16 May 2018

Ethiopia: How to Create Vibrant Private Sector?

Rising from an almost non-existent state, the private sector in Ethiopia has become major player that supplements the rapid economic progress of the country, and its transformation to middle-income economy. But how can the government keep the momentum and enhance the private sector's contribution to the overall economy?

Private companies had a long history in Ethiopia prior to the 1974 revolution, when the Marxist government nationalized all major businesses and send a death blow to the flourishing industry. Assuming power in 1991, the current administration shifted the country from command economy to market-oriented one to revitalize the sector.

Dr. Teshome Adugna, Assistant Professor of Development Economics, told The Ethiopian Herald that the viable decision the government made to shift the economic system has brought about commendable results in bolstering the role and contribution of the private sector.

He notes that the commitment of the government to reinstate the economic participation of the private sector is paying off in creating companies that have been playing a pivotal role in job creation and foreign currency earnings.

"Thanks to Ethiopia's favorable investment climate and massive infrastructure and human development, we can now see growing number of privately-owned banks, health institutions, hotels and retail shops; while more businesses and investment projects are in the pipeline," Dr. Teshome adds.

He points out that the government has made strategic moves in the shape of attractive incentive packages, including tax exemptions and custom free importation of capital goods, which drew local investors to engage in joint ventures.

Moreover, Dr. Teshome argues that the government's engagement in regulatory activities will bring tangible achievements, adding that its withdrawal from small-scale businesses contributes a lot in bolstering the role and participation of the private sector.

Kibur Gena

Sharing the above sentiment, the former President of Ethiopian Chamber of Commerce and Sectoral Association, Kibur Gena, says that the various polices, strategies and regulations issued after the demise of the military government have been instrumental in enabling private investors to engage in large-scale businesses and investment projects.

Kibur states that the dedication of the government to create a strong private sector is manifested through the privatization of numerous publicly-owned firms, and creation of inviting business climate.

According to him, the preferential treatment and protection rendered for the private sector paved the way to making a meaningful involvement in the manufacturing, pharmaceuticals, agriculture, agro-processing and other priority sectors.

"The ongoing infrastructural development, including road, electricity, railway and airport, coupled with selective intervention supports the private sector to access foreign markets and enhance international competitiveness," he notes.

Mushe Semu

Another economist, Mushe Semu, also says the government's intervention has proved successful in enabling the private sector to accumulate substantial wealth to address socio-economic challenges, and solve problems associated with the ill-conceived socialist practices

Commending the government's huge involvement in creating strong private sector with better financial status, Mushe, however, states that the current administration needs to tackle corruption, maladministration, bureaucratic and infrastructural setbacks if it is to maintain and enhance the role of the private sector.

He says: "Effective implementation of investment policies, rules and regulations as well as addressing shortcomings in the provision of foreign currency, loan, land and other utilities are crucial for the expansion of businesses."

Similarly, Kibur stresses the need for addressing infrastructural and market related problems, and the inefficiency of the tax system. Modernizing the tax system is essential in controlling fraud and corruption, and in ensuring the benefits of the private sector.

As it poses a threat in the development of the private sector and the national economy at large, the government should give utmost priority to fight corruption and bad governance, he recommends.

Dr. Teshome for his part says that the government ought to ensure attractive business environment through comprehensive provision of utilities and macroeconomic stability.

The Assistant Professor points out that due attention should be given to bolster the involvement of local investors in industrial parks; which is expected to solve issues related to utilities and infrastructures, and encourage them to get involved in the manufacturing industry and help bring structural change.

Furthermore, according to Mushe, enhancing access to loan, foreign currency, technology, knowledge, and quality service to the private sector is instrumental in bolstering the sector's role and its contribution to the economy.

The economist says that ensuring full-packaged provision of utilities and attractive incentives for export-oriented companies is also essential in building their capacity, and in paving the way for them to be engaged in export diversification in the process.

All in all, the experts highlight that the government needs to keep macroeconomic stability, control the unjustified soaring of inflation and address the gaps in order to sustain the growing role and contribution of the private sector. Setting up a more enabling regulatory framework and strong institutions will also be instrumental to the well-functioning of market-oriented economy, and to translating the motto of making the private sector an engine of economic growth a reality.

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