It is widely believed that the government still plays a dominant role in the economy. In fact, as agriculture remains the mainstay of the national economy—on which 80 percent of the population relies in one way or another—the role of the private sector is still nascent.
After the imperial era, when a command economy prevailed, the private sector was barred from large-scale business and was instead forced to engage in cottage industries. Many public enterprises were managed by politically appointed “yes men” who lacked both passion and the necessary professional qualifications. As a result, these enterprises produced below their capacity, and many others faced bankruptcy. The absence of a sense of ownership further aggravated the situation.
State-Owned Enterprises (SOEs) find themselves in an advantageous position when obtaining loans from banks, while only a very small share of loans is extended to the private sector—particularly to construction and hotel firms.
Experience shows that, due to various reasons, most public enterprises are inefficient and ineffective. These issues stem from resource mismanagement, nepotism, and rampant corruption.
On the other hand, bureaucratic hurdles and service-oriented public institutions have hindered private enterprises from unleashing their full potential. High tax rates and inconvenient customs regulations have also crippled them, forcing some to downsize their operations.
To open the economy to both foreign and local private investment, the previous government began restructuring and privatizing public enterprises. Nevertheless, over the last 27 years, although the EPRDF regime announced its intention to aggressively privatize public institutions, the pace of implementation was slower than expected. Some privatization activities were carried out in a non-transparent manner and allegedly favored politically affiliated business tycoons.
Some argue that the privatization of public enterprises is still ongoing. However, enterprises with significant capital remain under public ownership. This indicates that the privatization process is neither full-fledged nor comparable with peer countries that aspire to build a self-sustained, private sector-led economy.
Recently, the Minister of Transport announced that the government has given the green light for foreign investors to participate in selected sectors through joint ventures with local investors.
Among the sectors opened for joint ventures are goods transit, shipping line agency services, domestic air transport services, and trans-regional land transportation services using vehicles with a capacity of more than 45 passengers.
In addition, to promote a competition-based economy, foreign companies are now allowed to engage in wholesale and retail trade. So far, around 50 foreign companies have registered to begin operations in the country.
According to economists, the entry of foreign enterprises is expected to help alleviate foreign currency shortages, as well as transfer knowledge and technology.
To consolidate these efforts, the National Bank of Ethiopia recently announced that foreign banks would be allowed to operate in the country. The governor of the bank also hinted that these banks are expected to begin operations next year.
Reacting to this move, renowned economist and businessman Kebour Ghenna stated that the joint venture model could introduce new work culture, bring technology and innovation, develop the capacity of local companies, create job opportunities, and transfer knowledge essential for national economic growth.
However, Kebour said that the joint venture agreements should clearly define the percentage of ownership that shareholders—both local and foreign—are entitled to. In some countries, the share structure is disproportionately set, with only 1 percent allocated to local investors and 99 percent to foreign companies. This, in turn, makes local investors vulnerable and risks pushing them out of the playing field.
On the other hand, in some cases, foreign investors initially launch joint ventures with local partners on a 50-50 basis. Later, when the business requires renovation or expansion, the foreign partners demand that local investors raise up to 500 million dollars. When the locals fail to meet this financial requirement, the foreign investors take over 100 percent of the business, leading to the bankruptcy of local investors.
In his view, Kebour suggested that during the initial phase, it would be better to allocate 30 percent of shares to local investors and the remaining 70 percent to foreign partners. Therefore, he emphasized that each activity should be conducted cautiously.
Regarding the opening of the domestic air transport sector to joint ventures, Kebour remarked that the measure was taken rather late. For a long time, Ethiopian Airlines held a monopoly over air transport. Introducing joint ventures with the participation of foreign companies has brought competition into the sector.
Currently, many foreign companies have already invested in various sectors such as modern farming, manufacturing, and trade, creating job opportunities for thousands. In addition, by exporting their products, they have enabled the country to earn a significant amount of foreign currency. The introduction of joint ventures has further stimulated the national economy.
He further noted that opening up the financial sector to foreign financial institutions is a fortunate development for the national economy. It forces local banks to prepare themselves for inevitable competition and strengthen their capacity in terms of human resources, capital, and technology. He also stated that the arrival of foreign banks might compel local banks to merge and increase their capital base so they can withstand the challenges posed by the new market dynamics.
Atlaw Alemu,(PhD) an economist and researcher, stated that Ethiopia aspires to transform its economy from being agriculture-led to industry-led. However, the country still primarily exports agricultural products that could otherwise serve as industrial inputs. Exporting products in raw form makes them less competitive in the international market. Instead, value-added exports would give the country an advantageous position, and this role should be led by the private sector.
For instance, rather than exporting live animals, exporting packaged meat, processed skins and hides, leather, leather goods, and shoes could earn the country significantly more foreign currency.
There are other examples as well. Instead of exporting raw coffee beans, it would be more profitable to export roasted coffee, which has higher demand in international markets.
However, local investors face various limitations, including lack of expertise, skills, capital, technology, and experience. Opening up the mentioned sectors to joint ventures could help the nation overcome these barriers and achieve more.
Currently, Ethiopia unnecessarily imports agricultural products. For example, edible oil is imported from abroad, despite the availability of adequate raw materials such as sesame and niger seed within the country. Most local investors are focused on import-export trade and are reluctant to engage in manufacturing activities such as edible oil production due to the risks and financial unpredictability involved.
However, such skepticism is groundless. Opening the door to joint ventures can serve as a remedy. As mentioned earlier, collaboration with foreign companies facilitates the transfer of knowledge and skills to local entrepreneurs. In the long run, this will help local investors gain the confidence to operate independently.
According to Kebour, in order to strengthen the involvement of local companies in the air transport sector, the government should offer tax holidays, subsidies, and access to loans. Without such support, local investors may not withstand the pressure from foreign shareholders and could ultimately be swallowed by foreign companies, as seen in previous cases.
When asked whether the legal system has sufficient capacity to enforce contracts, Kebour responded that courts are inefficient in this area. In particular, when disputes arise between public and private entities, justice is often delayed—or even denied.
In the digital era, timely decision-making is crucial for running a business effectively and efficiently. Delays can cause businesses to stagnate. For example, if a warehouse remains closed and non-functional for a year due to legal disputes, it results in significant losses for all parties involved.
In some countries, contract enforcement and dispute resolution are carried out within 24 hours. Therefore, to address the current poor performance, the judiciary system must be reinvigorated.
BY ABEBE WOLDEGIORGIS
THE ETHIOPIAN HERALD SUNDAY EDITION 15 JUNE 2025
