22 August 2018

Ethiopia's Private Sector Competitiveness Needs Serious Boost

Ethiopia is entering the international waters of global economy more and more, as the country is joining and signing agreements to liberalize the market for goods and services across the continent, and for multilateral trades. Currently, Ethiopia is in the process of accession to the World Trade Organization (WTO), while it has also signed the African Continental Free Trade Area (AfCFTA) agreement last March. This means that domestic firms will be facing stiff competition from foreign companies.

So, in light with these developments and external economic factors, the country's private sector will have to be in a position to compete with international firms. The competitiveness of the private sector is not only important for them to perform and survive in the international market, but it is also crucial for overall economic growth, rising income, and providing jobs for the youth.

As a country, Ethiopia can only be competitive trade wise at the international market, when the private sector is competitive, says Tilaye Kassahun, Associate Professor at St. Mary University and Managing Director of Print National. And to that end, the government has to change its mindset, and should push forward a private sector-led development and growth by preparing policy platform, and overseeing monitoring works, he adds.

It is hard to say that there is highly organized private sector in Ethiopia so far, he says before adding, "So, the sector should be strengthened and capacitated by preparing various funding and financial incentives, advisory and monitoring service, and trained manpower."

In addition to this, platforms where international investors partner up with local investors should be facilitated. "Through this, the economic management system (of private firms) will learn, borrow their technology and enhance their capability. Such kind of structure/platform should be prepared."

On the side of the private sector, Tilaye indicates that they should not be expecting everything from the government. The first order of things is that they should invest heavily on human resource. "Having degree or diploma does not mean they are ready. So, they should train their work force with business-savvy, suitable training."

The other thing the Associate Professor mentions is the need of encouraging risk taking culture in Ethiopia's business landscape. "If they want to be good entrepreneurs, they should be risk takers." On top of this, they should carry out their business through a prism of long term strategy, and not through arbitrary and random move in order to gain short windfall gain, he notes.

The sector should benchmark domestic companies like Ethiopian Airlines that has broken into the global market. In this regard, Dr. Tilaye, says that through his consultancy and training work, he has seen many potential companies that can follow suit like MIDROC Technology Group, among others.

As it can be recalled, as part of major economic reforms aimed at unleashing the potential and, by extension, the competitiveness of the private sector, the country has opened up a host of state-owned firms for sell, partially and entirely.

Amin Abdella, Reaserch Fellow at Ethiopian Economics Association, says that the move can be beneficial for the local investors, but suggested liberalization, more than privatization, as the better move to bolster the competitiveness of the sector. Otherwise I am afraid it would just be transferring from one monopoly to another, he reiterates.

Making his case, he points out: "If we liberalize the telecommunication sector, for instance, [instead of selling its share], companies like Vodafone or Safari.com may come and compete with Ethio-telecom on price, service and other areas. And through this process, the consumer will get quality service and better price, while the local companies benefit from the competition."

In addition, as to Amin, participating in the global value chain is important for creating new opportunities for profits and expanding the market horizon, and thereby enhancing competitiveness.

"There is nothing a country can do by isolating itself, and should be part of the global value chain. A company in Ethiopia should identify its place in the global value chain, and participate and be part of that. As there might be an input Ethiopia imports, or a part that the country produces, the company can have a role to play in that."

According to him, a more competitive Ethiopian company can come from the agro-processing sector, as the country has a better environment for agriculture, and a relative comparative advantage, he opines.

Stating that the country's private sector is weak as the economic growth was mostly state-driven, Eyesuswork Zafu, Board Chairman of Hibert Bank, believes that firstly an enabling environment, where there is an equal field of competition for the private sector, should be created.

While mentioning how the recent decision to privatize some of the big public enterprises will stimulate the private sector, he recommends calculated affirmative action from the government side in order to boost the competitiveness of the sector.

Moreover, he says that the private sector cannot be forever shielded, as things that forces a change in this approach are coming up. "Last March Ethiopia has signed the African Continental Free Trade Area (AfCFTA) agreement. So, some foreign companies will come here to compete with us, and vice versa. Kenya's private sector is way ahead of us. But, if you say we should close up until we reach their level, it is not going to work as they will not sit and wait for us. So, we should take some calculated risk."

He underscores that liberalization must be planned, paved and sequenced; and that the country should liberalize gradually. Many countries have gone through this path, and we can get valuable experiences from them, while financial institutions like IMF, World Bank and African Development Bank can also provide us technical assistance, he concluded.

All in all, all three agree that the sector needs serious boost, both from within and outside the sector, in order to be competitive in the current world economy, which is becoming more and more internationalized.

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