16 May 2018

Ethiopia: Attracting Investment Through Effective Public Sector

It is no secret that effective public sector plays huge role in attracting Foreign Direct Investment (FDI). How the public sector of a country is setup plays a huge role in its effectiveness and efficiency, and ultimately, its capability of getting things done.

While there are other factors and variables at play in terms of a given country attracting foreign investment, chief among them is the effectiveness of the public sector or the effectiveness of the civil service. FDI is critical for the development aspirations of any developing country; therefore, creating an effective civil service sector is indispensable from any nation's growth aspirations.

Some argue that in order for the public sector to be effective, and thereby attract FDI, it should be run as a business especially when it comes to the management of its employees and the monitoring and evaluation of its performance.

With this in mind, the government of Ethiopia has been working on transforming its public sector. According to Tom Pätz and Günther Taube, who have done extensive research on the matter, the reform of the public service in Ethiopia has made good progress over the last 15 years. As to them, the weaknesses from the previous political systems have so far been overcome or at least reduced.

In relation to this the research outcomes indicated that the capacity to implement government programs is improving. And service orientation, transparency and accountability of the civil service have also been improved.

Adebabay Abay is an instructor and consultant on transformational leadership and management. He told The Ethiopian Herald that the target of the public sector reform is to create new institutions, and transform the already existing ones to the level demanded, and its fingerprints can be seen in the various institutions, including those involved in the investment sector of the country. "The reform in this regard has played a catalytic role."

As a result, he continued, one of such a public sector is the Ethiopian Investment Commission (EIC). The commission is the country's spearh eading institution when it comes to investment. And it has recently become an internationally lauded and recognized institution, where it has been recognized for its merits by winning prizes.

As it can be recalled, the Commission won the '2017 United Nations Award' for outstanding performance in targeted promotion, facilitation and execution of sustainable investment projects'.

Making his point further, Adebabay mentioned how the public sector reform has brought positive outcomes to all those institutions that are involved in investment.

He claimed that the reform similarly done in other institutions such as in justice organs, banking sectors, education, and the private sector has helped and aided the mentioned sectors improve their performance, and in some cases, help expand the sectors. In short, the reform has played a catalytic role in attracting investment, he argued.

On the other hand, the flexibility, effectiveness and efficiency seen in the country's institutions that are directly involved in investment comes from the reform process, Adebabay further notes that "If we see experiences from 20 or 15 years ago, we didn't even have such kind of huge numbers of institutions that have focused on attracting and facilitating investment."

In terms of utilizing the country's investment potential, the reform would help in terms of policy directive. Implementing the civil service sector reform means increasing development and regulating institutional capacity.

Despite the importance of the reform, Adebabay points out that it needs to go through all the changing dynamics and varying external environment. And this is a daunting task, as it is very challenging for even developed countries, let alone developing ones like Ethiopia.

He also claim that the country needs to cope up with the growing demand for capacity to attract investment, and this requires capacity building tasks to hasten the momentum of the reform process and further strengthen its implementation.

"Besides, Ethiopia's civil service reform is comprehensive compared to other African countries, as they mostly undertake a single reform with specific target in mind whilst ours is broad, even by the developed countries standard. The aim of the reform is to transform the country, and if we undertake the reform bit by bit, then we wouldn't be able to get out of poverty. It needs to be comprehensive and fundamental."

With this mind, maintaining the good results and further propping up the catalytic role the sector reform played so far would send a strong signal to investors and businesses whilst helping the country build up on the already achieved successful results.


"Priority should be given to ensuring financial and insurance service accessibility"

Dr. Sintayehu Weldemichael

Dr. Sintayehu Weldemichael, Public Finance Agency Director General

Public Finance Agency Director General Dr. Sintayehu Weldemichael held an exclusive interview with Addis Zemen Daily Amharic Newspaper on the overall activities of the Agency and other related issues.

The Director General has served in Ministry of Finance and Economic Cooperation, Amhara Finance and Economy Bureau, Gondar University and National Bank of Ethiopia at various levels before his current position.

He obtained his first and second degrees from Asmara and Addis Ababa Universities respectively in Economics. He also received philosophy of doctorate degree from Austrian-based University of Queens in a similar field. Here is the summary of the interview.

How far has the Agency come in terms of attaining its mission?

Public financial organizations such as Ethiopian Commercial Bank, Ethiopia Development Bank and Ethiopian Insurance Company needed an institution that could work for them as a share company. Therefore, Government Financial Organization was organized so that it could assess and inspect their effectiveness as per the goals they set.

As a result, the agency is given mandate to follow up and pass decisions on these financial institutions' fiscal plan, audit report and other related issues. It also assigns directors, board members and chairpersons. It assesses and approves their yearly plan and budget. It also assigns auditors. Moreover, it also passes decisions after the auditor's report particularly when there is a problem and weak performance. Generally, it works to ensure the benefit of the government on these institutions. The reason to this is that financial organizations have crucial role to fasten the development of a nation by creating strong institutions. And this demands strong firms and modern system.

How do you describe the performance of financial institutions under your supervision?

The Agency plays a significant role through supporting the financial activities of the institutions under its mandate. However, the financial sector has not been yet developed as expected. The institutions are introducing new technologies and modern systems to facilitate their service. Moreover, they are working to make financial services easily accessible to the society.

One of such institutions is the Ethiopian Commercial Bank. The bank has been giving services for over 75 years. It has done various expansion activities over the past ten years. Currently, it has over 1200 branch offices.

Settling market prices and introducing new technologies have so far been the major activities that have been done by it.

The bank including the Ethiopian Development Bank has been supporting government's huge projects by providing loans. They also provide loan for investors engaged in investment, industry and agriculture development sub-sectors.

The Ethiopian Insurance Company on its part contributes a lot in settling prices in the sector. On the other hand, it also plays a significant role in encouraging new insurance institutions. However, much work is still expected form it to advance the insurance sector, as most of its services are accessible only for people with high living standard.

On this note, how do you describe the Agency's engagement in making insurance accessible for low-income earners?

Various things are being done to make the service accessible for a society that earns low income both in urban or rural areas. With this in mind, structure is being setup to make insurance service available for farmers.

What is your comment on the complaints that have been thrown at the Development Bank's loan allocations?

For the past 10 years, loan services were provided for investors who are engaged in agriculture, in order to strengthen the sector to highly support Foreign Direct Investment (FDI). However, there were few problems that surfaced on the loan providing methods. To curb the problem, new system will be formulated, and legal action will be taken on those who are at fault. The punishment is expected to be compatible and appropriate for the extent of the problem. The Ethiopian Development Bank is also conducting research to answer the questions regarding loan returns.

Do you think that the financial institutions are profitable?

Their profit is increasing every year. However, the question should be whether the financial institutions are accelerating the economy, and hastening the accessibility and modernization of bank services. These criteria would not be achieved without having finance. Yet, the banks are profitable in this regard.

How do you describe the Agency's role to the success of these institutions?

The Agency is behind the success of the financial institutions. It is also responsible if there is a failure. Accordingly, I can say that the success is ours.

How do you describe the capacity of the Ethiopian financial institutions?

Their level of capacity is highly linked with capital. Though there is a problem with accommodation of foreign currency, their capital is increasing. Issues of human resource management and technology make their competition difficult with to compete with international institutions.

What is the level government intervention on these institutions?

The nation follows developmental government system. As a result, the government interferes on key issues concerning the nation. There are two major reasons when government intervenes on certain issues. Either there is market gap, or the issue is very critical.

However, the government will stop interfering on the economy once it ensures that the private sector is able to cover the gap. But, whether the government stops interfering or continues is a policy issue; so the issue is always open for discussion by the government.

What are the major challenges that financial institutions often face?

Lack of skilled human power is the first problem of financial institutions. Absence of strong system, technology and poor awareness of societies on the financial sectors are also among the other problems facing the sector.

What are your priorities for the future?

The priority is ensuring the accessibility of financial institutions. The major target is making the Ethiopian Commercial Bank, Development Bank and Insurance Company accessible for all society. These three institutions should provide services in fair price and efficiency for all in shortest time intervals possible. This would help to modernize the saving, loan and payment systems, which would accelerate the development.


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