13 June 2018

Ethiopia: The Case for Privatization

Photo: Ethio Telecom
Ethio Telecom is one of the entities that may see more private investment.

The Ethiopian People's Revolutionary Democratic Front (EPRDF) Executive Committee has decided to privatize state-owned mega manufacturing and service delivery enterprises to local and foreign investors. The decision was made at the meeting the Executive Committee of the Party held last Tuesday.

According to Committee's statement, state owned enterprises that are operational or under construction, including industry parks, railway and sugar development projects, hotels and other manufacturing industries, would be fully or partially transferred to the private sector.

In the same way, while the government maintains the lion's share in enterprises such as the Ethiopian Airlines, Ethio-telecom, Electric Power generation projects and the Ethiopian Shipping and Logistics Services Enterprise, local and foreign investors would have stakes.

This economic reform, which is in line with government's development strategy, will bring about inclusive and sustainable growth, modernize the economy and further accelerate the country's economic growth in addition to opening greater opportunities for both local and foreign investors and increase their active participation.

In fact, during the past two and plus decades, the Ethiopian government has been persistently working to bring an end to backwardness, and alleviate the country and its people from quagmire of poverty. To this effect, hence, it has been expanding infrastructures that benefit the general public and investing in areas where the private sector has less or no interest due to fear of huge financial requirements, less profits or delayed returns.

As a result, the country including the construction of the flagship Dam, the Grand Ethiopian Renaissance Dam, has witnessed expansion of key infrastructures such as power and water supply lines, railways, all weather roads, educational and health institutions. Furthermore, thousands of low and middle income citizens have also benefited from the government's housing schemes.

Not only that. As a result to the government's development agendas and investment friendly policies and strategies, investment has expanded all over the country. In turn, massive job opportunities are created and per capita income of citizens has been increasing steadily.

As the world testified it, the country has been witnessing rapid economic growth for successive years with a Gross Domestic Product (GDP) growth rate of 10 percent in average. The level of poverty has also been declining significantly.

However, to sustain the economic development of the country and keep the momentum of the economic growth, encouraging the expansion of the private sector, financing the construction of the mega projects, and privatizing the said key enterprises fully or partially is crucial and a rational decision. Above all, the reform is critical in terms of alleviating the challenges of foreign currency shortage.

Privatization, when it is implemented orderly and carefully, would improve operational efficiencies and service quality, upgrade skills, knowledge and technologies and bring about the desired outcome. To this end, and as well to transform the structure of their economies, a number of countries have been undertaken privatization. However, it is also a fact that some cases also yielded results that are contrary to the expectation.

To reduce such undesirable outcomes, the government from the beginning should be alert in how it is going to take adequate measures to create a level ground for fair and free competition between and among investors, so as to close any opening for oligarchy.

Likewise, local investors should develop their technical and managerial capabilities to effectively manage their industries in the face of the fierce competitive market environment. By doing so we can realize the efficacy of privatization for economic transformation, and come to achieve what we have set out to do.

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