Ethiopia to open up most state entities
Addis Ababa — Ethiopia is open to selling off a host of state-owned firms, partially or entirely, as part of major economic reforms designed to “unleash the potential of the private sector”, its information minister said on Wednesday.
Ahmed Shide said the government of Prime Minister Abiy Ahmed, which has announced a slew of shake-ups since coming into office in April, would retain majority holdings in the state-run airline, logistics, telecoms and energy companies.
Everything else, from hotels and sugar farming to cement production, could be up for sale, with the exception of the tightly controlled financial services sector, whose fate was yet to be decided, he said.
“The main objective of this is to encourage private sector development in the country,” Ahmed said, making clear that the nation was turning the page on decades of reliance on the state to drive economic growth.
State development projects
“The role of the private sector is very fundamental.
“We did a lot of state development projects. Now we need to unleash the potential of the private sector,” he said.
Ahmed did not give a time-frame for the privatisations but said the government was tendering for advice from global business consultancies including McKinsey and PwC.
“The detailed planning is not complete but precautions will be made not to have mistakes,” he said. “So we will do it with caution,” he said.
Having come to power less than four months ago, Abiy has turned the nation on its head with his bold plans to reshape politics and the economy.
Besides his stated desire to attract foreign capital into one of the continent’s most closed states, Abiy has brokered peace with archenemy Eritrea. In a sign of the speed of the rapprochement, the first commercial flights from Ethiopia to Eritrea in 20 years took off early on Wednesday, just one week after Asmara and Addis Ababa buried the hatchet.
Although it has been one of Africa’s fastest-growing economies, Ethiopia’s export sector, mainly garment manufacturing and farming, has struggled to take off. The economy is thus not generating enough dollars to pay for imports.
The foreign exchange shortages have been exacerbated by the government’s enormous investment in infrastructure over the last decade. With some notable exceptions, such as Ethiopian Airlines, the state firms that lie at the heart of the economy are poorly run by inexperienced political appointees with links to the security services or the ruling EPRDF coalition. The banking sector is dominated by the state-run Commercial Bank of Ethiopia, which controls more than half of the sector’s assets and remains stuck in a time-warp. There is no way to transfer funds between banks, which puts a massive dampener on basic economic activity.
Kenya’s Safaricom is poised to roll out its popular M-Pesa mobile money service, sources say, raising hopes the technology that has changed the face of Kenya’s economy since 2007 will do the same in Ethiopia.
“It’s really going to alleviate their liquidity constraints,” said Jacques Nel of Cape Town-based consultancy NKC African Economics. “People will be able to start using this electronic currency and won’t have to waste time looking for birr or foreign currency,” Nel said.
Abiy’s reforms, especially his peace deal with Eritrea, have gone down well with external investors, driving the yield on Ethiopia’s debut 2014 eurobond down from 7.6% a month ago to 6.6% this week.