Institutional Reforms Must Precede Ethiopia’s Privatization Schemes

Yohannes Gedamu, Addis Insight

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Yohannes Gedamu (Ph.D
Ethiopia’s young reformist Premier, Abiy Ahmed, has outlined his administration’s vision for the country in a well-received speech as well as the question and answer session, that was conducted at the request of Ethiopia’s House of Representatives on Monday, June 18th, 2018. After the inaugural speech he delivered on April 2, 2018, the Prime Minister’s latest public performance at the floor of the parliament has been lauded by many in Ethiopia and the diaspora. The reform agenda, which critics had referred to for its lack of details, was also adequately addressed by the Premier.

Ahmed has defended political and economic reforms:

Among others, the Prime Minister has addressed concerns raised by parliamentarians on wide-ranging issues of ethnic tensions and evictions, the idea of privatization project outlined by the Executive Council of EPRDF and the sensitive issue of the new administration’s plan to end the so-called ‘no war and no peace’ stalemate between Ethiopia and Eritrea. The back and forth between the Premier and parliament members also showed the clear divide within the incumbent coalition, EPRDF. As such, EPRDF seems to have two easy to point factions; these are those who support the reform agenda as sketched by Ahmed’s vision and those who attempt to keep the status-quo afloat.

The public concern over privatization plans is legitimate:

The Premier’s performance has inspired so many and his vision seems more visible by the day as his idea of Ethiopian nationalism has now emerged as a uniting force in a country ravaged by ethnic tensions and decades of divisiveness. Ethiopians from all walks of life have even started a campaign to organize a massive rally in support of his reform agenda in the capital, Addis Ababa. Coming to his latest public speech, however, one of the new administration’s agenda, as explained by Ahmed, deserves further clarifications. The idea of privatizing giant state-owned enterprises such as Ethiopia-Telecom, Ethiopian Electric Corporation (EEPCO) and such well recognized national brands like Ethiopian Airlines and many others has aroused so many questions. The Prime Minister has attempted to calm down worries of Ethiopians who perceived the privatization agenda as auctioning the country. Ahmed addressed the issue saying the majority shareholder of such giant corporations will remain the Ethiopian government. Moreover, Ahmed also assured the public that the process could take more than two years and further plans will be unveiled to the public in a transparent and timely manner.

In that regard, it is crucial to look at what is behind the government’s proposal for partially privatizing such corporations. Ahmed has unequivocally stated that the country is experiencing an acute shortage of financial muscles that it needs to conduct formal businesses. According to the Premier, giant government projects are slowing down or are temporarily paused and private enterprises are suffering from dire scarcity of foreign currency, which essentially hurts the country’s ability to import much-needed goods significantly. Furthermore, Ahmed has also stated that Ethiopia is now unable to pay its debts in a timely manner, which also hurts the country’s ability to seek more funds in loans from international financial institutions and countries in addition to potentially damaging its credit rating. Therefore, besides solving such problems, Ahmed stated that such partial privatization programs would help increase the state-owned enterprises’ tendency to adapt to new technologies through funds that are to be raised while also improving efficiency and accountability of the said entities when it comes to service delivery. Regardless, a much deeper assessment of the economic problems the country is facing deserve renewed attention from scholars and government officials.

The Developmental State Economic Programs Deserves Timely Revisions:

Here is why. While Ahmed’s rationale in selling the idea of privatization to the public has claimed many, issues of major concern remain unaddressed. And the problem is very much embedded in Ethiopia’s economic model known as the developmental state economic growth and development strategy.  It has been almost a decade since Ethiopia started to experiment with the developmental state economic growth prescription as its motto for economic development. United Nations Economic Commission for Africa (UNECA) and African Union’s endorsement of this approach for economic development at the time also strengthened the country’s commitment to implement this approach for its economic development aspirations. Unfortunately, despite double-digit growth for much of the years since the country adopted the model, the economic well-being of Ethiopians has deteriorated. Among others, mass emigration of its labor force to the Gulf countries and the West (many have also drowned crossing deep waters of  Mediterranean and Red Seas), continuing brain-drain of its skilled citizens, and massive state corruption have been major problems that overshadowed the achievements of the developmental state paradigm.

This is not to argue that developmental state programs will not bring about economic success. Instead, it is to point that Ethiopia’s government under the leadership of late Premier, Meles Zenawi, had either inadvertently or purposely ignored the need to build strong state institutions ahead of adopting such a model for economic growth and development. States such as Japan and other South East Asian countries’ implementation of developmental state programs, by increasing the government’s active involvement in the economy has indeed helped them achieve stellar results. But this was thanks to their strong institutions. In the case of Japan, the Meiji Dynasty had left behind strong institutions that have kept consecutive political administrations responsible and accountable. Therefore, economic programs and investments relying on such economic model were successful since such strong and mostly democratic institutions had ensured the effective functioning of regulatory mechanisms. For instance, Japanese government ministries, most importantly, Ministry of Trade and Industry (MITI) are very much known for their strict enforcement of the laws of the state. Their successful regulatory institutional apparatuses also enabled the developmental state model to succeed and the country to thrive. In other Far Eastern countries, strong institutions were also either left by colonial powers or were built from scratch ensuring successful capacity building processes on their own.

Coming to the case of Ethiopia, without strong institutions serving as watchdogs of state-sponsored development projects, the country has lost billions of dollars. The Sugar corporations are the example that many Ethiopians mention. However, beyond closely looking at cases of corruption, the EPRDF, the ruling coalition that oversaw such unsatisfactory implementation of economic strategies should also admit mistakes and accept the blame for the majority of missteps leading to such economic failures. Today, such state-owned business enterprises are not only administered by EPRDF loyalists. But also, the board of directors of such organizations mostly constitute state ministers and leaders of EPRDF member parties. That needs to change if the government strives to bring about change on the basis of promotion of accountability and programs driven by scientific studies and evidence. Institutional reforms not only would help interdependent political and economic plans but if introduced and enacted properly, they would raise the public’s trust in the economy and increase private investments and encourage entrepreneurship. Moreover, such institutional reforms would also help ensure the proper implementation of the privatization agenda and eventual transformation of the country’s economy towards the adoption of capitalist free market principles as a long-term economic strategy.

To that end, besides creating new regulatory watchdogs and strengthening independent institutions, the Premier should also invite Ethiopian experts to engage across ranges of issues to help realize the practicality and eventual success of the country’s reform agenda. Ahmed’s administration in that regard is a departure from the past since its public statements already show Ethiopia’s renewed commitment and readiness towards the unveiling of a new political and economic chapter. Whether such needed institutional reform will be introduced and materialize, however, remains to be seen.