Ethiopia's move to partner directly with foreign investors
Sunday March 15 2020
Ethiopia’s reformist Prime Minister Abiy Ahmed announced last year that he intended to change how the country does business, by converting government agencies to freely accept private investors.
Public enterprises have been around for nearly three decades, indicating the kind of challenge he was taking on.
Previously, only small entities could be privatised. Now it is applicable to the country’s large utilities.
However, the change in policy attracted public criticism.
“Abiy Ahmed has moved too fast to privatise the enterprises without conducting any convincing studies. Policymakers were not involved to determine the appropriate privatisation methods” said Tsegazeab Gebremariam, an economic researcher and head of the Department of Economics at Mekelle University.
Mr Gebremariam argues that the most efficient and weakest companies should have been first identified, discussed and announced to the public before proposing them for selling.
“In my opinion, privatisation of key state entities is PM Abiy’s personal decision propelled by pressure from Western nations,” he said.
Ethiopian government officials say the objective of divesting large state firms to private hands is primarily to boost the economy and to create job opportunities by improving performance and introducing competition among monopolised sectors.
But Asefa Bitew, an economic analyst and development consultant based in Addis Ababa says that is not the case.
“The recent privatisation programme rather intends to generate much needed hard currency and to address hefty foreign debt payments,” Mr Bitew said.
He says the country’s economic and budget constraints will not be solved through privatisation.
“Privatisations could temporarily ease the country’s dire foreign currency shortage, however I don’t think the government has thoroughly looked into the potential implications,” he added.
Concerns have been raised about its implementation include absence of strategic plans and experts.
“Implementation is fast approaching since foreign companies are making agreements with the federal government, but still it is slow due to absence of a strategic plan and the exclusion of professionals, especially citizens,” said Mr Gebremariam.
“The most resounding argument against privatisation is the complete disregard to the public interest, which is promoted in public enterprises such as access and affordability of services.
“Unless the government makes sure that such interests are considered through regulatory mechanisms, the private interest which aims at profit may disfranchise citizens from public or essential services,” he added.
Despite lack of a regulatory and institutional framework to implement the plan, Ethiopia has invited private investors to take shares in state companies including in the highly profitable Ethiopian Airlines and Telecom.
According to a source from the country’s Ministry of Finance, some foreign companies have already shown interest in taking over Ethio-Telecom, and other corporations proposed for sale.
“The privatisation of some of the key state-owned enterprises is ongoing. This can be gathered from the practical measures being taken at sugar factories and the telecom,” said Tewodros Meheret, a researcher on Ethiopia’s privatisation.
“Whether the momentum will continue or not is to be seen though the government policy that seems to be in favour of opening up and the free market,” he added.
Western, European and African companies are trying to reach agreements and some key private enterprises are also seeking investors.
“Being a strategic industry, national security is a concern even for developed countries when the sector is left to private operators, Mr Meheret said.