16 May 2018

Ethiopia: Giving Bigger Push to the Private Sector

Being one of the fastest growing economies in the world, Ethiopia can do well to further boost and push the involvement of the private sector.

The private sector is crucial for development; it's no secret, nor a complicated formula to understand. The private sector plays an essential role in increasing productivity and competitiveness, and in reducing unemployment and poverty.

However, the role of the private sector is comparatively small in Ethiopia. This is despite the huge recognition given by the government to the importance of the sector.

Ethiopia has achieved double digit economic growth for the past decade and plus, expanding the size of its economy in the process and overtaking Kenya as east Africa's top economy, according to IMF.

To achieve this tremendous feat, the government had to unlock the private sector that was shackled under the previous socialist regime. And in the process, the government has been able to revive the sector from its deathbed and to nurture and guide it to its current commendable state.

Nevertheless, the role of the private sector in the country's tremendous economic growth has been modest at best. Driven by strong public investment in infrastructure and manufacturing, the private sector has been in its supporting role to strengthen the economic growth.

However, there is a great recognition by the government on the merit of making the private sector to have the protagonist role in its vision of taking Ethiopia to middle income status by 2025.

While the issue of the private sector development was on the back burner during the implementation of the first Growth and Transformation Plan (GTP) as the government was fully mobilizing its effort towards enhancing infrastructure development, the sector's development is given even more attention in the second Growth and Transformation Plan (GTP-II).

Acknowledged as an essential component in key sector areas highlighted in GTP II, the private sector has the opportunity to get involved in the agriculture, industry, service, and trade sector more intensively.

To this end, a number of incentive and support packages including income tax exemption, duty free import of capital goods, and development of industrial parks are designed to encourage the private sector to enhance its role in attaining rapid growth and sustainable development in the country.

Moreover, the government has established a favorable legal framework to promote and facilitate Public-private partnership (PPP), as Ethiopia recently introduced a new PPP law aiming at involving the private sector in infrastructural development.

Considering that PPP provides the tool that can harness the private sector's contribution to an inclusive growth, much is expected of it to drive-up the involvement of the private sector and to make it an essential partner to the public sector in the ongoing effort to realize the country's development objectives.

Even if all this is done to elevate the participation of the private sector in the economy, much still remains to be done in terms of actualizing a thriving and an even more involved private sector.

Many point out the need for providing a series of fiscal incentive to encourage and motivate the private sector to build and operate in the country's industrial development whilst setting up an enabling regulatory framework and a strong institution.

In addition to the strategies and policies the government has so far employed, there are demands to identify additional mechanisms to better harness the private sector's potential to foster the economic transformation and industrialization aspirations of the country. This requires an establishment of a more conducive entrepreneurial ecosystem. It also needs a change of mindset both in the public and private sector.

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