9 June 2018

Ethiopia: Reform Success Relies On Presence of Strong Domestic Investors

Dr. Tilaye Kasahun

The recent EPDRF Central Committee's decision on privatizing and semi-privatizing State-Owned Enterprises (SOEs) and mega projects, has been considered by different scholars as a crucial reform in the country's stride towards structural economic transformation.

But taking in to consideration the existing reality in the country, some economists argue that the realization of this decision would depend on the existence of strong domestic private sectors in the country at present.

Dr. Berhanu Denu, economist tells The Ethiopian Herald the presence or absence of efficient private sectors would have its own impact on achieving the targeted goals, particularly in terms of transforming the economy, increasing service delivery, forex earning and creating jobs.

Meanwhile, Berhanu, also an Assistant Professor at Addis Ababa University (AAU), doubts if there are domestic sectors with efficient capacity to handle the high technology intensive enterprises like telecom, airlines, commercial bank etc. as well as mega projects that are operational and under construction.

He also argues that even if there has been significant GDP growth, the privatization of several sectors, like farms and mining sites, over the past two decades did not bring a trickledown effect on the public's wellbeing. As a result, "transferring such huge enterprises and projects that have been the nation's major economic gears and assets of the public, to the private investors is a task that should consider well disciplined and organized public-private partnership. This could include the existence of private investors free from parochial or only profit centered

business ideas," he notes. Dr. Samuel Tefera Associate Dean of the College of Social Science Research and Technology Transfer at AAU, on the other hand utters that privatization would bring efficient marketing and production system. But this would happen when new and state of the arts technologies are introduced in the privatized or semi privatized companies. And this requires, bringing efficient private companies to the sectors. However, the major challenges that the reform would face based on Samuels view is the occurrence of sector fragmentation. The private investors may concentrate on a single profitable sector in a big institution. This would cause the downfall of the big organization which was run together while under the state ownership. "If we take the Ethiopian Airlines Group, it comprises of different sectors like the airline, civil aviation etc. But profit may not increase in all the sectors at the same time. Therefore, if the private companies who involve in this sector only see the profit and not the big institutional structure, interest conflicts may occur and affect the business," he underscores. Mesenbet Shenkute, Management Consultant at a private company, for her part argues that large development companies have been under the ownership of the State due to the misconception that private investors focus only on profit. "The capacity of local private companies to handle big developmental companies was also under question mark for years. But there has been improved performances if we see the experiences of formerly privatized sectors," she says. According to her, the privatization or semi-privatization of these companies would not only improve service delivery but also increase capital and resolves the foreign exchange problem that the country has been facing. Speaking of the current capacity of domestic private companies, Mesenbet says many strong companies are emerging and would play in value addition of the services of the abovementioned sectors. "Even if the domestic investors couldn't have generated the knowledge and technological access, they can afford to buy and transfer it to the local youth. That way we can build our leadership and skilled human capacity," she stresses. Meanwhile, Dr. Tilaye Kasahun, Business consultant and Associate Professor at St. Mary's University, for his part says, EPDRF's decision was a transformational step. It would bring certain change on the national economy at macrolevel. However, several evaluations must be undertaken while selecting private sectors to secure share in these mega companies, he adds. "If these companies have to continue with their profitable pace, both the government and the private investors should work on principles that go beyond self-interest," emphasizes Tilaye.

business ideas," he notes. Dr. Samuel Tefera Associate Dean of the College of Social Science Research and Technology Transfer at AAU, on the other hand utters that privatization would bring efficient marketing and production system. But this would happen when new and state of the arts technologies are introduced in the privatized or semi privatized companies. And this requires, bringing efficient private companies to the sectors.

However, the major challenges that the reform would face based on Samuels view is the occurrence of sector fragmentation. The private investors may concentrate on a single profitable sector in a big institution. This would cause the downfall of the big organization which was run together while under the state ownership. "If we take the Ethiopian Airlines Group, it comprises of different sectors like the airline, civil aviation etc. But profit may not increase in all the sectors at the same time. Therefore, if the private companies who involve in this sector only see the profit and not the big institutional structure, interest conflicts may occur and affect the business," he underscores. Mesenbet Shenkute, Management Consultant at a private company, for her part argues that large development companies have been under the ownership of the State due to the misconception that private investors focus only on profit.

"The capacity of local private companies to handle big developmental companies was also under question mark for years. But there has been improved performances if we see the experiences of formerly privatized sectors," she says. According to her, the privatization or semi-privatization of these companies would not only improve service delivery but also increase capital and resolves the foreign exchange problem that the country has been facing. Speaking of the current capacity of domestic private companies, Mesenbet says many strong companies are emerging and would play in value addition of the services of the abovementioned sectors. "Even if the domestic investors couldn't have generated the knowledge and technological access, they can afford to buy and transfer it to the local youth. That way we can build our leadership and skilled human capacity," she stresses.

Meanwhile, Dr. Tilaye Kasahun, Business consultant and Associate Professor at St. Mary's University, for his part says, EPDRF's decision was a transformational step. It would bring certain change on the national economy at macrolevel. However, several evaluations must be undertaken while selecting private sectors to secure share in these mega companies, he adds. "If these companies have to continue with their profitable pace, both the government and the private investors should work on principles that go beyond self-interest," emphasizes Tilaye.

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