7 June 2018

Ethiopia: Do Reforms Ensure Healthy Economic Prospect?

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

Following the Ethiopian People's Revolutionary Democratic Front (EPRDF) Executive Committee's decision to allow domestic investors secure shares in mega projects and transfer public enterprises to the private sector, economists are urging the government to implement the new reform carefully as it would ensure healthy economic prospect.

For some, the decision is directly related with the need to speed up Ethiopia's structural transformation.

Over the past ten years or so, the Ethiopian economy has registered double digit economic growth. But, the structural change over the years could not correspond to the growing economy. It required the introduction of new ideas and thinking to overcome structural problems, Eyob Tekalegne, economist and Director at Schuze Global Investment tells The Ethiopian Herald.

To support his claim with evidence, Eyob raises the case of the telecom sector which could not cope with the rapidly changing state-of-the-art technology due to foreign currency shortage.

True, the rationale for the Ethiopian state to maintain ownership of the telecom sector is with the belief that the government sits in a better position to make infrastructural expansion to rural areas with a bid to ensure fair distribution of wealth among citizens. Yet what is needed at this point in time is to improve quality and maximize benefit, he adds.

But now some people are confused whether the ruling party has changed its long held ideology or not as it aspires to bring viable changes and reforms in the economy without changing its revolutionary democratic ideology, Eyob further emphasizes.

At this in point time, some of the issues need to be taken seriously, Eyob notes mentioning Ethiopian Airlines, one of the successful state owned companies with huge success and that has always been the pride of Ethiopia as case in point.

The government should not implement the reforms at all institutions at once. The reforms should be taken by protecting the macro economic progress as well as the progress of the institutions, he stresses.

In general, "it is a promising strategy and big changes would come afterwards. However, every single action should be taken carefully."

The decision would have great impact on the overall economy. Obviously, due to the shortage of hard currency, many factories have been operating with 20 to 25 percent of their capacity. Gross Domestic Product has been in decline.

When the income from the sale of share is released in to the economy, it would help overcome the challenges and once the private investors are carefully selected, their presence in the economy would raise the coefficient.

As to him, the decision would not be taken as a means to get foreign currency; rather it aimed at boosting economic growth. And then the government would be able to focus on key areas of development.

Most of the mega projects have been inefficient and bankrupted. Hence, the decision is imperative to sustain the economic progress and help the private sector flourish than ever before. "The government has lost a lot of capital in sugar projects and the involvement of the private sector is expected to ease this situation. Take sugar protects in to the case, the government has lost much of its capital," Eyop opines.

As the private sector will highly involve in the economy, special attention must be given to improving logistics. The decision would make the economy participatory and sustainable.

Frankly speaking, Eyob says, instead of sticking to some ideology, the government has to be pragmatic and pursue reforms that fit the situation of the time, he states.

In fact, social democracy is a path to adopting neoliberal political economy, as to him.

Gebrehiwot Tesfaye (PhD), another economist for his part says in economic development, the most important player is the private sector and with the presence of vibrant private sector, there would always be progress.

Dr. Gebrehiwot says the gradual and researched transfer of public institutions to private investors would have positive impact on the economy.

"The privately owned enterprises will be more effective and efficient than the public owned ones," he says adding "we have witnessed that the public sector faced shortage of foreign currency to finalize the mega projects which could be attributed to inefficiency. And this makes the decision to reform a timely one."

When the government has designed the Growth and Transformation Plan (GTP-I and II), it has assumed that the mega projects would be implemented with the support of foreign loans. However, such loans were not made available and this resulted in foreign currency shortage. Thus, the reform seems to be the only option to accomplish the mega projects.

"What makes me happy is that fact that the government prioritizes domestic investors," he adds.

The idea is not new; it was there within the party, especially as the government failed to finance the mega projects such as sugar factories, railway, and telecom infrastructure and so on.

"The reform is not ideological change; it is rather a means to sustain the economy. This strategy would not take us to pure neo-liberalism," Gebrehiwot adds.

But the reform does not mean that international investors would suddenly come and invest in Ethiopia. The government needs to make extra works to make sure that there is stable security situation.

Creating confidence of the private sector and ensuring rule of law is the other thing that needs focus of the incumbent. Over the past three years, some of the factories of private investors have been destroyed [because of the unrest in some parts of the country]. In any means, the government should take the responsibility and pay compensation to this investors. But this and others measures would take time, Dr. Gebrehiwot adds.

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