18 June 2018

Ethiopia: How Will Privatization of Mega Enterprises Benefit Ethiopia?

Photo: Ethio Telecom
Ethio Telecom.

The recent decision of Ethiopia's ruling coalition EPRDF has fueled optimistic perspective among various sectors of the society and scholars who also forwarded advice that due care should be made on the transfer .

As per the decision, private investors would be able to buy complete or partial shares of public enterprises aimed at promoting efficiency and productivity, enhancing sustained growth and at the same time ensuring the accountability of management.

Dr. Atlaw Alemu, Head of Economics Department at Addis Ababa University, believed that the partial sale of shares of public enterprises such as the lucrative telecommunications market, or the well-established Ethiopian Airlines are welcomed and encouraged if their shares can be sold for both domestic and foreign investors.

According to Dr. Atlaw, the main thing that the Ethiopian government needs to be aware on privatizing such enterprises is the financial and management capability of private investors.

"Certainly, there may be many efficient private investors that could operate in huge investments. But, they need to be effective service providers, highly competitive and make huge profits while they plan to buy shares from such lucrative state-owned companies," he commented.

For instance, "the electricity sector is the one that should be privatized as it is less efficient in providing service for the society; even it doesn't apologize during repeated power interruptions. This could happen because it has no other competitive companies which are engaged in the sector," he exemplified.

Dr. Atlaw also believes that privatization would not affect the affordability of the service in terms of charge, because companies may compete each other either for delivering effective service or attracting customers with reduced cost.

As the goal of privatization is generating revenue from profitable enterprises, and reducing losses and government subsidies, the sale of partial shares for private investors would not bring negative impact on the economy too, he said.

The other economist from Development Bank of Ethiopia, Million Timer agreed with the significance of privatization of public enterprises as they have been faced with lack of foreign currency for the purchase of inputs. In this regard, Million noted that the Ethiopian Airlines is now encountered with debt that used for the purchase airplanes with huge foreign currency.

Obviously, the country has recently devaluated its currency. In this case, if the airplane were bought some years ago with low exchange rate, the interest rate would rise and urge the country to pay huge interest rate. Hence, if private investors entered in to shareholder, they would also share the burden of foreign currency shortage, he added.

Similarly, Million also believes that these public enterprises must be partially sold for domestic investors rather than foreigners, because the revenue from such enterprises will also be for domestic income. But, it is also essential to provide some part for foreign investors that demands foreign currency, he commented.

"With no doubt, privatization is significant to increase productivity and improve service delivery. But, as the Ethiopian Airlines is the country's prominent figure, it needs special care and attention from the government while transferring to private firms."

Regarding the telecom sector, Million said that the Ethiopian Revenue and Customs Authority (ERCA) is losing huge direct revenue due to lack of support from the telecommunication service. On the other hand, Ethio-telecom announces securing huge profit from its own service delivery.

This indicated that Ethio-telecom has limited capacity to provide adequate technical service to those demanding efficient telecom support to enhance their internal service provisions, he stated.

If the sector could be privatized, those which need telecom service, like ERCA, would have a chance to select their appropriate telecom partner, that will provide uninterrupted support for their productivity as well as service delivery, Million argued.

Likewise, one of Africa's money transfer companies, Dahabshiil, perceived that the privatization of public enterprises is optimistic that will enable Ethiopian diasporas contribute to the development of their country, and foreign investors to play a positive role in the country's growth.

Approached by The Ethiopian Herald through electronic email, Dahabshiil Chief Executive Officer Abdirashid Duale pronounced that the partial and complete sale of shares of key economic sectors has now opened opportunity for Ethiopian citizens and foreign investors to work and invest in Ethiopia.

As the country's economy is growing at a faster rate, the decision to sell partial stakes of public enterprises is a timely action to maintain the country's rapid and sustainable economic growth, Duale said.

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