Ethiopia’s Journey To Privatization: Demise To Developmental State?

By Gedion G. Jalata – The Ethiopian government on 5 June 2018 announced to undertake partial and complete privatization of major state owned enterprises. According to the government: Railway Service, Sugar Plants, Industrial Parks, Hotels and other manufacturing enterprises could be transferred to the private sector partially or fully while Ethio-Telecom, Ethiopian Airlines, Hydropower Plants and Martime Transport Enterprises, the government will retain controlling stake and transfer the rest to domestic and foreign investors.

The government necessitated such a move in an effort to boost and modernize the country’s economy. However, information is not unveiled whether the financial sector will be open for foreign investors or not.

There have been some underlying factors that necessitated such move including the persistent foreign currency shortage; the deficiency of state-owned enterprises in undertaking corporate reforms; promoting the private sector development in the economic development of the country and the increasing debt threshold of the country.

Indeed, the journey to privatization started in 1994 when the Ethiopian government launched the Privatization Program in accordance with Proclamation No.87/1994. The government consequently established the Ethiopian Privatization Agency by law and subsequently privatized public enterprises of different size and operating in different economic sectors.

In this regard, several public enterprises such as large and medium scale industries, small firms operating in the retail trade sector, agriculture enterprises, hotels and tourist attractions have been transferred to the private sector. Certainly, this is high time to study the impact of past privatization in the country in order to draw an important lesson before we embark the new initiative on privatization.

For or Against Privatization?

There are fierce debates for and against privatization. Proponent of privatization argues that it has some advantages in general such as private enterprises are interested in making a profit, and are more likely to cut costs and be efficient than public; privatization also helps to generate revenue required for financing development activities undertaken by the government.

Nonetheless, many opponents argue that privatization leads to less accountability, deterioration in services and may not necessarily ensure efficiency gain as some research on privatized state manufacturing enterprises – beverage, textile and leather sectors- in Ethiopia indicates. Likewise, the privatization of Kenya airways did not bring the expected result. On the converse, the government of Kenya has been trying to bailout the airlines. The government, therefore, has been trying to buy more shares from the airlines to regain its former control.

Furthermore, opponents of privatization argue that privatization may not be necessary If sufficient measures are taken to create a level ground for fair and free competition between public and private firms and when public enterprises acquire autonomy with a challenge to determine their existence through market forces.

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