst the respondents with the majority of them had not carried out mid-term evaluations.
This means that the member NGOs have not been in the position of continuous anticipation of
plans in order to make necessary measurement on a timely basis.

Comprehensive Time Plan for Various Activities

The mean score for comprehensive time plan for various activities was found to be 4.17 which
implied that these comprehensive time plans had not been used on the projects implemented by
the member Organizations. However, a standard deviation of 0.576 denotes a wide variation
amongst the respondents. It implies that there are some NGOs which have had comprehensive
time plans for various activities in the Projects being implemented.

The student researcher also collected qualitative data on the monitoring protocols (forms) for
keeping track of the status of the programme activities and services delivery. One of the key
informants stated:

They [the sample NGOs] have monitoring protocols in its efforts to standardized
monitoring and evaluation among members. CORHA in collaboration with Family
Health International (FHI-Ethiopia) has developed different record keeping and reporting

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 formats. CORHA has also been encouraging the members and the partners in the use of
these recording and reporting formats. Most of the member organizations that have had
Program on Service provisions use these formats.

Estimation of Resources

Question 6 in Table 9 sought to determine the estimation of recourses amongst the respondents
to carry out monitoring and evaluation activities. As depicted in Table 9, the mean score of this
variable was found to be 3.83 which implied that the NGOs had faced a challenge in
meticulously estimating resources required for each period to realize the time plan and to carry
out M & E activities on the projects they implemented. In addition, a standard deviation of 0.833
implied a narrow variation in their responses in that some NGOs reported that they had not had
adequate finance for this purpose.

Specific Cost Standards

The study further sought to determine opinion of respondents on the specific cost standards
amongst the NGOs. Table 9 indicated that the mean score for this question was found to be 3.96.
This means that the projects havent had cost standard amongst the NGOs. However, a standard
deviation of 0.87 implies a very narrow variation amongst the respondents. Thus, the member
NGOs have serious problem on cost standards.

Cost estimates must be based on careful and thorough budgeting. They will have significant
influence over the investment decision at project appraisal and, subsequently, on the smooth
implementation of the project if the go-ahead is given. Again, the list of activities should be
copied into an input and cost schedule pro-forma. Each activity should then be used as a
checklist to ensure that all necessary means under that activity are provided for. Then, the means
necessary to undertake the activities must be specified. It will probably be necessary to aggregate
or summarize the cost information. Project costing should allow the allocation of cost to the
different funding sources so that each party can become clear about their respective contributions
(EU, 2002, p. 59).

Once total costs have been calculated, it is important to remember that the implementing agency
will be required to meet any recurrent cost of maintaining service provision beyond the life of the
project. Recurrent cost may be covered (fully or partly) through increased revenue that has been
generated through project activities. Whether or not this is the case, it is important that the net

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recurrent cost implications of the project are clearly specified so that the future impact on the
implementing agencys budget can be determined (2002, p. 60).

Availability of Adequate Funds

Question 8 in Table 9 sought to determine the availability of finance amongst the respondents to
carry out monitoring and evaluation activities. The mean score for this variable was found to be
3.83. This figure clearly indicated that the NGOs selected for this study had faced huge
challenges in finding inadequate financial resources to carry out M&E activities for the projects
they have been implementing. In addition, a standard deviation of 0.388 implies a narrow
variation among the respondent organizations which is a clear signal for the severity of the
problem.

Without adequate finance, the NGOs would be forced to scale back on some of the monitoring
and evaluation activities they were supposed to carry out. This would have a huge implication on
the quality of the projects under implementation by these NGOs. Therefore, the outputs,
outcomes and impacts created by these projects cannot be verified which, in turn, quest the very
existence of these NGOs in Addis Ababa.

Regarding the fundraising, those key informants interviewed expressed, CORHA does not have
strategy for mobilization of resources. Their fundraising schemes were limited only to grant
proposal development. There was an attempt to introduce cost sharing for services provided by
CORHA; however, this has not been efficient and strong so far.

Finally, the survey considered issues related to the system which overseeing the member NGOs
regarding proper utilization of funds allocated.

CORHA does not have mandate to oversee proper utilization of funds among the
members. Nevertheless, with the financial support from the Swedish International
Development Agency (SIDA), CORHA did get the opportunity to manage sub grantee
assistance. As per the memorandum of understanding (MOU) signed among CORHAs
project implementer organization and CORHA, CORHA oversees and monitor both
financial utilization and program implementation [CORHA has been conducting
monitoring visits to operational sites of its members. Here an emphasis is given to the
sites of SIDA sub grantees. Joint monitoring visit with project implementers was also
made to monitor the progress of activities in the light of the predetermined supervisory
plan).

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Summary, Conclusion and Recommendation
[[[[[

Summary

This part of the paper brings the research to a close by returning to the issues which raised
established in beginning. It summarizes the project monitoring and evaluation practices and
challenges, and draws conclusions from the discussions and results in the previous parts. In this
part, we briefly describe some thoughts and open issues which should become the avenues to be
explored for future developments about and around monitoring and evaluation.

At the start of the study, it was stated that the aim of this research was to assess monitoring and
evaluation practices and to forward possible solutions. The preliminaries about the challenges
and potential problems faced by CORHA members NGOs in these subjects were first
summarized. Following these, review of related literature was entertained thoroughly in the
second part of the paper. Here, the concepts, principles, practices and challenges of monitoring
and evaluation were discussed a bit in detail.

Finally, qualitative and quantitative date were gathered and analyzed to give an answer for the
research questions set to be answered in this research and forward some recommendation to
assist CORHAs member NGOs to improve their monitoring and evaluation process and other
related endeavours.

Almost all NGOs in this study have very weak monitoring and evaluation capacity. Only few (3)
NGOs have separate M&E Department, even those who have separate Departments were not
adequately organized. Their Department doesnt have proper equipment like computers, data
gathering, and processing software(s) and other necessary materials.

As far as CORHAs member NGOs data collection, organization, analysis, and interpretation
processes are concerned; all the Organizations involved in this study had claimed to use around
52.2% of quantitative data and 47.8% of both quantitative and qualitative data as inputs for their
M&E processes. Some of the Organizations have system in place to verify the quality of data
generated. Besides, the majority (73.9%) of them were found to verify the quality of data through
developing clear goals, objectives and research questions. However, most of the NGOs were
found to be weak in planning adequately for data collection and analysis. Therefore, they dont
have data quality assurance tools.

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Concerning the availability of finance amongst the respondents to carry out monitoring and
evaluation activities, this showed that the mean score was found to be 3.83 which clearly
indicated the NGOs selected for this study had faced huge challenges in finding inadequate
financial resources to carry out monitoring and evaluation activities for the projects they have
been implementing. In addition, a standard deviation of 0.388 implies a narrow variation among
the respondent organizations which is a clear signal for the severity of the problem.

Regarding sound project organization amongst the respondents to carry out M&E activities, this
research found out that the mean score was 3.48 which indicated the NGOs had faced a
challenge. The findings also documented that the project organization had not been sound to
carry out monitoring and evaluation activities in the projects they implemented. Moreover, a
standard deviation of 1.082 implies the existence of a wide variation amongst the respondents
which, in turn, shows that there are few NGOs which have sound project organization.

Besides, CORHA does not have a documented monitoring and evaluation strategy fin that the
umbrella Organization is not project implementing organization. The Organization mainly
focuses on coordination, networking and advocacy issues. The nature of their projects is really
difficult and not suitable for designing concrete and specific strategy document to assist the
monitoring and evaluation process.

As to the level of availability of M &E expertise, the findings of the survey document that the
expertise has not been available amongst the NGOs. However, there is no as such wide in terms
of M &E expertise amongst the members of the CORHA in Addis Ababa. In summary, the
selected NGOs are mostly weak in their overall monitoring and evaluation practices but they
have faced some problems and got challenged by them.

Conclusion

The study has revealed that the monitoring and evaluation practices carried out and challenges
faced by the NGOs implementing Sexual and Reproductive Health Projects in Addis Ababa. The
study findings show that the projects implemented by the NGO have not effectively monitored
and evaluated. In addition, the same NGOs have serious constraints and limitations on project
organization, collection of baseline data, and making avail funds for M&E coupled with lack of
expertise in the area.

131
By way of conclusion, the member NGOs of CORHA does not have fully functioning system for
data collection, organization, analysis, storage and dissemination. Therefore, it is possible to
conclude that the member NGOs are not in position to successfully monitor and evaluate their
projects efficiently and effectively by designing appropriate system for data collection,
organization and interpretation.

Inaccurate baseline data that the NGOs have used to design their projects is another problematic
issue. This was raised by the respondents. Designing a project using inaccurate baseline data
would make the project defective and, hence, monitoring and evaluation inaccurate and flawed.
Based on this fact, the CORHA member NGOs should set accurate baseline data.

In the end, monitoring and evaluation is a new concept amongst the NGOs. Consequently, they
need some training in order to be able to carry out it. The majority of those NGOs lack the
knowledge and skills in the use of the tools that the donors prescribed. In addition, the NGOs
loss trained personnel due to high staff turnover. This could be associated with lack of financial
resources to adequately compensate the staffs that go for better payment.

Recommendation

Based on the major findings and conclusions drawn from them, the student researcher
recommends the following specific measures to be taken by CORHA and/or NGOs:

They should design appropriate and efficient monitoring and valuation system. Those
NGOs which are implementing RH Projects need to have sound monitoring and
evaluation data capturing instruments, software (like SPSS and EPI INFO) in place,
should need to have properly trained human resource in the area of statistics, demography
or related field of specialization to manage these processes. Besides, these NGOs must
develop M&E system to check whether accurate monitoring data is collected and
submitted monthly or quarterly and/or on timely basis. They have to assure how collected
data is summarized, analyzed and produced in reports at specific time period if there is a
system for data storage and management.

The Organizations should have to assure whether or not monitoring data is utilized by
project staffs and managers at different levels to review and update work plans and to
track project progresses.

132

The NGOs should develop their human resources and other expertise in the area of
project monitoring and evaluation. There should also be trained and efficient human
resources in place to manage the overall M&E processes in the Organizations which are
involved in the implementation of the RH Projects.

As monitoring and evaluation processes require huge resources, donor agencies should
allocate the required amount of funds for the NGOs monitoring and evaluation activities
and build their capacity to do so.

Project target beneficiaries, influential individuals, and key partner organizations (which
have stakes in the project areas) should have to participate in the NGOs M&E processes
and to make their monitoring and evaluation process participatory through consultation
and collaboration with all these, In addition, they should determine what is to be
monitored and evaluated, how monitoring and evaluation is to take place, including
identification of indicators. These Organizations should then do the analysis of the data
and assess the performance of the Project and be able to generate guidance on how to
proceed with the project so that every key stakeholder that has a stake may know what
has been performed in the processes.

It is vital and sounds strong if the M&E system in the respective NGOs is developed
based on the overall organizational strategy and plan which should have been stated in
detail in their three or five year strategic plan. Above all, the strategy plan should be
prepared as an integral part of the projects work plan and design.

133
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 ASSESSMENT OF LEADERSHIP PRACTICES AND PROBLEMS IN ST.
MARYS UNIVERSITY COLLEGE IN ADDIS ABABA

By

Helene Solomon

Abstract
The successful organization has one major attribute that sets it apart from unsuccessful organization,
dynamic and effective leadership. The purpose of this study was to identify the leadership styles the
organization uses, the major actions the organization takes in order to satisfy employees needs, to
identify the kind of relationships the employees of SMUC have with their leaders, to identify the major
problems which affect leadership practice in SMUC and to determine how leaders try to raise high moral
and ethical standards among its employees. The methodologies followed in this study were descriptive
survey. The sampling method used was stratified random sampling and after that simple random
sampling method was used. In order to get sufficient and relevant information for the study both primary
and secondary data were used. Questionnaire and interview guide/protocol were the data collection
instruments used in the survey. The questionnaires were distributed to the sample employees and
structured interviews were held with the sampled officials of SMUC. The data were uniquely and
curiously filtered using statistical methods. The complete questionnaires were treated by descriptive
statistics such as frequencies, percentages, and mean as measure of central tendency were methods of
data analysis while the interviews were categorized by relevant themes and analyzed accordingly. Some
of the conclusions were: subordinates at different levels of the Organization dont give equal and fair
treatment, most of the leaders in SMUC dont try much to raise high moral and ethical standards among
employees, most of the leaders at different levels of the Institute dont take ideas whenever there is a
problem in job, the majority of the respondents disagree with idea of being highly interested in their job.
The recommendation given was leaders should try to raise high moral and ethical standards so that all
employees can do their job ethically and by moral. The leaders should also try to give fair and equal
treatments to all their subordinates, and should try to getting ideas and opinions of their subordinates in
that the subordinates see things from different angles so that they might give an idea which help them to
solve the problem. The leaders should try to understand their subordinates interest because this is very
important for the success of the Institution and to maximize their subordinates degree of interest.
Generally, it is suggested that the leaders in the University College should be a guide for their followers
in motivating the employees and in fulfilling their basic needs at different levels.

Introduction

Background of the Study

Historians, political scientists, and management theorists have produced an extra ordinary
amount of literature over the past five years on the subject of leaders and leadership. The past
five years were on the subject of leaders and leadership. During the past five years, magazines,
for example, featured 1,184 articles referring to leadership, and an astounding 2309 articles that
invoked the term leader. Therefore, one may have seen countless bibliographies of leaders and

136
empirical studies on leadership, but curiously enough, few have defined the conditions that
produce leaders or the qualities and skills that effective leaders must possess (Allio, 2003, p.1).

The successful organization has one major attribute that sets it apart from unsuccessful
organizations, dynamic and effective leadership (Drucker cited in Hersey, 2003, p.78).
Businesses are continually searching for effective leaders, and they are not easy to find. This
shortage of effective leadership is not confined to business but is evident in the lack of able
administrators in government, education, foundations, churches, and every other form of
organization. Thus, when we decry the scarcity of leadership talent in our society, we are not
talking about a lack of people to fill administrative positions. What we are agonizing over is a
scarcity of people who are willing to assume significant leadership role in our society and who
can get the job done effectively (Hersey et al, 2003, p.78).

Leadership is the process of influencing the behaviour of others in the direction of a goal or set
of a goals or, more broadly, toward a vision of the future, stated French cited in Singh, 2002, p.
325). According to Grey et al. (2002, p. 326), those few organizations that do exhibit effective
leadership will have passed one additional test they are populated by effective followers. This is
not an endorsement of the popular notion of leaderless teams. Rather, it means that leaders and
followers exist as part of a symbiotic system.

In the same framework, Grey et al, (2002) stated:

Leadership is both a process and a property. The process of leadership is the use of non-
coercive influence to direct and to coordinate the activities of the members of an
organized group towards the accomplishments of group objectives. As a priority,
leadership is the set of qualities or characteristics attributed to those who are perceived to
successfully employ such influence (p.326).

Though there are many private higher education institutions in Ethiopia, St. Marys University
College is one of the successful institutions found in the country. St. Marys University College
(SMUC) is an outgrowth of St. Marys Language School which was established in Addis Ababa
in 1991. The Language School was upgraded to a Language Center in 1995 and has solely been
devoted to the improvement of the English language proficiency of students, establishing itself as
a leading Language Center in the capital city. It was in this Language Center that the University
College was born. St. Marys College was established under St. Mary's General Educational
Development PLC in 1998 with its Head Office in Hawassa and a Branch Office in Addis
Ababa.

137
By way of reorganizing itself, the College spent the last quarter of 2002 in restructuring previous
offices as well as establishing new ones that provide the needed support and services both to the
students and to the staff. In 2003, the College expanded its services and started offering Degree
Programs in Marketing, Management, Accounting, and Teacher Education Diploma Programs
(in the fields of English, Mathematics, and Geography). A year later, the Computer Science
Department was opened. After the Department had been beefed up with manpower, facilities,
and equipment, it started offering Degree Program in computer Science. In the same year, the
College also opened the Natural Science Stream (comprising the fields of biology, chemistry,
and physics) which offered diploma level training under the Teacher Education Faculty of the
College.

By August 2005, St. Marys College had more than 15,000 students in the Distance Mode of
Learning and 5,000 students in the Regular and Extension Programs. After concerned officials
had done a lot of hard work and showed a dedication, the College was raised to the level of
University College in February 2006. In the same year, St. Marys University College (SMUC),
in collaboration with Indira Gahandi National Open University (IGNOU) a leading distance
education institution in India, started offering Masters Programs within St. Marys newly
acquired campus. The Programs are underway at a time when there is a wide gap between the
demand for tertiary-level quality education and the supply side of the services called for such
Programs.

The Vision of St. Marys University College (SMUC) is to become one among the leading
higher education centers of academic excellence in teaching-learning, research, publications and
community services, and, in effect, contribute to Ethiopias development.

The Mission of the SMUC is to offer regular, continuing and distance education accessible to the
society at large with reasonable tuition and scholarships, and with optimal focus on quality and
standards in teaching, research and services that contribute to Ethiopias human resource
development.

SMUC aims at offering quality higher education, training, and services, conducting research and
publications that exceed the requirements of students and stakeholders, and nurturing sustained
and mutually beneficial relationship with them. With the human, financial and material
resources; it has created and developed over the past ten years. The University College continues
to be poised for success in the years to come (SMUC, 2009).

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Statement of the Problem

St. Marys had more than 15,000 students in the Distance Mode of Learning and 5,000 students
in the Regular and Extension Programs. After its Officials and stakeholders had done a lot of
hard work and showed a dedication, the College was raised to the level of University College in
February 2006. As stated above, SMUC is a successful Private Higher Education Institution.
However, through informal discussions held with the employees of SMUC, the following
problems were observed by the student researcher. These include: Employees in SMUC are not
motivated enough; There is less job satisfaction of the employees; There is a high turnover rate
(30%) according to the data gathered from HRM Department of the University College; and
There is a communication gap between the leaders and the employees.

Therefore, the student researcher was highly encouraged to investigate the leadership styles
practised and problems faced in the St. Mays University College through raising and addressing
the following research questions:

Research Questions

In order to address the above problems, the following questions were posed by the student
researcher. These were:

What kinds of leadership style does the University College use?

What major actions does the Organization take in order to satisfy employees need?
What kinds of relationship do the employees of SMUC have with their leaders?
What are the major problems (factors) which have affected leadership practice in SMUC?
How do the leaders of SMUC try to raise ethical standards among their employees?

Objectives of the Study

The general objective of the study was to assess the leadership practices and problems in SMUC
and to give suggestions which help the Organization to take action about existing problems and
enhance the leadership capacity of the Education Institution.

The study also specifically tried to:

Identify the types of leadership style SMUC deals with;

Identify the types of action the Organization takes to satisfy employees needs;

139
 Identify the types of relationships between the leader(s) and the employees of SMUC;
Identify the major problems which have affected leadership practice in SMUC; and
Determine how leaders try to raise high moral and ethical standards among employees of
the University College.

Significance of the Study

As the study is on leadership practice styles and problems, it will refine, revise, or extend
existing knowledge in these issues under investigation. Here, one may note that such
refinements, revisions, or extensions may have substantive, theoretical, or methodological
significance. It is well-known that most studies have two potential audiences such as leadership
practitioners and professional peers. Thus, one should think about implications - how results of
the study may affect scholarly research, theory, practice, educational interventions, curricula,
counseling, and policy. In addition, the findings of the survey have significance for the practicing
professional(s), knowledge reservoir, decision makers of educational policy and for initiating further
studies on various aspects of the issues under investigation at St. Mays University College in Addis
Ababa.

Delimitations of the Study

The study was delimited particularly at Mexico Campus of St. Marys University College
(SMUC) (Head office) which is located near to Wabi Shebele Hotel in Addis Ababa. The study
focused only on styles of leadership practice and problems faced for the Fiscal Year 2002. Prior
years were not included in this study. Moreover, the student researcher studied it which was
better and easier to collect the information and data needed and observed some matters
personally.

Limitations of the Study

The study was highly restricted in its scope and depth but accepting the fact of bouncing
limitations, such as shortage of time and budget as minor limitations. On the other hand, the
student researcher didnt consider the supportive staffs in the sample survey in that their role is
complimentary. Generally, these limitations and some others may throw shadow on the findings
of few of the variables under investigation.

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Organization of the Study

The report of this study was classified into five parts. The first part is introduction which
presents the background of the study, statement of the problem, objectives of the study,
significance of the study, delimitations of the study, and the organization The Second Part is on
the review of related literate. It also discusses about styles of leadership, autocratic or
authoritarian style, democratic or participative style, Laissez-faire or free rein style and
bureaucratic style. The next part deals with research design and methodology in general, and
research design, target population, sampling technique, data collection tools and procedures,
analysis and interpretation. Part Four presents data, analyzes them and interoperates the
figurative outputs in the study. Finally, the student researcher summarizes major points in the
paper and draws conclusions. Thus, the study recommends some suggestions for action by
stakeholders at different levels and in various contexts.

Review of Related Literature

Styles of Leadership

Leadership style is a typical behaviour pattern adopted by the leader for influencing his followers
or leading his people .An executive has to lead different types of subordinates and has to adopt
different styles for leading them at the workplace according to situation. The style of leadership
is based on the kind of control the leader exercises on a group and their behaviour. The following
are three main leadership styles exist. These are autocratic or authoritarian style, democratic or
participative style, Laissez-faire or free rein style and bureaucratic style.

Autocratic or Authoritarian Style

It is also known as leader centered style. Under this style of leadership, there is complete
centralization of authority in the leader; s/he has all the power to make decisions. There is no
two-way communication, only downward communication is used. It is the leader who can only
communicate he uses coercive measures. He adopts negative method of motivation. He wants
immediate obedience of his orders and instructions. Any breach on the part of subordinates
invites punishment.

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Democratic or Participative Style

This style of leadership is also known as group centered or consultative leadership. Under this
style, leaders consult the group and solicit their opinion and participation from the following in
decision-making process. Democratic leaders confer authority on the group and after their
consultation decisions are taken. Leaders under this style encourage discussion by the group
members on the problem under consideration and arrive at a decision by consensus. Two way
communication channels are used. Participation or involvement in decision making process is
rewarded. Under this style, positive motivation techniques are used. Exchange of ideas among
subordinates and with the leader is given encouragement.

Laissez-faire or Free Rein Style

Under this style of leadership, there is virtual absence of direct leadership. It is, therefore, known
as no leadership at all; there is complete delegation of authority to subordinates so that they
can make decisions by themselves. There is free flow of communication subordinates have to
exercise self-control. They also have to direct their activities. It is people oriented style of
leadership in true sense of the term.

Bureaucratic Style

Under this leadership, the behaviour of leader is determined by rules, regulations and procedures.
These rules and regulations are followed by both the leader and the subordinates. No one can
escape. Hence, the management and the administration have become a routine matter. This is
apathetic to the employees because they know that they cannot do anything in this regard. It is
the rules that determine their minimum performance. Rules allow work without participation and
without committed to work (Singh, 2002).

Research Design and Methodology

Research Design

This study employed both quantitative and qualitative research designs. The study further used
descriptive survey research design on the ground that it is essential to describe the leadership
practices and problems of St. Marys University College at hand. In addition, interviews as
qualitative research method were used to generate qualitative data on the issues under
investigation.

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Population and Sampling Technique

In St. Marys University College, there were 194 academic employees and 142 administrative
employees in 2011. The overall total of the employees who were working in SMUC were 336.
As the student researcher found it difficult to observe directly every individual in the Institution,
it is better to use a sampling method to select and drawn the required number of sampling units
for the study. Thus, the student researcher used stratified random sampling method. In line with
this, only 101(30%) of the total study population were considered for the investigation.

Table 1 Distribution of the NGOs by Their Types and Sampling Techniques

No Item Population Sample

1 Administrative 142 43

2 Academic 194 58

Total 336 101

NB. After the grouping of the target population into strata, the student researcher used
simple random sampling method.
Source: Own survey findings, 2011.

Type of Data Collected

In order to get sufficient and relevant information for the study, both primary and secondary data
were collected from relevant sources. The student researcher collected primary data from those
employees of the SMUC and other relevant stakeholders; whereas the secondary data were
collected from books, magazines and other materials located at different resource centres.

Data Collection Tools and Procedures

The student research used both structured questionnaire and interview guide/protocol as research
instruments to collect pertinent data from the respective sources. The questionnaire was
designed, pretested, edited and distributed to the sample employees and structured interviews
were held with those selected officials of SMUC in order to collect primary data on leadership
practice styles and problems faced in this regard. In addition, secondary data were collected from
books, organizational documents, published and unpublished materials and from other web-
based document as well as from the Internet.

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Data Analysis Methods

After the collection of both quantitative and qualitative data had been completed, the data were
uniquely and curiously filtered using statistical techniques and thematic analysis respectively.
The quantitative data were analyzed and the outputs were presented in the form of frequency
distribution with frequencies and percentages, while the interviews were first categorized in
categories of themes based on leadership practice styles and problems faced and then analyzed
accordingly.

Data Presentation, Analysis, and Interpretation

General Characteristics of the Respondents

This part has three sections, which includes the general characteristics of respondents, outputs of
both quantitative and qualitative data analyses will be presented and then interpreted. By so
doing, the study tried to address the research questions and the objectives.

Out of the 101 employees, 65 of them filled the questionnaire property and return it. Whereas,
the rest 36 employees didnt return the questionnaire on time, the interview was conducted with
senior management officials of the university collage.

Table 1- General Characteristics of Respondents

Respondents
No Item
f %
1 Sex
Male 47 72.3
Female 18 27.7
Total 65 100.0
2 Age
20-30 39 60.0
31-40 22 33.8
41-50 1 1.5
Above 50 3 4.6
Total 65 100.0
3 Education status/qualification
High school complete 5 7.6
Certificate 1 1.5
diploma 11 16.9
First degree 27 41.5
Second degree 21 32.3
Total 65 100.0
Source: Own survey primary Data, 2011.

144
As show in Table 1, out of 65 respondents, 18(27.7%) of them were female and the rest, 47
(72.3%) were males. These show that most of the employees are males unlike female employees.
Regarding their age, the ages of 60% of the employees were found to fall in age category
between 20 and 30. 33.8% were between 31 and 41, and the rest, 1.5% and 4.6 % were between
41 and 50 and above 50 years respectively. These findings indicate that the academic and
administrative staff of the St. Marys University College is dominated by young adults that are
less experienced ones.

As to their educational status or qualification of the respondents, about forty-two percent of them
were found to be holders of first degree in different fields of specializations, followed by second
degree holder or masters degree holders (32.3%), those completed their high school lessons
were 7.6%, certificate holders constituted 1.5% and diploma holders accounted for 16.9% of the
total employees in the Institution in Addis Ababa. These results of the study indicate that three-
fourth of the staff have held the required educational statuses or qualifications. They are in
position to skillfully undertake their respective tasks easily by using technology and other skills
they have got. Therefore, the available trained and qualified human resources enables the
University College to be more productive and creative which helps it to adopt to new technology
in almost most every areas of the work.

Table 2 - Types of he Styles of Leadership practised in the Society

Frequency of
Responses
Item Alternatives
f %

Autocratic 2 3.07

Democratic 44 67.7

What kind(S) of leadership Laissez-faire 11 16.9

style does the organization
Bureaucratic 8 12.3
follow?

Total 65 100.0

Source: Primary data on socio-economic characteristics, 2011.

Concerning the style of leadership, an executive has to lead different types of subordinates and
has to adopt different styles for leading them at the work place, according to the situation and it
is based on the kind of control the leader exercises on a group and their behaviour. As illustrated

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in Table 2, 2(3%) of the respondents identified autocratic style of leadership which is complete
centralization of authority in the leaders and have all the power to make decisions, 44 (67.7%) of
them indicated the democratic style which is group centered encouraged discussion by the group
members, positive motivation techniques and two way communication are used, while 11
(16.9%) of them identified the Laissez-faire style which is also known as no leadership at all.
There is complete delegation of authority to subordinates so that they can make decision by
themselves and 8(12.3%) categorized the leadership style at St. Marys University College as
bureaucratic one in which leader is determined by rules, regulations and procedures and these, in
turn, are followed by the leader as well as by the subordinates. Therefore, no one can escape the
rules and regulations of the Institution.

Generally, the leadership practiced in the Institution is considered as democratic style. Thus,
SMUC is a group centered encouragement by the group members and positive motivation
techniques are used as leadership style. Here the issue is that whether they are really using
positive motivation techniques or not. The data on the issue under discussion are illustrated in
Table 3.

Table 3 - Freedom of Discussion about their Job

Frequency of responses
Item Alternatives
f %

Yes 21 32.3

Subordinates feel free to No 37 56.9

discuss things about their
Dont know 7 10.7
job

Total 65 100.0

Source: Own survey primary data, 2011.

As shown in Table 3, 21 (32.3%) of the respondents said yes to indicate that the subordinates
have felt free to discuss things related to their jobs with their leaders, 37(56.9%) said no and the
other 7(10.8%) of the respondents were found to be in dilemma as they responded to the question
as they did not whether they felt it or not.

146
The significant proportion (57%) of the respondents didnt feel free. This is because they have to
discuss about day to day tasks in the Offices to do the jobs neatly and correctly. Otherwise, there
would be mistakes in the daily routines and them unnecessary cost and time got wasted.

Table 4 - Leaders Ability in Raising High Moral and Ethical Standards between their
Employees

Frequency of responses
Item Alternatives
f %

Yes 18 27.7

Leaders try to raise ethical standards No 30 46.1

among his/her people
Dont know 17 26.1

Total 65 100.0

Source: Primary data of own survey, 2011.

Eye-catching performances are achieved by many organizations through the above executive
leadership which is an effective and important leadership must perform. In the same framework,
one importance of leadership is trying to raise high moral and ethical standards among his
people. Therefore, a total of 18 (27.7%) of respondents said the leadership raised their moral and
ethical standards, while 30(46.1%) were found to be against the stand of the first group of the
respondents. The remaining, 17(26.1%) of them were found to be categorized under dont
know. Since the highest respondents said No to the question asked, this finding indicated that
most of the leaders in SMUC had not tried too much to raise the moral and ethical standards
among employees.

Table 5 - The Treatment Given by Subordinates

Frequency of responses
Item Alternatives
No %
Yes 25 38.4
Do leaders at different level of the No 30 46.6
Organization give equal treatment? Dont know 10 15.3
Total 65 100.0
Source: Own survey, 2011.

As shown above in Table 5, leaders at different levels of the University College do not give
equal treatment to their subordinate employees. Accordingly, 25(38.4%) of the employees

147
expressed that every employee in the Institution had got equal treatment, while 30(46%) of them
were found to be not equally treated by the leaders. Thus, this may be one of the reasons which
have caused high turnover rate of the employees. This assertion is supported by the student
researcher own observed and collected empirical data in the HRM Department of the Institution.
In addition, the respondents further argued that the procedures which are followed in the internal
promotion have been done on the basis of partiality. Sometimes, the leaders follow formal
procedures to promote employees and, some other time; they would give a chance for their
relatives.

Table 6 - The Degree of Interest towards Employees Job

Frequency of Responses
Item Alternatives
f %

Strongly Agree 5 7.7

Agree 17 26.1

There is a high degree of Neutral 14 21.5

interest towards my job.
Disagree 27 41.5

Strongly Disagree 2 3.0

Total 65 100.0

Source: Primary data of own survey, 2011.

As indicated in Table 6, about eight percent of the respondents were found to strongly agree that
there had been a high degree of interest towards their job, 17(26.1%) of them agreed, 14(21.5%)
were found to be neutral and 27(41.5%) of disagreed with it and the rest, 2(3%) were found to be
strongly disagreed to the statement that there is a high degree of interest to ones job at St.
Marys University College. Based on this empirical evidence, one can argue that the employees
of the University College do not have a high degree of interest in their respective job. This may
be due to either their working conditions or leadership practices.

However, the findings of the study generated from interviews are contradictory to most of the
issues stated above. As the leaders of SMUC expressed, We have healthy, smooth and friendly
relationships with our subordinates. We also have an open environment, informal relationships
and it may be a bit authoritarian in some levels but it is transparent.

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On the other hand, the data collected through the questionnaires clearly indicated that the
employees at SMUC had had a healthy relationship with their leaders at different levels of the
organization. They stated, They have a neutral responses and they simply interact with their
subordinates and superiors. They have good relationships.

Problems faced in Leadership Practice

Regarding problems which affect leadership practice in SMUC, the study documented, the
following factors can be mentioned, as the informants stated:

The affecting factors can be categorized as external and internal factors. From the
external factors, rules and regulations of Ministry of Education, policy, and cultural
backgrounds of the leaders are the ones which are pulling us backward. From internal
factors, not taking responsibility, gaps, not making decisions urgently, absence of team
spirit, competition, leaders communication skills, not being dynamic on the part of the
two parties and the presence of different types of employee behavior could be considered.

With regard to leadership style they suggest for the success of the Organization, the democratic
style of leadership was found to be acceptable one. In this leadership style, there is a practice of
being a model, giving a good example, being open to all, listening to subordinated and giving
them responds, creating a participating in the feeling of the subordinates and by reading each
others mind; they believe they can create n enabling environment in the working area. In
contrast, one of the informants argued, I can not say one style of leadership is better than the
others. This is because there may be a time I need all the styles of leadership to be practised -
there is a time when I need to be autocrat, laissez- faire and bureaucrat but mostly to be democrat
style.

The mechanisms the leaders used to influence employees are:social interaction, being there in
the employees happy and sad moments, being honest and transparent, being on time or before
time, leading others by being role models for others and express this by going to their office
personally. However, the employees argued that the level of the leaders acting as a guide to
their followers had been low. This may contradict with what the managers have said.

The assumptions that the leaders think about the high turnover rate are: not getting enough
salary, unable to fulfill employees basic needs. One of the officials added, when they get a
better opportunity, when they get out off the country or it may be dissatisfaction of working
environment, they frequently leave the Organization. But, as the other empirical data showed,
the employees frequently leave the Institution because the employees leaders dont give fair and

149
equal treatment and, thus, the majority of the respondents develop low interest towards their job.
Finally, the end result may be increased turnover rate. In order to minimize employees
turnover rate, the managers thought: increasing the salary is the first option if things go well as
they planned and are trying to motivate the employees more by fulfilling their basic needs and
inviting employees in decision making and idea sharing programs, diversifying other programs.
Even some other informants argued that there had been other factors for the increased turnover
of the employees, as he said, The ability of subordinates to work their tasks effectively depends
on the job in which they are given. Most of them have no experience and attitude and culture
have great influences on the employees not to work effectively.

Summary, Conclusion and Recommendation

Summary

The study assessed and analyzed the styles of leadership practised and the problems faced in
SMUC and intended to suggest possible solutions to the problems. As shown in this study, 18
(27.7%) of them were females and the rest, 47 (72.3%) were males. In addition, when we see
their educational qualification, 7.6% of the employees completed their schooling at high school
level, 1.5% got certificate, 16.9% held diploma, 41.5% were first degree holders, and 32.3%
were found to be holders of masters degree. These findings indicate that about forty-two percent
of the respondents have already held first degree.

Regarding the style of leadership in SMUC, 2(3%) of the respondents identified the leadership as
autocratic style, 44 (67.7%) of them as democratic style, and 11 (16.9%) of the subjects
categorized the leadership style as Laissez-faire. In addition, 8(12.3%) of the sampled
respondents considered the leadership style practiced at SMUC as bureaucratic one.

Concerning motivation of employees by the leaders at different levels, leaders were found to try
motivating them. A total of 42(64.6%) of the respondents had had such opinions, but 13(20%) of
them had not concurred to this opinion. As shown above, the leaders at different level of the
Organization have given fair and equal treatment. Accordingly, 25(38.4%) of the employees
expressed that their leaders had been doing so, while 30(46%) had had contradictory views.

Regarding the employees interest towards their job, 5(7.7%) of them were found to strongly
agree that they had had a high degree of interest towards their jobs, whereas 17(26.1%) of them
were found to agree, 14(21.5%) were neutral, 27(41.5%) disagreed, and the rest, 2(3%) strongly

150
disagreed to the statement they had had high degree of interest towards their respective jobs
assigned.

Conclusion

From the above major findings, the following conclusions can be drawn:

When we see the style of leadership, the study shows that SMUC uses democratic style which is
expressed as group centered and encouraging discussion by the group members, uses positive
motivation techniques and two way communications.

The leaders in SMUC express a show of authority in the pretext that it would frighten everyone
into productivity. They are bosses rather than leaders. So, since the majority of the respondents
said that leaders motivate their subordinates through fear and insecurity, this leads to most
leaders in SMUC are being bossy rather than leaders. Leaders in SMUC are not giving due
attention to employees satisfaction. They do not do much in motivating their subordinates.
Nevertheless, leaders in SMUC have healthy relationship and excellent interaction with their
subordinates

Leaders at different levels of the Institution dont give equal and fair treatment. This is a major
problem and is going to be difficult, for it may discourage those employees who have been trying
their best in the Organization hoping for the success of their Institution and for better position in
the future on their part. Thus, its not about what they do; it is about who they are or how close
they are with the subordinates and employees. Therefore, those employees who are not capable
enough for the job may get the job, but this leadership style kills the Organization and it may
also be the reason for the employees turnover rate to go high.

Finally, one can conclude that most of the leaders at different levels of the University College
dont take ideas of the potential employees whenever` there is a problem in job. The practice of
working together, sharing ideas and opinions really matters in an organization. Otherwise, its
going to take a long time to save jobs problem. Furthermore, the majority of the employees
disagree with being highly interested in their job; its because of their working conditions or
style of leadership practice. Most of the leaders in SMUC also dont try much to raise high moral
and ethical standards among employees.

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Recommendation

Based on the major findings and conclusions drawn, the student researcher forwarded the
following possible recommendations:

In order to make subordinates feel free in order to do the job, leaders should try
communicating with them, show them how to do the job easily by the employees and then
the employees will work with complete activity, more freedom and increase responsibility.
Leaders should try to raise high moral and ethical standards so, that all employees can do
their job ethically and by moral. as known ethics is the discipline dealing with what is good
or bad and with moral duty and obligations or managing human resource so that mutual
benefits can be achieved.
Leaders should also try to give fair and equal treatments to all their subordinates. That is in
terms of the way he/she orders them, appreciates them, helps them during work and even the
way he punish them must be the same.
The leaders at different levels should try to collect ideas and opinions from subordinates.
This is highly recommended since the subordinates see things from different angles they
might give the leader a solution to the problem, they can even save time and then the
subordinates will also feel glade to help and make their leaders happy.
In order to maximize their subordinates degree of interest, it is suggested that there should
be compensation schema and other motivational techniques employees to help them in
fulfilling their basic needs. However, there should be some sort of competition among the
employees to get awarded the benefit packages.
Leaders should be a guide for his/her respective followers whenever he/she has got to be on
time, finish their work on time for treating his/her followers nicely during job and others.
By so doing, such leaders can feel free to ask or order his/her subordinates whatever he/she
wants them to do.
Leaders should try to understand their subordinates interest because its very important for
the success of the Organization. In order to try to have a benefit package, the leaders should
ask them what they want and, if possible, try to do it, because St. Marys University College
SMUC has had high turnover rate of employees. Therefore, the leaders should prepare and
conduct an exit interview or should document the major reasons on part of these employees
while leaving the University College so that these may serve as inputs to finally come up
with a solution.

152
 REFRENCES

Allio, R.J. (2003). Leadership. New Delhi: Tata McGraw-Hill Publishing Company Limited.

Dwivedi, R.S. (2004). Human relations and organizational behaviour. New Delhi: Replika
Press, DSIDC & Industrial Park, Narela.

Gankar, S., & Mamoria, C.B. (2004). Personnel management. Mumbai: Himalaya Publishing
House.

McShane, S.L., &Von Glinow, M.A. (1998). Organizational behavior. Canada: McGraw-Hill
Ryerson.

Mishra .N. (2003). Organizational behavior. New Delhi: Vikas Publishing House, Pvt. Ltd.

Porter, D.E., & Applewhite, P.E. (1964). Organizational behaviour and management.

Salyadain, M.S. (2003). Organizational behaviour. Tata McGraw-Hill Publishing Company

Limited.

Sekaran, U. (2004). Organizational behavior. New Delhi: Tata McGraw-Hill Publishing

Company Limited.

Singh, N. (2000). Human relations and organizational behavior. New Delhi: DEEP and DEEP
Publications Pvt. LTD.

Sudan, A.S., & Kumar, N. (2003). Management process and organizational behaviour. New
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Delhi: Anmol Publications Pvt. Ltd.

[

153
 THE INTERNATIONAL CRIMINAL COURT AND PURSUIT OF LEGAL
JUSTICE: PROBLEMATIZING COMPLEMENTARITY

BY

Eden Solomon

Abstract
The study tried to analyze the challenges and limitations that the International Criminal Court has faced
because of different legal, factual and other restrictions obstructing it from pursuing its aim of meeting
the highest legal standards of independence, effectiveness and fairness expected by the International
Community and as a result to bring about legal justice. The International Criminal Court (ICC) exercises
its authority on crimes under its jurisdiction, as a means of last resort, after all the available judiciary
remedies in the national jurisdiction failed. It is when national courts prove unwilling or unable to
investigate or prosecute the defendant, that the ICC can require the national government to surrender the
targeted perpetrator to the Court. At this juncture, the principle of complementarity which rests on two
basic pillars, namely, safeguarding respect for the primary jurisdiction of states, and efficiency and
effectiveness to put an end to impunity comes in to play. However, the International Communitys
decision to incorporate the complementarity principle in the preamble of its final draft statute was
intended to provide plausible compromise between national sovereignty and the courts jurisdiction. The
complementarity appears as a mechanism devised to maintain the balance and shape the Courts
operational dynamics. The ICC, on the other hand, teeters between values of sovereignty and
internationalism. As the international criminal institution and national courts have concurrent
jurisdiction over the most serious international crimes, there inevitably will be conflicts between the two
jurisdictions. Consequently, the principle of complementarity, at the same time, creates a curious pair of
conflicting forces and hence a dilemma for the Court itself. One perspective to these conflicting forces
stresses that the ICC limits itself in exercising jurisdiction without the consent of a sovereign government
that could otherwise exercise jurisdiction on its own. Accordingly, the court seeking to exercise
jurisdiction in a hostile way: trying to exercise jurisdiction against states actually trying to conduct their
own proceedings is seen to have proved very far from reality. If anything in the ICCs cases, states
evidence no intention of trying certain crimes even mock proceedings for the purpose of holding off ICC
jurisdiction. Thus, there is a paradox between the creation of the ICCs exercise of sovereignty and that
of the nations. The study documents that ICC has had subject matter jurisdiction and admissibility regime
which is restricted by the preconditions set on its exercise of temporal jurisdiction. The objectives of the
Principle of Complementarity are to serve as complementary to the national criminal jurisdictions of the
states in the world. The Complementarity Principle also appears as a mechanism devised to maintain the
balance and shape the Courts operational dynamics. However, this Principle has impact on the states
sovereignty in that the ICC encroaches upon their sovereignty. Thus, the ICC has been challenged by lack
of support and cooperation for effective enforcement of its decisions and legitimacy on the part of the
states which emanate from the gaps and challenges of the Principle of Complementarity as well as from
the Courts political nature. These may, in turn, affect justice and rule of law at international level. It can
be concluded that the ICC has jurisdiction limitations and challenges to effectively enforce its decisions
and legitimacy toothless Court. Therefore, comprehensive jurisdiction measures such as the practices
of diplomatic cooperation of the states as a golden thread that underlies the Rome Statue using possible
and plausible should be taken, and the Court should also be assessed in-depth based on different
international criminal cases in different socio-cultural, economic and political contests from all corners
of the world.

154
Introduction

Background of the Study

In the fight to end impunity for perpetrators of the most serious crimes and not to let the most
serious crimes of international concern go unpunished, the international community collaborated
for a persistent solution. Realities called for these types of perpetrators to be prosecuted at all
times and in all places either by measures of the national courts of the different states or by the
cooperation of an international authority, and bringing justice in the end.1

Lack of sufficient mechanism to hold individuals accountable for the most serious international
crimes and the need for protection of individuals from violation of human rights and
humanitarian law necessitated an appropriate mechanism to enforce the law.2 Following the
International Criminal Tribunals for the former Yugoslavia and Rwanda, which the UN Security
Council established in 1993 and 1994 respectively to try those accused of war crimes committed
during the conflicts in those countries, a permanent international court came into picture.3 The
international community has created the first permanent International Criminal Court (ICC)
through the Rome Statute, which came into force on the 1st of July 2002, having attained the
requisite number of ratification. The court is competent to try war crimes, crimes against
humanity, genocide and the crime of aggression.4 This Statute governs the courts jurisdiction
and condition of operation.

1. See the Rome Statute of the International Criminal Court, 2002, Preamble.
2. Ellis and Goldstone, (2008), The International Criminal Court: Challenges to achieving justice and
accountability in the 21st century, IDEBATE press, USA, p-286.
3. The International Committee of the Red Cross (ICRC), 2004, International Humanitarian Law: answers to your
questions, ICRC, Geneva, Switzerland, p- 34.

4. Aggression has been included as a crime within the courts jurisdiction. However, the court is not exercising
this jurisdiction since the concept is still awaiting a definition, to be agreed by state parties, and the conditions
under which it may be prosecuted. See also Outcome of recent review conference on the International Criminal
Court explained, available at http://allafrica.com/stories/201006230268.html, Accessed: 25 December 2010.

155
The International Criminal Court (ICC) is not part of the United Nations system. It is rather an
independent International Organization having its seat at The Hague. Its establishment is
structured for it to have a secondary role or to complement the work of national jurisdictions, i.e.
to act as a court of last resort.5 Thus, the court will have jurisdiction to try a case only when a
country is unwilling or unable to carry out prosecutions: This is the arrangement the Statute
6
refers to as the complementarity principle. This is a notion of positive complementarity that
came from the basic desire to strengthen national jurisdictions in prosecuting crimes by
themselves and leaving the ICC as a backup court for trying those crimes that couldnt be tried
at the national level.7 The ICC can exercise its jurisdiction if that priority is not put to good
use.8

Statement of the Problem

Taking into consideration the inception of the ICC to be a backbone in repressing the most
serious crimes of international concern and insuring respect for human rights and international
humanitarian law, we cannot be complacent as there are insurmountable challenges to its great
responsibility of undertaking its mission.

It is a truism that the ICCs jurisdiction is not founded on an authoritative act but rather on its
specific acceptance by states through an agreement. This fact obliges the court to prove its

5. ibid
6. ibid; see also Article 17 of the Rome statute of the International Criminal Court, 2002.
7. ibid
8. Frederic Megret, Why would states want to join the ICC? A theoretical exploration based on the legal nature of
Complementarity, available at <http://ssrn.com/abstract=1308612>, Accessed: 2 December 2010, p- 16.

156
authority and effectiveness to the international community. Nevertheless, in doing so, the ICC is
facing limitations and challenges because of different legal, factual and political restrictions
obstructing it from pursuing its aim of meeting the highest legal standards of independence,
effectiveness and fairness expected by the international community.

This research thesis is mainly concerned with one of the Statutes fundamental principle - the
principle of complementarily - and seeks to investigate the following major challenges related to
that key principle:

1. Since the statutory language is sufficiently constricted to allow a mere understanding or

explanation, it requires a clarification. Thus, it will elicit proper meanings and
ascertainment of the elements related to complementarily principle, which is very
susceptible to different internal or external, political or otherwise interests of states
concerned.
2. How do we make ascertainments of application of complementarily on jurisdictional
links of every state (whether party or non-party to the Rome statute)? What is the exact
nature of the jurisdiction exercised by the court in each case?
3. Does (and will) the doctrine of complementarily actually work to accommodate national
sovereignty? Under what circumstances can we expect the Chief Prosecutor to accept
assertions of national jurisdiction?
4. The ICC affirms its jurisdictions only when there is a gap in state jurisdictions that may
be created by lack of punitive reaction by states and when the rights of the victims have
not been redressed. Since criminals should not be allowed to go unpunished in one way
or another, looking at the effects of admissibility of amnesties and impunities also needs
a close look.
5. The search for justice should be pursued in a way that does not impede or jeopardize
efforts aimed at promoting lasting peace. However, there has been an inevitable
reoccurrence of the peace versus justice debate at the ICC. What are the challenges of
balancing these competing interests when the ICC faces such a dilemma? Is the ICC free
to take a certain case from a state if the national jurisdiction of the state is against the

157
 interest of justice and fairness, for reasons beyond what is stated under Article 17(2) of
the Rome Statute?9

The ICC, by definition, is also a non- political institution run by an international judicial body
and entitled to make its own decision following the rule of law. Its effectiveness depends on its
credibility as a non-political institution. This thesis questions if the ICC has an implicit political
role to fulfill in practice, if the Court strives to remain politically neutral and if the ICC can be
successful and perceive its legitimacy if it regards itself purely as a juridical institution.

There is particularly an anxious debate around the world that the ICC is biased, because the five
official investigations which have been taken on so far are based in Africa (the Central African
Republic, The Democratic Republic of Congo, Sudan, Uganda, Kenya and most recently Libya)
- all are located on the African continent.10 Thus, the question of how significant it is that all of
the cases currently before the Court are against Africans for crimes committed in Africa, and
how this affects the perception of the Courts legitimacy in the international community. In
addition, whether it can be concluded that there are good reasons for doing so regardless of the
persistent hypocrisy governing the international politics and international justice or not.

In relation to this, the Court is the first permanent international institution with the capability of
prosecuting those individuals that committed the most heinous crimes against humanity but this
does not fit with the reality at hand. As there is lack of enforcement capacity by the ICC, would
the cooperation between the Court and other states pose a dramatic danger in the maintenance of
the purpose and power of the International Criminal Court? Would it be trading its
independence? What would it mean for justice and rule of law if the ICC comes to rely heavily
on state parties and non-parties with their own exclusive political agenda?

In a nutshell, these are the major issues that have triggered the student researcher to carry out this
senior thesis. These are the major challenges the Court has faced that are found intertwined with
the principle of complementarity. Moreover, the enthusiasm of exploring if the alleged political

9
Article 17(2) of the Rome Statute incorporates shielding a person concerned from criminal responsibility for
crimes under the jurisdiction of the ICC, unjustified delay in proceedings and absence of independency or
impartiality to be construed as unwillingness by the state, which leads the case for an admission, by the ICC.
10
See supra note 5.

158
nature of the Court and its great need for cooperation in enforcement will hinder the ICCs
legitimacy or its pursuit of legal justice.

Objectives of the Study

Considering the above predicaments, this study generally tried to analyze the limitations and
challenges the International Criminal Court has faced because of different legal, factual and other
restrictions obstructing it from pursuing its aim of meeting the highest legal standards of
independence, effectiveness and fairness expected by the International Community and, as a
result, to bring legal justice. Specifically, the study also intended to:

Assess the jurisdiction and admissibility regime of the International Criminal Court;
Expose the principle of complementarily and its objectives in the Rome Statute of the
International Criminal Court;
Analyze the existing theoretical and factual challenges and gaps encountered concerning
the principle of complementarily;
Investigate the alleged political nature of the Court and its implication on justice and rule
of law;
Explore the challenges faced by the court in state cooperation due to the lack of effective
enforcement mechanisms and its maintenance of purpose and power of the International
Criminal Court; and
Identify possible measures undertaken to address those problems.

Significance of the Study

As this study is relevant, urgent, and timely as well as has great importance in addressing the
major challenges and gaps concerning the International Criminal Courts prosecution and
enforcement; it contributes to legal policy makers at different levels, to knowledge reservoir of
the field of law, and legal and related issues practitioners at international level. Those long-
standing challenges are frequently concerning complementarily principle in the Rome Statute,
which is the heart of the ICC system. In addition, as a judicial organ, its persistence not to tip
away from justice and rule of law due to some political considerations is very important and
needs to be given attention. Compared to other issues regarding the Court, these have been the
focus of international attention for the last two decades. Since the facts on the ground are so ripe
and available, the student researchers attempt to conduct a research on this subject matter will

159
be practically feasible to come up with a helpful perspective if not a solution. Accordingly, the
benefits to be accrued from this study are the following: basic understanding of the International
Criminal Court; to have the necessary know how of how the ICC manages cases to entertain
within its jurisdiction; to appreciate how the court maintains its power and purpose and to come
across other problems attached to this matter; to provide helpful recommendations for the
challenges faced by the ICC in the pursuit of rule of law and legal justice; to assist as a reference
material for academic purposes, interested parties and other target beneficiaries; and to serve as a
springboard for other researchers who would like to get involved on the same issue in depth or
by taking cases at different levels.

Delimitations and Limitations of the Study

Scope of the Study

The scope of this study confines to the limitations and challenges the International Criminal
Court has faced because of different legal, factual, political and other restrictions obstructing it
from pursuing its aim of meeting the highest standards of independence, effectiveness and
fairness expected by the International Community and as a result to bring legal justice. In the
study, its coverage is confined by giving more emphasis on the existing problems intertwined to
the principle of complementarity. In addition, it explored if the alleged political nature of the
court and its great need for cooperation in enforcement to maintain effective implementation
would hinder the ICCs legitimacy or its pursuit of legal justice.

Limitations of the Study

In the first place, a researcher has to work out potential risks and challenges s/he will face in
actual undertakings of the study. However, there are some unforeseen circumstances which may
not be unmanageable due to one reason or another. These instances then become limitations.
These limitations are identified as potential weaknesses of the study. After the student researcher
had thought about data analysis, the nature of self-report to be produced, the research instruments
used in terms of their threats to internal validity that may have been impossible to avoid or
minimize, and the sample size considered in the light of the nature well as the objectives of the
survey, it acknowledged its major limitations which would affect the findings of the study on few
of the issues under investigation.

160
These limitations include shortage of enough time to conduct extensive and intensive literature
reviews, research funds for locating and making avail relevant and latest materials on the issues
being investigated, and some other related matters. In addition, shortage of classical and latest
theoretical and empirical literature, especially domestic resources on the research issues
contributed their share to influence the validity of few of the findings. In the same vein, the
limited access to relevant pieces of information and poor cooperation on the part of different
institutions to provide necessary assistance in getting access to resources available in their
territories might restrict the amount of secondary data which could have been incorporated in
different section of the study report.

Research Methodology
The primary research method for this study was doctrinal or Desk chair method of legal
research. It is a method of research where the researcher depends on official documents, case
files, legal documents and other secondary data sources without going out for field survey,
interviewing and employing questionnaires as research instrument. Through this method, the
researcher heavily relied on various published and unpublished foreign literature and when
available domestic literature and case files which dealt with the International Criminal Court. In
the study, the student researcher obtained and engaged in documentary analyses of different
books, articles, relevant laws, and different instruments from the United Nations and other
organizations. In addition, Online visits of relevant and potential web sites were visited to
download such documents for addressing the research questions and objectives.

Organization of the Paper

This paper is organized into four parts in which each is concerned with achieving a specific
purpose. The first part presents the research proposal itself. It deals with the background of the
study, statement of the problem, objectives, significance, delimitations and limitations of the
study as well as its methods. Part Two is devoted to the general over view of the International
Criminal Court. It brief highlights the historical background of the International Criminal Court
and its unique features. The next part dwells upon addressing the challenges, gaps and limitations
intertwined to the principle of complementarity thereby investigating the rationale of the
principle of complementarity in the Rome Statute of the International Criminal court. In addition,
relevant cases on these issues are presented. The fourth part tries to inquire the alleged political
role of the International Court and States cooperation with it to maintain effective enforcement
over international criminal laws and their effect on the legitimacy of the Court. It thus brings

161
together those threads of arguments and counter-arguments together in order to draw conclusions
and to forward pertinent recommendations.

General Overview of the Court

Historical Background of the Court

Until very recently, the international law lacked sufficient mechanisms to ensure that
perpetrators of the most serious international crimes are held to be accountable in order to protect
individuals from violations of human rights and humanitarian law. In the words of Steven C.
Roach, the establishment of the International Criminal Court followed a long history of failed
attempts to institutionalize the principle of international criminal responsibility.11The roots of
this long struggle can be traced to The Hague Conventions and later to the League of Nations,
whose failure to contain national aggression would ultimately lead to the establishment of the
United Nations.12

The most essential aspect of the evolution of the International Criminal Law is the link between
state sovereignty and accountability.13 State sovereignty has provided one of the most enduring
obstacles for advancing international law as these crimes primarily depended on domestic
jurisdiction. History reveals that, when such crimes were committed, national justice systems
were not as such effective because of widespread human rights abuses and systemic violence.
Moreover, there was the involvement of agents of the state in the commission of the crime. This,
in return, led to protection of perpetrators with impunity.14

The fact that national jurisdictions have often proven themselves to be incapable of being
balanced and impartial in such situations15 and the need to challenge impunities by states made

11
Steven C. Roach, 2006,Politicizing the International Criminal Court; The Convergence of Politics, Ethics, and
Law, Rowman & Littlefield Publishers, UK, p- 19.
12
ibid
13
Supra note 2, p- 289.
14
ibid, p. 286.
15
William A. Schabas, 2007, An introduction to the International Criminal Court, Third Edition, Cambridge
University press, UK, p. 1.

162
the enforcement of international justice when national systems are unwilling or unable to act a
necessity.16

The need for an international criminal law and a global criminal court to apply it began attracting
the attention of the international community soon after the First World War and as result of it. It
all started with the international tribunals at the Nuremberg and Tokyo and, subsequently, in the
former Yugoslavia and in Rwanda. The progress made in the achievement of these goals,
particularly that of the establishment of an International Criminal Court, since this time may be
stretched as follows.

The Hague Conventions

The concept of international prosecution for humanitarian abuses slowly began to emerge with
the developments of the law of the armed conflict in the mid-19th century. In the 1872, a draft
statute to establish the International Criminal Court to prosecute breaches of the Geneva
Convention of 1864 and other humanitarian norms in respect to the Franco-Prussian War was
proposed by one of the founders of the International Committee of the Red Cross movement.
However, the idea was not given attention as it was considered too radical for that time.17

The Hague Conventions for the peaceful settlement of international disputes (1899) and (1907),
in the peace conference along with the Geneva Conventions were the first formal statements of
the laws of war and war crimes at the embryonic stage of international law. The major efforts in
these conferences were to create a binding international court to settle international disputes that
were considered necessary to proscribe war crimes and to protect civilians during the times of
war.18

In 1920, the Commission of Jurists, which met at The Hague to prepare a draft of the statute of
the Permanent Court of International Justice, adopted a proposal recommending the creation of a
separate high court of international justice to try crimes constituting breach of international
public order. However, the Council of the League of Nations did not receive it and no resolution
was made.19

16
Supra note 2, p- 286.
17
Supra note 15, p- 2.
18
id, p- 3.
19
ibid, p- 33.

163
Again, the issue was raised in 1937 for a Treaty for the Establishment of an International
Criminal Court in Geneva under the auspices of the League of Nations. However, no actions
were taken to its realization due to insufficient number of ratifying states. In addition this, many
unsuccessful efforts to create an International Criminal Court was rendered by the League of
Nations.20 Nevertheless, actual prosecutions for violations of the Hague Conventions have not
emerged until after the Second World War.21

The Nuremberg and Tokyo Trials

The War Trials that took place at Nuremberg and Tokyo by the International Military Tribunals
that were set up by the victorious Allied Powers of the Second World War to try Axis war
criminals revealed heinous atrocities that shocked the world and thus widened the horizons of
international criminal law. It led to the recognition of a new category of crimes: crimes against
humanity. And thereby it reminded the significance of such courts in permanent settings and
gave a forwarding motion to advance the movement for a permanent international criminal court
.The United Nations took the lead in this movement.22

In the Moscow Declaration of November 1943, the victorious nations decided to prosecute the
Nazis for war crimes. The UN commission for the investigation of war crimes was established to
prepare a Draft convention for the establishment of a United Nations war crimes court. The
agreement for the prosecution and punishment of major war criminals of the European Axis, and
establishing the Charter of the International Military Tribunal (IMT), which was annexed to the
agreement, was formally adopted on 8 August 1945 by the four major powers, namely, the
United Kingdom, France, the United States and the Soviet Union. The Tribunals jurisdiction
was limited to crimes against peace, war crimes and crimes of humanity. After this groundwork,
at Nuremberg in October 1945, indictments were served to some Nazi leaders.23 These Nazi war
criminals were charged with genocide and crimes against the humanity for the atrocities
committed against the Jewish people of Europe. After this major incident, the General Assembly
of the United Nations began to put some effort to push the law further along these areas.24

20
See supra note 15, p.5.
21
ibid, p. 2.
22
Supra note 19, p. 34.
23
Supra note 15, p. 5-6.
24
Id, p. 7.

164
In December 1946, a resolution was adopted by the General Assembly calling for the preparation
of codification of international law on offences against the peace and security of mankind or an
international criminal code. This was followed by the convention on the Prevention and
Punishment of the Crime of Genocide in 1948, known as the Genocide Convention.25
Meanwhile, the UN General Assembly following the adoption of the Geneva Conventions of
1949, invited the International Law Commission to study the possibility and desirability of
establishing an international judicial organ for the trial of crimes under international law
specifically genocide. The International Law Commission affirmed that it was possible and
desirable but did not recommend that this organ be a chamber of the International court of
Justice.26

Deriving its mandate from Article VI of the Genocide Convention, the draft code of crimes and
the Nuremberg Principles in 1950, the International Law Commission prepared the draft statute
of an International Criminal Court and actually submitted a proposal in 1954.27 Then, the
General Assembly suspended the attempt, seemingly pending the sensitive task of defining the
crime of aggression and an international code of crimes. By then, political tensions associated
with the era of the Cold War had made progress on the war crimes agenda virtually impossible
for a certain period.28

In 1981, the General Assembly motivated in part by an effort to combat drug trafficking,
Trinidad and Tobago asked the International Law Commission to revive on its draft code of
crimes. And a substantially revised version of the 1954 draft code was provisionally adopted by
the Commission in 1991, and then sent to member states for their reaction. In the year 1994, the
International Law Commission submitted the final version of its draft statute for an ICC to the
General Assembly. In 1996, it adopted the final draft of its code of crimes against the peace and
security of mankind. The two played a decisive role in the preparation of the Rome Statute of
the ICC.29

25
id, p. 8.
26
Supra note 19, p. 34.
27
Supra note 15, pp. 8-9.
28
id, p. 9.
29
id, pp. 9-10.

165
The ad hoc Tribunals
[

While the draft statute of an ICC was being considered in the International Legal court (ILC),
events compelled the creation of a court on an ad hoc basis in order to address the atrocities
being committed in the former Yugoslavia and Rwanda. Accordingly, the General Assembly set
up ad hoc tribunals for former Yugoslavia and Rwanda. 30 In May 1993, the Security Council
established International Criminal Tribunal for former Yugoslavia (ICTY), followed by
International Criminal Tribunal for Rwanda (ICTR) in November 1994.31 The Yugoslav and
Rwandan tribunals have communalities, sharing not only virtually identical statutes but also
some of their institution.32

These tribunals were highly important as they further highlighted the need for an establishment
of a permanent international criminal court.33 It also eliminated the notion of the Victors justice
that characterized the political elements of the judicial authority of the Nuremberg and Tokyo
military tribunals.34 As a result, it became a useful basis for the formulation of the Rome Statute.
Nevertheless, in due course, it became clear that creating new tribunals could not continue
because these tribunals faced several limitations in their operation.35

The participation of only a few states in their creation is one of the reasons for their restrictions.
While the Nuremberg and Tokyo tribunals were set up by the victorious Allied powers after
World War II, the Security Council created the Yugoslavia and Rwanda tribunals.36 On each
occasion, their creation was conditional on the political will of the International Community.37
In addition to that, ad hoc tribunals are limited to specific geographical jurisdiction, i.e. confined
within the frontiers of the former Yugoslavia, Rwanda and its neighboring countries, and they
are set to respond primarily to events in the past. Finally, their establishment required extensive
deal of money and time.38

30
id, p. 11.
31
Benjamin N. Schiff, 2008, Building The International Criminal Court, Cambridge University press, USA, p. 9.
32
Supra note 2, p. 286.
33
ibid
34
Supra note 11.
35
Supra note 33, p. 7.
36
Supra note 2, p. 286.
37
Supra note 33, p. 7.
38
Supra note 2, p. 286.

166
Immediately after the end of World War II, a permanent international tribunal became critical to
overcome the limitations of the ad hoc tribunals.39

Although by the mid 1990s attentions had shifted from the ad hoc tribunals to the establishment
of the permanent court, the creation of temporary institutions was not ruled out after the Rome
Statute was adopted. For example, in 2002 the Secretary General established a special court for
Sierra Leone to deal with atrocities committed in Sierra Leone during the 1990s because the ICC
was not in a position to assume responsibility for prosecutions concerning crimes committed
prior to its entry into force in 2002.40

Drafting of the Rome Statute

After years of serious attempts to evolve a body of international criminal law and provisions for
the establishment of an international criminal court in several conventions and so many
negotiations, finally a five weeks Diplomatic was held by the International Law Commission
with the aim of finalizing and adopting a treaty for the establishment of the court in Rome in
June 1998. More than 160 states participated in the Conference. As a result, the final provisions
of the Rome Statute for the establishment of the International Criminal Court were adopted on
July 17, 1998 by an overwhelming majority of the attending states of the UN Diplomatic
Conference of the Plenipotentiaries - specially convened for this purpose at Rome. The Statute
required sixty ratifications or accessions for entry into force. The Statute entered into force on
July 1, 2002 after the attainment of the requisite number of ratification under Article 126 of the
Statute.41

As of October 2010, 114 states have joined the court, including all of Europe and South
America, and roughly half the countries of Africa.42 Some states, including China, Yemen, Iraq,
the United States and Israel voted against the treaty and are critical of the Court. Forty states
have signed but not ratified the Rome Statute. Three of these states Israel, Sudan and the

39
ibid
40
Supra note 15, p. 14.
41
Supra note 19, p. 36.
42
On 19 May 2011, the Government of Grenada deposited its instrument of accession of the Rome Statute of the
International Criminal Court to the UN. This will bring the total number of states parties to the Rome Statute to
115.

167
United States - have unsigned the Statute, indicating they no longer intend to become states
parties and, as such, have no legal obligations arising from their signature of the Statute.43

The International Criminal Court: Features

The ICC has a number of unique characteristics. This will not only make it a stronger institution
but also strengthen international jurisprudence and exemplifies for innovative approaches at the
domestic level.44 Looking at the Courts special features also helps us differentiate it from other
international courts and regional international courts like the International Court of Justice (ICJ)
and the European Court of Human Rights (ECHR).

The ICC is the first and the only specialized permanent International Criminal Court with the
intention of fighting impunity for perpetrators of the most heinous crimes of international
concern by prosecuting perpetrators of genocide, crimes against humanity, and war crimes. It
seeks to deter depredations against citizens in violent conflicts and to contribute to justice,
peace political transition and reconstruction.45 The Statute of the Court is a lengthy document. It
is divided into nine parts and has a total number of 128 Articles.46 The Court is based in The
Hague, Netherlands, although its proceedings may take place anywhere.47

The Court seeks to incorporate lessons from the past ad hoc tribunals in order to improve the
effectiveness and efficiency of international criminal trials. As Benjamin N. Schiff noted:

The Court is built upon a range of national legal systems and incorporates structural
elements common to other International Organizations. Its structure, rules and
operations reflect experiences of the ad hoc International Criminal Tribunals for
Yugoslavia and Rwanda But differ significantly from them. The ICCs objectives include
the prosecution of transgressors and rehabilitation of victims, its mechanisms combines
traditions of Civil Law with Common Law precepts . . .48

43
Building the International Criminal Court, available at < www.bsos.umd.edu/../schiff0209.htm >, Accessed: 20
June 2011
44
Overview of the international criminal court ant its unique characteristics, Available at
<www.hrschool.org/../178/>, Accessed: 20 April 2011.
45
Supra note 33, p. 1.
46
Supra note 19, p. 31.
47
Article 3 of the Rome Statute of the International Criminal Court.
48
Supra note 33, p. 2.

168
Challenges and Limitations facing ICC in Relation to the Principle of Complementarity

Jurisdiction of the ICC

Subject matter Jurisdiction

The Preamble and Article 5 of the Rome Statute limits the subject matter jurisdiction of the
Court to four groups of crimes, which it refers to as the most serious crimes of concern to the
international community as a whole: the crime of genocide, crimes against humanity, war
crimes, and the crime of aggression. Except for the crime of aggression, whose content is subject
to further negotiations,49 the Statute defines each of these crimes at some length. The court will
not exercise its jurisdiction on such crime until such time as the state parties agree on a definition
of the crime and set out the conditions under which it may be prosecuted as indicated under
Article 5(2) of the Statute. These definitions adopted provide a good consolidation of principles
found in earlier conventions and customary international law on the subjects. The crime of
aggression is apparently a field in which customary rules have not yet sufficiently developed. 50

Preconditions to the exercise of Jurisdiction

Underneath the idea of an international criminal court was the intention to exercise universal
jurisdiction. Proposals to this effect were produced at the Rome Conference. However, it was
ultimately rejected, due in large part to opposition from the United States and because it was felt
that universal jurisdiction would discourage too many states from ratifying the Statute. 51 As a
result, the Court does not have universal jurisdiction. The Court exercises jurisdiction only under
the following limited circumstances:

49
In June 2010, the ICCs first review conference in Kampala, Uganda expanded the definition of crimes of
aggression and the ICCs jurisdiction over them. The resolution deleted the provision that requested for the
future definition of the crime, Article 5(2), and called upon all state parties to ratify or accept the amendment in
accordance with Article 121(5) of the Rome Statute. But it seems that the ICC will not prosecute for this crime
until at least 2017. Professor Leonard in an interview about his book entitled, The onset of Global Governance
affirmed the fact that crime of aggression not being part of the Rome Statute is not necessarily a bad thing at this
point. This is because since this crime does not have an accepted definition as most of the other crimes do, it may
be the most easily politicized of all and there may be overuse of that crime. Therefore, allowing it to be
incorporated in the statute would be extremely problematic and hinder the legitimacy of the Court rather than help
it. He further pointed out that the ICC would be best served if it stays with the longstanding definitions of the
three core crimes it already governs, and then eventually come to a definition of the crime of aggression only
when the court becomes a more accepted institution in the international community. (See Outcome of recent
review conference on the International Criminal Court explained, Available at
http://allafrica.com/stories/201006230268.html, Accessed : 25 December 2010).
50
See supra note 19 at p. 38; See also Articles 5- 9 of the Rome Statute.
51
Kenneth Roth, Foreign Affairs - The case for Universal jurisdiction, Available at
<facuty.maxwell.syr.edu/hpschmitz/p>, Accessed: 1 June 2011.

169
 Where the person accused of committing a crime is a national of a state party (or where
a persons state has accepted the jurisdiction of the court); Where the alleged crime was
committed on the territory of a state party (or where the state on whose territory the
crime was committed has accepted the jurisdiction of the court); or Where a situation is
referred to the court by the UN Security Council.52

Territory of the crime and nationality of the perpetrator are the most firmly established bases of
criminal jurisdiction. Therefore, the court follows the fundamental principles of application of
jurisdiction - the principle of territoriality and nationality- respectively; which are recognized
under international criminal law. The personal and territorial jurisdiction of the court would only
be found when states become parties to the statute. In other words, a states acceptance of
jurisdiction is required as a precondition to exercise jurisdiction according to Article 12 since its
primary source of legality emanates from the consent of states.53 Personal jurisdiction of the
court is also limited on the age of the suspect at the time of the alleged commission of a crime,
which should be above 18. Minors are not within the jurisdiction of the international criminal
court whatever aggravated crime they commit within the jurisdiction of the court.54

The third precondition implies that the court may also exercise its jurisdiction on a non- party
states territory and national. This is where the state declares acceptance to such jurisdiction with
respect of the crime in question by a declaration lodged with the registrar of the court55 or where
the specific situation is referred to the court by the Security Council acting under Chapter VII of
the Charter of the United Nations.56 Hence, the courts jurisdiction regime recognizes the special
role of the UN Security Council in maintaining peace and security. It may avail itself of the ICC
to manage its responsibilities by referring situations of aggravated concern in any part of the
world to the court so that it no longer has to create ad hoc tribunals as it did for the former
Yugoslavia and Rwanda.57 In doing so, it gives the ICC a competence which is independent of a
states acceptance of the Statute and the presence of preconditions. The Security Council used
this power when it referred the situation in Darfur, Sudan, to the court while this state not being a

52
Supra note 2, p- 32; See also Article 12 of the Rome Statute.
53
Supra note 53; See also Article 19(2)c of the Rome Statute.
54
ibid at Article 26.
55
Supra note 19, p- 40-41; see also Article 12(3) of the Rome Statute.
56
id
57
Supra note 2, p. 288.

170
party to the Rome Statute 58 But it should be noted that this is an exceptional setup of the courts
jurisdiction.

Temporal Jurisdiction

According to Article 11 of the Rome Statute, the Court can only prosecute crimes committed on
or after the date the Rome Statute entered into force in 1 July 2002: its jurisdiction does not
apply retroactively. In case of states that become members after the Statute entered into force,
the court will only exercise its jurisdiction on crimes committed after the day that the state
ratified the statute which is the entry into force of the statute for that state. However, these states
could make declaration in order for the court to exercise jurisdiction in respect to crimes
committed before their ratification of the statute and after the statute entered into force.59

Another point worth mentioning at this junction is that the court applies the principle of
individual responsibility. The ICC doesnt stand to determine that the States behavior amounts
to an internationally wrongful act like the case of the International Court of Justice. The Rome
Statute by stipulating that the court shall be a permanent institution and shall have the power to
exercise its jurisdiction over persons for the most serious crimes of international concern,
establishes individual criminal responsibility on natural persons who commits a crime within the
jurisdiction of the court.60 The court is concerned about the mere existence of factual
requirements whether: heinous crimes were committed and there was no appropriate reaction by
states.61

This principle applies equally to all persons without any distinction with the exception of minors.
Official capacity (as a Head of State or Government, a member of a government or parliament,
an elected representative or a government official) and immunities or special procedural rules
which may attach to the official capacity of a person, whether under national or international
law, does not bar the court from exercising its jurisdiction over such a person nor in itself
constitute a ground for reduction of sentence. This can be demonstrated by the Courts most
inductees like the sitting head of State of Sudan, President Omar Al- Beshir.62

58
id
59
id, p. 32.
60
id, p. 64; See also Article 1and 25 of the Rome Statute.
61
id
62
Dr. S.K Kapoor, 2002, International Law and Human Rights, Ajanta offset Printers, India, p. 370.

171
Article 13 of the Statute empowers the court to exercise jurisdiction with respect to crimes
conferred to it under Article 5 where:

I. A Situation is referred to the prosecutor by a state party;

II. A situation is referred to the prosecutor by the United Nations Security Council acting
under Chapter VII of the Charter of the United Nations; or
III. The Prosecutor has initiated an investigation proprio motuacting on its own motion or
initiative.63

So far, three states parties to the Rome Statute - Uganda, the Democratic Republic of the Congo
and the Central African Republic have referred situations occurring on their territories to the
court. On top, the Security Council according to chapter VII of the UN Charter64 has referred the
situation in Darfur, Sudan. The prosecution also opened investigation on its own motion in the
situation of Kenya and recently in Libya.65

The Office of the Prosecutor(OTP) in making its preliminary examination in order to determine
whether there is a ground to proceed with an investigation requires cooperation from national
and international authorities to provide his office with the information, evidence, and practical
66
support needed to carry out his mandate. He may seek information from states, organs of the
United Nations, intergovernmental or non- governmental organizations or other reliable
sources.67

In addition to this, in making his determination the Prosecutor must consider whether or not the
crime is within the jurisdiction of the court, admissibility test requiring consideration of gravity
and of whether national proceedings are being genuinely carried out with respect to the case; and
also the interests of justice68.

Be that as it may, a fundamental point that has to be understood about the ICC is that even where
the court has jurisdiction, there is a challenge that it may not necessarily act. We will discuss this
topic in the coming section in a detailed fashion. But at this junction, its important to note that

63
Article 13 of the Rome Statute.
64
Chapter VII of the UN, grant the UNSC the power to deal with situations that pose threats to international peace
and security.
65
Situations and Cases, Available at < www.icc-cpi.int/>, Accessed: 1 June 2011; Chapter VII of the UN grant the
UNSC the power to deal with situations that pose threats to international peace and security.
66
Press release, the Prosecutor of the ICC opens investigation in Darfur, Available at www.icc-cpi.int/, Accessed: 1
June 2011.
67
ibid
68
id

172
what the Statute refers to as the principle of complementarity provides that certain cases may
be inadmissible even though the court has jurisdiction i.e. if it has been or is being investigated
or prosecuted by a state with jurisdiction.69 Therefore, powers of the ICC with respect to the
crimes referred to in Article 5 of the Statute is still within the limits of the principle of
complementarily which is the most decisive functioning power of the ICC.70

Complementarity of the International Criminal Court

History has told it that the international community established an international permanent
criminal court within the context of tension between ending impunity and national sovereignty. It
was set up in the shadow of the end of the Cold War - complementary to the national criminal
jurisdictions.71

The Statute recognizes that the Court is complementary to national criminal jurisdiction.72
Paragraph 6 and of the Preamble and Article 1 spots that primarily every state has the duty to
exercise its criminal jurisdiction over those responsible for international crimes over which the
Court has jurisdiction under Article 5 of the statute.73 The Court exercises its authority on crimes
under its jurisdiction, as a means of last resort, after all the available judiciary remedies in the
national jurisdiction failed. Its when national courts prove unwilling or unable to investigate
or prosecute the defendant, that the ICC can require the national government to surrender the
targeted perpetrator to the ICC.74 Thus, the principle of complementarity rests on two basic
pillars: safeguarding respect for the primary jurisdiction of states; and efficiency and
effectiveness to put an end to impunity.75

Emphasizing the primary responsibility of states - under conventional and customary

international law - to investigate and prosecute international crimes, the Statute specifically
provides that a case is inadmissible before the ICC where the case is being investigated or
prosecuted by a state which has jurisdiction over it. Accordingly, Article 17 of the Statute
provides that the Court can only intervene when:

69
Supra note 2, p. 32.
70
id, p. 60.
71
id, p. 294.
72
See Preamble of the Rome Statute of the International Criminal Court.
73
Supra note 19, p. 39.
74
Supra note 2, p. 289.
75
Too much of a good thing? : ICC implementation and the uses of complementarity, Available at
<http://ssrn.com/abstract=1537213>, Accessed: 25 December, 2010, p. 3.

173
a) The case is being investigated or prosecuted by a state which has jurisdiction over it, but this
state is unwilling or unable genuinely to carry out the investigation or prosecution;
b) The case has been investigated by a state which has jurisdiction over it and the state has
decided not to prosecute the person concerned, but such decision resulted from the
unwillingness or inability of the state genuinely to prosecute;
c) The person concerned has already been tried for the conduct which is the subject of the
complaint; however, the trial is done for the purpose of shielding the person concerned from
criminal responsibility for crimes within the jurisdiction of the court or if its not conducted
independently or impartially andor was inconsistent with an intent to bring the person
concerned to justice. (Article 20, Paragraph 3); or
d) The case is not of insufficient gravity to justify further action by the court.76

Hence, the exception under the principle of complementarity where the Court may act is when
the state is unwilling or unable to genuinely to carry out the investigation or prosecution.
However, unjustified delays in proceedings as well as proceedings which are merely intended to
shield persons from criminal responsibility will not render a case inadmissible before the ICC
since its designed to complement existing national judicial systems at their failure.77 It should,
in addition be noted that, even upon referral by the Security Council, the fundamental feature of
ICC remains complementary to national criminal jurisdictions.78

The principle of complementarity creates an incentive to states by calling upon them to Prima
facie investigate and prosecute the core crimes of the ICC Statute, which have been committed
within their national jurisdiction.79 This reminds states of their duty to strengthen their legislative
capacity to exercise criminal jurisdiction over those responsible for heinous crimes and enhance
their international cooperation to confront the persistent problem of impunity.80 This is, in other
words, known as positive complementarity approach.81As M. Cherif Bassiouni noted:

The ICC was never intended to be a supra-national legal institution nor would it have
been accepted as such by most states. It was conceived as a treaty-based international
legal institution of last resort that would preserve the primacy of national legal systems

76
See supra note 19, p-39; see also Article 17 of The Rome Statute.
77
Supra note 19, p. 39.
78
Supra note 2, p. 61.
79
Supra note 11, p. 42.
80
Supra note 19, p. 39.
81
Nidal Nabil Jurdi, 2010, Some lessons on complementarity for the International Criminal Court Review
Conference, Available at <papers.ssrn.com/so13/papers.cfm>, Accessed: 25 December 2010, p. 6.

174
 of the contracting parties, while offering a jurisdictional resort of convenience for the
Security Council and for non-party states wishing to avail themselves of the courts
capabilities .82

In short, a principle that insures that the judgments of a domestic court are not replaced by the
judgments of an international court83and they maintain their sovereignty. Nevertheless, its a
kind of disciplining devise that suggests about the real world consequences with states if they
dont implement their criminal jurisdiction.84

The ICCs complementarity principle in many ways serves as the functional heart of the courts
judicial structure.85 As discussed somewhere in the above section, its more practical to restrict
the principle of complementarity to those national jurisdictions that have direct nexus to the
criminal conduct (territorial jurisdiction) or the accused (personal jurisdiction). The rationale
behind this is forum conveniens.86 Here, national jurisdictions are convincingly presumed to be
the ones in a position to collect evidence and testimony of the crime, but are unwilling or unable
to act.87 Their cooperation is obviously essential to effective prosecution. Thus, if the principle of
complementarity is applied with regard to any possible basis of jurisdiction, there is a risk of
thwarting the essential aim pursued by the creation of a criminal international jurisdiction.88

The Impact of Complementarily on State Sovereignty

The International Communitys decision to incorporate the complementarity principle in the
preamble of its final draft statute was intended to provide plausible compromise between
national sovereignty and the courts jurisdiction.89 These are assurances that the Court would not
exercise jurisdiction over crimes committed within states territorial borders seemed necessary
for they would not willingly transfer their sovereignty to the ICC otherwise.90 Thus, while states
retain their primary right to investigate and prosecute, under the principle of complementarity,
ICC acts as a backup justice system to trump states sovereignty in the event that national

82
Supra note 2, pp. 294-295; See also Article 12(3) and 13(b) of the Rome Statute.
83
Supra note 2, pp. 86-87.
84
Supra note 89, p. 2.
85
Supra note 11, p. 42.
86
Supra note 2, p. 59.
87
id, p. 67.
88
id
89
Supra note 11, p. 42.
90
ibid

175
mechanisms fail to punish heinous conducts.91Thus, the Statute reflects states agreement over
how to institutionalize international criminal justice system while still protecting national
sovereignty.

Complementarity appears as a mechanism devised to maintain the balance and shape the Courts
operational dynamics. Be that as it may, the ICC teeters between values of sovereignty and
internationalism. As the international criminal institution and national courts have concurrent
jurisdiction over the most serious international crimes, there inevitably will be conflicts between
the two jurisdictions.92 Consequently, the principle of complementarity, at the same time, creates
a curious pair of conflicting forces and, hence, a dilemma for the Court itself. While wanting
states handle cases, if states generally discharge their primary duty to prosecute crimes, the Court
will not be given anything to do and will have no cases. But, the Court, on the other hand, needs
exemplary and successfully nation handled cases. This is because the Court wants to prove itself
to the desire of International Community and the states parties to see concrete evidence that the
ICC is a meaningful and useful institution.93
[

One perspective to these conflicting forces stresses that the ICC limits itself in exercising
jurisdiction without the consent of a sovereign government that could otherwise exercise
jurisdiction on its own. This ideology indicates that the ICC does not violate or erode the
principle of state sovereignty and there is little reason to fear that.94 What the ICC does is to
provide a mechanism where states are actually encouraged to exercise their legislative and
adjudicative jurisdiction which is an important part of state sovereignty.95 In fact, if there is to be
a fear, it should be a treat that ICC will become dormant if complementarity shields states from
the jurisdiction of the ICC 96

91
id
92
On the principle of complementarity in the Rome statute of the International Criminal Court , Available at
<chinesejil.oxfordjournals.org/cont> , Accessed: 5 June 2011.
93
The International Criminal Court: current challenges and perspectives, Available at <law.wustl.edu/../kaul.pdf>,
Accessed: 14 May 2011.
94
Supra note 2, p. 88.
95
International Criminal Law vs State Sovereignty: Another Round|?, Available at <ejil.oxfordjournals.org/
../979.full>, Accessed: 5 June 2011.
96
Supra note 2, p. 88.

176
As Steven C. Roach argued, complementarity principle resolves the effects arising from the
political tensions between universal jurisdiction and state sovereignty.97In addition, Cherif
Bassiouni in his book entitled The ICC in Justice asserts that:

It is not a supranational body, but an international body similar to existing ones The
ICC does no more than what each and every state can do under existing international
law the ICC is therefore an extension of national criminal jurisdiction consequently
the ICC does not infringe on national sovereignty. 98

Accordingly, the Court seeking to exercise jurisdiction in a hostile way: trying to exercise
jurisdiction against states actually trying to conduct their own proceedings is seen to have proved
very far from reality.99 If anything in the ICCs cases, states evidence no intention of trying
certain crimes even mock proceedings for the purpose of holding off ICC jurisdiction. Uganda
and Sudan are good examples. In the Al-Bashir case, Sudanese officials affirmed that they
cannot conduct investigations in Darfur due to the ongoing conflict. The ICC then started to try
the case because Sudans judicial system made no step to investigate or prosecute the case. For
whats worth, states have even gladly affirmed that they are unwilling or unable to prosecute
(Uganda).100

Its known that the court faces structural weakness as it is fully dependent on state cooperation in
its execution. So, in addition to regarding to the principle of complementarity, this respect is also
seen to indicate that a states sovereignty was meant to prevail.101

In this aspect, a study indicated that, paradoxically, creation of the ICC was an exercise of
sovereignty. The only entity that could create a permanent International Criminal Court was
states.102 In creating the Court, those States have accepted that the ICC may exercise some of
their sovereign powers (the right to exercise jurisdiction) in a certain arrangement.103Thus,
sovereignty is not always an enemy because without sovereignty there are no courts and without
courts there are no prosecutions.104

97
Supra note 11, p. 41.
98
Supra note 76.
99
Supra note 89, p. 14.
100
ibid
101
Supra note 174.
102
Supra note 76.
103
id
104
id

177
On the hand, its argued that the idea behind ICC is a use of state sovereignty for international
ends. State sovereignty is a powerful concept in international law. Therefore, states will hold
firm to retaining control over domestic prosecutions and make it to remain as part of the
sovereignty of a nation.105 Unless, its in the self-interest of the state to refer these matters to
international tribunals, they will be reluctant to admit to judicial inadequacies that would transfer
a case to the ICC.

States retain such attitude because there is an argument derived from national interests that states
have joined an institution that is apparently very taxing in terms of sovereignty. 106 Sovereignty
is also one of the reasons why states would not want to join the ICC.

One aspect of this is seen in the case of referral by the Security Council under Article 13(b) of
the Statute and Chapter VII of the UN Charter where pre-trial procedure and notification is not
necessary. In this case, this is because the principle of domestic jurisdiction is not supposed to
work in favour of states.107 But this does not prevent any state with jurisdiction over the situation
referred by the Security Council from informing the prosecutor that its investigating or
prosecuting the case or it has already investigated or prosecuted it.108 Nevertheless, the skip of
the pre-trial procedure and notification of states might be taken as a loose pre-caution taken to
safeguard sovereignty of states to investigate and prosecute crimes within their jurisdiction.

Studies reveal that, in order to guarantee impact of complementarity on states ability and
sovereignty, a state party should adopt legislation according to the requirement of
complementarity principle envisaged in the Rome Statute so as to allow national judicial systems
to have jurisdiction over the crimes prohibited by the statute.109

In sum, there is an underlined recommendation that complementarity must not function as a

principle that separates the national from the international jurisdiction or puts them in conflict
with each other, but as a principle, that in fact requires interaction between them while keeping

105
Supra note 2, p. 89.
106
ibid
107
Supra note 2, p. 66.
108
ibid
109
Supra note 173.

178
the court in an avant-grade position110; as long as a states legal system is prepared to pursue
alleged perpetrators, the court should limit its power from prosecuting.

Therefore, it is the researchers heartfelt belief that it is important to closely analyze

complemenaritys attitude towards the construction of sovereignty which is very ambivalent. On
the one hand, complementarity is a presumption in favour of national jurisdiction and, on the
other, complementarity is also a treat to a state sovereignty. Thus, the researcher here holds that,
as the wording shows, the Court should only complement and not replace national jurisdictions.
Here, it should be noted that its also necessary to avoid the risk of any state abusively invoking
the principle of complementarity in its own favour, thus hindering the role of the ICC. However,
this is not to disregard the fact that this is a complex system and apparently needs more time to
be fully accepted and adhered to by all concerned in order to develop its full potential.

The Dichotomy between Peace and Justice

In the exercise of the ICCs jurisdiction, to prosecute perpetrators who bear the responsibility for
the most serious crimes of international concern, the court confronted involvement of a dilemma.
This is often described as the peace versus justice dilemma. For an institution whose mandate is
to strengthen peace by providing an avenue for justice, the two seem to go along. But this is not
the case witnessed.111 Different interests may intersect during this process of rendering peace and
justice i.e. the process of one may disrupt the other. In other words, the outcome of the peace
negotiation may be affected by the proceeding in the justice system. Contradictions may arise on
the question which should be the primary objective. 112 While some argue that there is no peace
and no reconciliation without punitive justice others say justice can be at any time but peace
should be grabbed at a moment.
[

After the Security Councils first referral to the ICC of Bashirs indictment, the long lived
potential of serving the purpose of justice without compromising peace in prosecution of persons
responsible for serious crimes was put into question.113 The issuance of the warrant has inspired

110
supra note 2, p-77
111
Afua Hirsch, Peace v Justice: the ICCs dilemma , available at www.guardian.co.uk/commentisfree/20.., accessed
4 June 2011
112
Ibid
113
Awol k.Allo(2009), Mayhem in Darfur: The Accountability, Peace and Immunity Debate, Mizan Law Review,
Vol.3 No.1., Addis Ababa, Ethiopia, p-84

179
intense debate about whether criminal proceeding against Bashir would bring even more
violence and conflict to Darfur and destroy any hope of peace.

Peace or justice, what is right is difficult, but one is affecting the other and cannot seem to go
along simultaneously, in most cases of ICC. Thus, its crystal clear to see that the indictment has
split opinions. Some have applauded the ICC for taking the pursuit of justice to the highest level.
But others fear it could shut off any chance of ending the Darfur conflict through negotiation by
making the government more hostile. Accordingly, the writer seeks to make a critical analysis of
whether the concern for justice truly jeopardizes the effort for peace in the particular context of
Darfur.

International organizations (like the Arab League, African Union, Organization of the Islamic
Conference, and Non- Aligned Movement), individual states, Advocates, policy makers and
others have protested against the indictment and demanded for the immediate suspension of the
situation. They requested the Security Council to defer the situation, using its power under
Article 16 of the statute, by raising the fact that the prosecution of AL-Bashir results a threat to
peace and perpetuates the suffering of civilians.114

Ongoing peace negotiations exist in some of the cases where ICC opened investigations. For
instance, while the prosecutor indicted President Omar Al-Beshir, there were progressive peace
negotiations between his government with southern Sudan and with Darfur rebels. Accordingly,
when African Union demanded the Security Council for the deferral of the proceeding of ICC
against Al-Bashir, the basic reason was the fear that the indictment may undermine the delicate
peace process of the Southern Sudan and affect the ongoing efforts aimed at facilitating the early
resolution of the conflict in Darfur. Similarly, the LRA leaders also have demanded immunity
from ICCs prosecution in return for an end to the insurgency even though the government of
Uganda didnt accept. These individuals are mostly crucial in the peace efforts. Al-Bashir had a
prominent role in the referendum of Southern Sudan as a president of the Khartoum government.
The referendum which took place in Southern Sudan form 9 January to 15 January 2011, on
whether the region should remain a part of Sudan or become independent, was the centerpiece of
the 2005 peace deal that ended two decades of conflict between the majority Muslim north and

114
Ibid; See also Article 16 of the Rome Statute, which allows the Security Council to order the suspension of ICC
proceedings for up to one year, with the option to renew the suspension for an unlimited number of times.

180
largely Christian south which left two million people dead. Furthermore, Al-Bashir was also
involved in the ongoing peace negotiation with the rebel groups in the Darfur region. On the
African- European summit in December 2010, on this regard, while the African Union expressed
its confidence in the leadership of Al-Bashir to bring Sudan into a new era of peace, the
European Union highly objects the impunity of Al-bashir while simultaneously urging him to
implement Sudans 2005 north-south peace accord. This shows that such EUs stand on Al-
Bashir is the junction of peace and justice in the action of ICC and internal peace negotiations.115

On the other hand, there are others who argue that the indictment will rather induce the president
and alleged co-perpetrators to aggressively pursue peace than jeopardizing the progress towards
peace and exacerbating the conflict.116 The Security Council held in this regard that justice and
accountability are critical to achieving lasting peace and security in Darfur.117 Consistent with
this assertion, Jurist Guest Columnist Saira Mohamed of Columbia Law School appealingly
says:

Any decision by the UN Security Council to stop the ICCs proceedings against Sudanese
President Omar Hassan Al-Bashir by using its power under Article 16 of the Rome
Statute would render the ICC a mere bargaining chip, which not only worsen the
situation in Darfur, but also would vitiate any power the fledgling Court might have to
secure accountability and deter future crimes.118

She asserts that justice is an integral part of peace: without accountability, atrocities continue
without cost, and peace becomes more remote. She points out, before the government of Sudan
waged war in Darfur; it has been burning villages and killing civilians in Southern Sudan
throughout the 1990s without one condemnation by the Security Council. At that time there was
no international court to try the perpetrators of those crimes. But now that the ICC can hold
perpetrators of international crimes accountable, the same mistake need not be made
again.119Further, if leaders are convinced using Article 16 to come to the negotiating table to stop
attacking its people it poses not only a danger to the people of Darfur, who will continue to

115
ICC Press Release, UN Secretary General visits ICC, available at www.icc-cpi.int/../press+releases/, accessed: 3
April 2011
116
See supra note 194
117
Id at p-85

118
Saira Mohamed, Instrumentalizing International Justice: Dont halt the Bashir case, available at <jurist.law.
pitt.edu/forumy/2009/03/>, accessed: 4 June 2011.

119
Ibid

181
suffer, but also to the ICC and to all efforts at international justice, which will be seen as nothing
more than political tools and once it becomes clear that justice is merely political, its power to
compel any action at all will evaporate.120

In summarizing her argument, Saira states that justice is more than a tool; its an end in itself.
Suspending ICCs action when the treaty to peace triggered by the warrant results solely from
the calculated action of the defendant and when there is no peace process to protect, would serve
only to strengthen the climate of impunity that has reigned in Darfur, to ignore the suffering of
victims and to further erode the rule of law in Sudan.121

Further on this aspect, on a peace and justice session held during the review conference in
Kampala, the president of the International Center for Transitional Justice Mr. David Tolbert
stated that the long term benefits of pursuing justice far outweigh any short-term benefits of
amnesties.122

Former UN Secretary General Koffi Annan, in suggesting the need of striking a balance between
the competing interests by crafting a workable strategy that participate both the Prosecutor and
the Government of Sudan captured the following terms:

Justice, peace and democracy are not mutually exclusive objectives, but rather, mutually
reinforcing imperatives. Advancing all three in fragile post-conflict settings requires
strategic planning, careful integration and sensible sequencing of activities. Approaches
focusing only on one or another institution, or ignoring civil society or victims, will not
be effective. Our approach to the justice sector must be comprehensive in its attention to
all of its interdependent institutions, sensitive to the needs of key groups and mindful of
the need for complementarity between transitional justice mechanisms.123

In a nutshell, while no single approach can fully resolve this debate, its unquestionable that
international law demands prosecution of gross violations of human rights and humanitarian law.
Even if there is a competing interest at hand, prosecution should be considered to the extent
practicable. If prosecution is impossible or dangerous to the integrity of the nation, a cautious

120
Id
121
Id
122
Press Release, Stocktaking of International Criminal Justice: Peace and Justice, available at www.icc-
cpi.int/Menus/ASP/pressrelease.., accessed: 4 June 2011.
123
Supra note 194, p-87

182
and comprehensive step- based approach must be adopted as a minimum standard.124 The writer
is also of the same opinion. Peace and justice are complementary and can never be mutually
exclusive.125

The International Criminal Court: Effectiveness in enforcing its decisions & legitimacy

State cooperation for the effective functioning of the International Criminal Court

The court has faced, from satisfying multiple constituencies of proving its effectiveness to
dealing with a lack of financial resources and enforcement mechanisms.126 What is expected
from the Court and from the wider system of international justice in the future is for the court to
recognize that it has primary responsibility to demonstrate its credibility in practice through
consistency of cases brought before the court and; fair, impartial and efficient proceedings
consistent with due process and proper administration of justice.127 As Benjamin N. Schiff
notably explained in his book, the courts profound effects may be measured from different
perspectives. He illustrated:

If it deters criminality or leads states to tighten their domestic laws and enforce
international humanitarian norms, it could be considered successful. On the other hand,
it may be deemed irrelevant if potential perpetrators dont recognize it as a treat, if its
efforts are thwarted by non-cooperation or lack of resources, or if victims regard it as
useless in their search for justice. The court could become an unprecedented, sterling
achievement or it may be a great idea whose time has not arrived.128

But since the Court lacks enforcement mechanism and will never be able to end impunity alone,
its ultimate success will critically depend on the cooperation of states. International organizations
and civil societies also provide a considerable level of assistance. The Court will require
cooperation from states at all stages of the proceedings, such as investigation, making arrest and
enforcing penalties.129 Correspondingly, The Rome Statute stipulates that state parties shall fully
cooperate with the court in its investigation and prosecution of crimes within the jurisdiction of
the Court and to comply with requests for arrest and surrender of a suspect within their territory.
It also requires that any state (even a non-party state) can give any other cooperation as may be

124
ibid at p. 80.
125
States which participated at the review conference in Kampala on a peace and justice session also affirmed the
same.
126
Supra note 2, p. 284.
127
ibid, p. 291.
128
Supra note 33, p. 2.
129
Supra note 2, p. 291.

183
necessary to facilitate the works of the prosecutor and provides for Cooperation Agreements to
be agreed on an ad hoc basis between the Court and non-state parties.130 In addition to the states
where crimes were committed or wanted persons are located, all states in a position to provide
cooperation can assist the Court.131 State parties are also expected to ensure that there are
procedures available under their national law for all forms of cooperation, which are specified
under the Rome Statute.132 The UN Secretary- General Ban Ki-moon echoed this obligation by
stating that: To succeed, the ICC must have universal support and states that have joined the
court must cooperate fully with the court. That includes backing it publicly, as well as faithfully
executing its orders.133

While the ICC and the UN cooperate on a regular basis, it is also developing its cooperation with
regional organizations as well. The court entered into a cooperation agreement with the EU.
There is also a role of cooperation by the Organization of American States (OAS). Coming to
NGOs and civil societies, they are also instrumental to the Courts work. They play a large role
in urging ratification of the Statute, assisting states in developing legislation implementing the
Rome Statute; they also have a critical role in broadcasting information about and building
awareness of the ICC. In addition, local NGOs may possess knowledge which is directly relevant
to the Courts work in the field.134

As the ICC lacks a centralized enforcement mechanism and its dependent upon state
cooperation, the task of its judicial power will, therefore, depend on public perception of its
fairness and efficiency of norms and the role of NGOs in promoting and upholding the ICCs
legal standards of fairness.135 Accordingly, some countries indeed evidenced such assistance to
the court.

The Abu Garda case is an encouraging example of cooperating with the ICC, as a number of
African and European nations, including The Netherlands, Chad, Senegal, Nigeria, Mali and
Gambia, worked with the prosecutor to secure Mr. Abu Gardas presence in The Hague. Mr. Abu
Garda, leader of the Sudanese Insurgency - the United Resistance Front, appeared voluntarily

130
See part IX International Cooperation and Judicial Assistance (Articles 86-102) of the Rome Statute of the ICC;
See also Article 54(3) (c) and (d) ; and Article 87(5) of the Statute.
131
Supra note 2, p. 291.
132
Article 88 of the Rome Statute of the ICC.
133
International Criminal Court: call for nations to join ICC, Available at www.loc.gov>..>Law, Accessed: 20 June
2011.
134
Supra note 2, p. 291-292.
135
Supra note 11, p. 3.

184
before the ICC on charges of war crimes allegedly committed in Darfur, Sudan. Though its not
promised if the voluntary surrender of Mr. Abu Garda will set a precedent for future cases before
the ICC, such cooperation is always welcome for the court.136

To add another case, On 11 October 2010, Mr. Callixte Mbarushimana, a leader of the Forces
Democratiques pour la Liberation du Rwanda (FDLR), was arrested in Paris, by the French
authorities following an arrest warrant issued by the International Criminal Court. Callixte
Mbarushimana is the first senior leader arrested by the ICC for the massive crimes committed in
the Kivu provinces of the Democratic Republic of Congo. The arrest is the result of almost two
years of investigations conducted by France, Germany, DRC, Rwanda and the ICC, into the
activities of the FDLR. In this aspect, the ICC prosecutor Luis Moreno-Ocampo showed his
gratefulness to these states and indicated that its a clear example of positive complementarity
in action.137

However, such cooperation is not true in all cases. Cooperation with the ICC has sometimes been
problematic. In fact, most states parties lack political will to cooperate with the ICC.138 In this
respect, Steven argues that the Court has not yet lived up to its expectations and has got teething
problems in deterring or at an action aimed at stopping the violence caused by the targeted
perpetrator.139

The situations in Congo, Sudan and recently in Libya reveals lack of political will to cooperate
with the ICC which is highly undermining the courts mandate. The Government of Congo after
referring the situation to the ICC and transferring three leaders of armed group, refused to
transfer another suspect, Bosco Ntaganda, despite an arrest warrant issued by the ICC in 2006.
The execution of the arrest warrant is obviously impossible without cooperation of the
government of Congo who at the first place referred the situation to the Court.140

The Courts other short coming as a result of non-cooperation is also evidenced in the case of
Sudan as discussed in the previous subjects, where the ICC prosecutor has not yet aggressively

136
Mark Ellis, The ICC and the Gaza conflict ,2009, Available at www.ibanet.org/Document/Default.aspx,
Accessed: 28 October 2010.
137
ICC Press Release, New ICC Arrest: Leader of movement involved in massive rape in the DRC is apprehended
in Paris, Available at www.icc-cpi.int/menus/icc/situation.., Accessed: 5 June 2011.
138
Supra note 11. P. 3.
139
ibid
140
Supra note 2, p. 227.

185
enforced the crimes committed in Sudan.141 Following the decision of the Security Council not to
accept its request to defer the proceeding against Al-Bashir, the AU has been pressing its
members not to cooperate. Since its request has never been acted upon, the AU stated that: The
AU member states shall not cooperate pursuant to the provisions of Article 98 of the Rome
Statute of the ICC relating to immunities for the arrest and surrender of President Omar Al-
Bashir of the Sudan.142

Many African countries believe that detaining Al-Bashir would disrupt the effort to end conflict
in Sudan, refused to cooperate with the Court. Besides, the effort to bring peace in the state
countries, and mostly African countries, intend to reserve their peaceful relation in security,
political and economic relations with the country-, specifically neighbours.

Thirdly, the same is seen in the case of Libya in a resolution adapted on 26 February 2011, where
the United Nations Security Council decided to refer the situation in Libya to the ICC. Warrants
were against Gaddafi, his son, Saif Al-Islam Gaddafi, and the countrys intelligence chief
Abdullah Al-Senussi for ordering, planning and participating in illegal attacks of murder and
persecution of civilians during the crackdown by Muammar Gaddafis regime on anti-
government rebels. Because the Security Council ordered the ICC investigation on Gaddafi for
crimes he committed against humanity across Libya, all UN member states would be obliged to
arrest him if he ventures into their territory.143 The European Union underlined its full support to
the ICC, saying it plays a key role in the promotion of international justice and called for full
cooperation of states with the ICC. The Sudanese Government has openly rejected the Courts
jurisdiction and refused to cooperate with investigations. 144

Having said that, whatever obstacles that the Court can resist, its a truism that the Court will
have major difficulties in succeeding if it does not receive a proactive cooperation. Without the
intermediary of national authorities in the investigation and prosecution of cases, the
International Criminal Court can not operate effectively. Thus, keeping this in mind, the

141
ibid, p. 284.
142
AU Doc Assembly/AU/13(XIII), 3 July 2009, Decision on the meeting of African States parties to the Rome
Statute of the International Criminal Court , Available at <reliefweb.int/node/318220/pdf>, Accessed 4 June
2011.
143
ICC prosecutor to reveal details of Libya case, Available at < www.seattlepi.com/news/article/ICC...>, Accessed:
29 June 2011.
144
ICC urges all states to cooperate on Libya case; EU supports it, Available at www.kuna.net.kw/../
ArticleDetails.aspx, accessed 29 June 2001.

186
jurisdiction of the Court to prosecute a certain situation, states, regional organizations and civil
societies should be encouraged to take an unreserved view in cooperation and support for the
Court.
[

ICC as a Political Institution: Myth or Reality?

[

To ensure that the Court would be a purely judicial institution and would act in a purely judicial
way, the guarantee of a fair trial and protection of the rights of the accused have paramount
importance before the ICC.145 By definition, ICC is a non-political institution run by an
international judicial body and entitled to make its own decision based on the rule of law. The
Courts credibility and effectiveness also depends on the realization of such an spire purpose it is
intended to achieve. However, there is an anxious debate around the world that the ICC is a
Western biased political institution. It is accused of selectively pursuing justice by focusing on
investigating suspected criminals mainly from Africa.146

Since the creation of the ICC, its focus has mainly been on Africa. There are currently six active
investigations before the Court. The Court opened investigations in the Democratic Republic of
the Congo, Sudan, Uganda, the Central African Republic, Kenya and Libya many of which
countries are involved in ongoing conflicts. More recently, the ICCs prosecutor requested
authorization from judges to open an investigation in Cote dIvoire.147 This seemingly exclusive
focus on Africa has led to accusations of the ICC being yet another vehicle for Western
imperialism. It left the Court open to protest and criticism over its inevitable lopsidedness, by
African states and their supporters.148

On the Thirteenth Ordinary Session of the Assembly of the African Union held from 1 to 3 of
July 2009, the African countries generally accused the ICC for focusing only on the African
continent while other crises exist elsewhere in the world.149 They said:

145
Supra note 2, p. 285.
146
African Legislators See bias in ICCs workings- Geopolitical Monitor, Available at www.geopoliticalmonitor.
com/african..., Accessed 29 June 2011.
147
Ghana politics: ICC issues arrest warrants against Muammar Gaddafi, Available at <wwwghanapolitics.
blogspot.com>, Accessed: 29 June 2011.
148
D. Greenberg, African Union Declaration Against the ICC not what it seems, Available at
<http://www.fpif.org/articles/african union declaration against the icc not what it seems>, Accessed: 29 June
2011.
149
ibid

187
 While the ICC is keen on investigating war crimes and crimes against humanity, in
Kenya, Uganda, Sudan, the court is sitting on numerous complaints against Western
leaders who are accused of causing untold suffering from wars they started in the Middle
East.150

Numerous African leaders have accused the ICC of being nothing more than a tool of Western
imperialism, arguing that the Court is merely the newest way for the West to exploit the
continent.151 Officials from the ICC, however, argue that the accusations lacked substance
because the Constitution of the Courts judges panel is demonstrated by judges from Africa.152
In an interview held in July 2009 between Lorrain Smith, International Bar Association (IBA)
Programme Manager, and the former president of the ICC Judge Philippe Kirsch about his
perceptions of the ICCs achievements and challenges, he responded that:

There is a misconception that the Court is targeting Africa. This is demonstrably false,
as clearly illustrated by the fact that of the four African situations before the Court (back
then), three were referred to the Court by the states themselves, and the fourth was
referred by the UNSC. And also, there are five African judges now in the court. This is a
case where lack of knowledge and inaccurate information are harmful to the ICC.153

There can be many reasons why ICC is sticking to African states. Though its clear and
acknowledgeable that international crimes are prominently committed in Africa, its also true
that such crimes are also committed outside of Africa. The difference lies in the agenda setting
and decision making privilege the West enjoys over the rest of the world that once again is
rooted in the Third Worlds economic dependency has also projected to dependency in law. The
Global North is in a better position to cover their commission of crimes. If President Al-Bashir is
indicted for crimes within his country, there should be no reason not to charge the previous
President of the USA George W. Bush for the crimes in Iraq and Afghanistan.

The other reason that can be attributed to the ICC act of avoiding the north is its political
economy. Of course, any institutions existence is dependent on fund for its functioning.
Similarly, ICCs investigation, prosecution and adjudication are dependent on the fund of the
Court which is mainly collected from state parties which have responsibility to pay assessed
contributions. In addition, funds from United Nations and donations from entities, individuals

150
Supra note 238.
151
Supra note 240.
152
Supra note 238.
153
Supra note 228.

188
and any other non-member states are accepted. Each states contribution is based on the
countrys capacity to pay, which reflects factors such as national income and population. As we
can see on the report of the committee on Budget and Finance, the payment rate between the
North and the South have a wide gap.154

Japan

Rest of Asia
Japan, 19.00
Latin America
Rest of Asia,
3.00
Africa
European Union, Latin America,
51.90 5.40 Canada, Australia and New
Africa, 0.80 Zealand
Canada, Australia Rest of Europe
and New Zealand,
6.80 European Union
Rest of Europe,
2.90

Source: ICC, 2008, ICCs Budget in 2008.155

Figure 1--The Contribution of the ICC Budget in 2088 (Millions)

Between the years of 2007 and 2010, even some African countries have been banned from giving
vote since they are late in their outstanding contributions and minimum payments required
according to Article 112 of the Rome Statute. Here, what we can generally observe is that ICCs
fund is almost dependent on the contributions of the northern countries. This may create an
imbalance as going against the interest of the north may affect the whole existence of the Court -
the ICC would not want to prosecute the one who is paying its salary.

154
Report of the Committee on budget and finance on the work of its Fourteenth Session, July 2010, Available at
www.icc-cpi.int..>, Accessed: October 28 2010.
155
International Criminal court contributions 2008, Available at <en.wikipedia.org/wiki/file>, Accessed: 9
November 2010.

189
More critically, after the African states had concluded that they are either unwilling or unable to
act quickly or forcefully enough to apprehend suspects, the court began to seek support from the
country that has shown itself willing and able to wield military force across the globe: the United
States. 156 This creates a concern that it would bring the danger of trading its independence to a
state with its own exclusive political agenda. Heavily depending on a state that is not even party
to the Statute may pose a dramatic danger to the maintenance of the purpose and power of the
court.

Recently, the US Government has declared its interest in working more closely with the ICC -
not with the intent of becoming a party to Rome Statute (the ICC treaty), but to help execute
arrest warrants. Akin to this, the US Council of Foreign Relations report recommended that the
Obama administration does not ratify the ICC treaty, but consider boosting its cooperation with
the court in such areas as training, funding, the sharing of intelligence and evidence and the
apprehension of suspects. And also, the US announced the creation of a new military command
for the continent, AFRICOM157 in 2007. As Samare and Adam asserted:

This may bring questions as of what it will mean for justice and rule of law if the ICC
comes to rely heavily on the military capacity of a single state- a state with its own
military agenda and interests in Africa- as its enforcement arm, in particular when the
state declares itself the law it claims to enforce. The ICC appears to be trading its
independence in return for access to coercive force, a bargain that will be made at the
price of the courts legitimacy, impartiality and legality. But the price paid by the ICC
will be trivial compared to the very dangerous possibility that this alliance could help
justify and expand US militarization in Africa, in particular in conjunction with
AFRICOM (Africa Command), at a dramatic cost to peace and justice in the continent.158

They argue, the appointment of AFRICOM as the ICCs police officer in Africa, may provide
cover for US military operations. And its hard to imagine that the ICC, in its reliance on US
enforcement capacity would be able to avoid politicization and not fall into the trap of
prosecuting only those the US is willing to capture, regardless of crimes committed. This is
because US could exert its influence by threatening to revoke funding or support for the court or
by interfering with internal workings of the court. Moreover, they appealingly summarize it

156
Samare Al-Bulushi and Adam Branch, AFRICOM and the ICC: enforcing international justice in Africa?,
Available at www.blackagendareport.com/, Accessed: 1 June 2011.
157
AFRICOM is a unified combatant command of the United States Department of Defense that is responsible for
U.S. military operations and military relations with 53 African nations.
158
Supra note 248.

190
saying that if the ICC is seen as working hand-in-glove with US interests in Africa, its legitimacy
may end up fatally damaged.159

Therefore, what some people see as a solution to the ICCs lack of enforcement capacity in fact
pose a dramatic danger to peace and justice in Africa and to the future of the ICC itself. Its
decision to indict certain actors and not others has triggered suspicion of the Courts
susceptibility to power politics. Whichever the reasons, the researcher strongly adduces that
selective justice is clearly manifested in the prosecution of the International Criminal Court and
such act resembles an injustice that will take away the aspiration of the courts pursuit to the
opposite, i.e. justice.

Conclusion and Recommendation

Conclusion

The creation of the ICC was a truly historic achievement, more than fifty years in the making,
but its creation was only the beginning. The roots of this long struggle can be traced to the Hague
Conventions and later to the League of Nations, whose failure ultimately lead to the
establishment of the United Nations. The court was finally set up in the shadow of the end of the
Cold War. The court now stands as a permanent institution capable of punishing perpetrators of
the worst offences known to human kind. It can build an important impact by putting would-be
violators on notice that impunity is not assured and serve as a catalyst for enacting national laws
against the gravest international crimes. Consequently, the ICCs impact for domestic law and
national capacity building will be significant and far- reaching.

When the ICC was established in 2002 through the Rome Statute of the International Criminal
Court which govern the Courts jurisdiction and condition of operation, its creation was a great
achievement. The Statute has introduced a number of striking unique characteristics. Among
them, the Statute of the Court for the first time explicitly and specifically embodied the principle
of complementarity. This principle guides that the Court and it is structured to have a backup
role to national systems, the ICC steps in only when national courts prove unable or unwilling to
do justice, and provided the case is of sufficient gravity to justify action by the Court. The Court
may affirm its jurisdiction only when it identifies a gap in state jurisdictions. The gap may range
from legal barriers (including amnesties, immunities, non retroactivity, statutes of limitations) to

159
ibid

191
lack of independent judiciaries, lack of capacity, and security problems. These gaps may be the
consequence of a breakdown of the institutions of a state; but it may also be caused by poor
administration of justice.

The most serious aspect of the evolution of the Court is the link between state sovereignty and
accountability. At the heart of the complementarity principle is the understanding that the most
serious crimes of concern to the International Community must be prosecuted at the national
level for reasons of forum conveniens and that ratifying the statute will mean joining the global
movement to end impunity. Its in the best interests of the ICC that national courts create
stronger national criminal justice systems that conform to international legal standards. The
allegations of state sovereignty should also mean to keep the court complementary to state
jurisdiction and not to replace them or put them in conflict with international jurisdiction using
the complementarily principle.

Recommendation

The first phases of newly established institutions have not always resulted in the best practices.
Such institutions need time and experience to find their proper path. But, before winding up, the
following points are forwarded by the author to be taken into consideration in the Courts pursuit
of legal justice.

Because the Courts jurisdiction is limited to national and territories of states; parties,
continued ratification of the Statute is essential to the Court having a truly global reach
and strengthening its aspiration of bringing legal justice. Steps should be undertaken to
facilitate and to promote the importance of ratifying the Rome Statute. Especially at a
national level, acts such as appointing ICC focal points within governments would be of
great help.
To counter allegations of the Courts objectivity in determining its jurisdiction
unilaterally, the International Community in the next review conference can consider
establishing an independent Third Party Advisory Council to provide unbiased instructive
recommendations on whether such decision is objective, impartial, and non- political.
States should be assisted, encouraged, and even pressured to act and to end impunity
before the ICC seizes jurisdiction. They are in the best position to handle the context that
is specific to the place due to the social and cultural attachment and avoid the externality
of the Court to the situation. The practice of international human rights mechanisms like

192
 naming and shaming by the periodic reports of the UN Human Rights Committees,
working groups, and reporters to the Human Rights Council could be helpful in this
regard. Accordingly, ICC can report states that are able and willing but still refrained
from acting to the International Community. This will, at least, exert pressure on non-
complaint states.
State cooperation is a golden thread that underlies the Rome Statute. Executing arrest
warrants is very important in building efficiency and confidence in the Court. There
should be a multilateral effort to have suspects apprehended. States should pledge at the
review conference or at future sessions of the Assembly of State Parties (ASP) to adopt
implementing legislation within a particular timeframe and to enter into a framework
agreements with the ICC on important areas of assistance identified by the Court. ICC
State parties should take steps to facilitate cooperation at a national level, such as by
appointing ICC focal points within governments.
As the issue of cooperation extends beyond the issue of technical provision of assistance
diplomatic way of support which includes political support for the Court in the
international, diplomatic pressure on states to cooperate is another way of support. It is
important for states to share best practices on cooperation. The ICC should also work for
the alternative enforcement mechanisms in addition to strengthening cooperation of party
states or, otherwise, depending only on some powerful states which will ultimately lead it
to be a toothless Court.

193
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