Strategic alliances between the state and private sector are joint and mutual agreements in which public and private enterprises work collaboratively. This association is also known as public-private partnerships (PPPs) devised to achieve common goals. These alliances coordinate the strengths, wealth, human and material resources of the two sectors. This is done for the purpose of delivering efficient and effective public services to the Ethiopian people. Both the public and private sectors are committed to strategic alliance for developing infrastructure and sector projects. These projects generally include agriculture, industry and services sectors. The public sector is generally engaged in the building of economic and social services. The economic services are mainly infrastructural ones including construction of roads, ports, storage facilities, and other similar services. The social services refer to health, education, housing and other similar public services. On the other hand, the private sector is normally engaged in the production of goods and services for the local and external markets.
Both the state and private sector jointly operate to deliver goods and services to the public. To ensure effectiveness, they base the delivery of goods and services on the demands of the consumers reflected in the market place. In so doing, the key features of their strategic alliances is based on: shared objectives, risk sharing, resource sharing, innovation and efficiency. Shared objectives as related to the public sector focus on public welfare, policy implementation, and infrastructure development. The private sector brings in efficiency, innovation, and investment capital. The public sector is focused on the promotion of welfare of citizens. This is realized through effective and efficient implementation of public policy and program. This policy reveals the goal of a program in which detailed activities and responsible parties are clearly indicated. The program shows the deadline for each activity, as well as the time and place of implementation. It also includes monitoring and evaluation (M&E) by the responsible authority such as the Ministry of Planning in Ethiopia. The periodic M&E report reveals achievement or failure in undertaking activities contained in a planned program.
In strategic alliance there is risk sharing among partners. Both parties have to share risks that are associated with projects. There is an anticipated risk that qualified and experienced managers of projects may not be available within the domestic labor market. Lack of skilled professionals may be a major cause of failure in project implementation. Also, the lack of required financial resources leads to failure of projects as experienced in various sectors of the Ethiopian economy. Both skilled workers and finance have to be available before a project is undertaken. Operational failure leads to production and marketing risks. Producers fail to meet their obligation of supplying traders who operate in the market. This leads to marketing risks which implies penalties for failing to deliver goods and services to the consumers. To avoid such risks, it may be necessary to share resources among Ethiopian partners for developing joint strategies. They may utilize resources for enhancing expertise in the production and utilization of inputs.
Human resources development and utilization is critical for economic advancement. Skills development accompanied by work experience improves the capabilities of both management staff and workers. This contributes to the achievement of enterprise objectives more effectively. Such achievement in an enterprise leads to profit maximization at reduced costs of inputs. These inputs comprise land, labor, capital and management or entrepreneurship. Entrepreneurs select these inputs and combine them for raising productivity that guarantees profitability. This operation has forward and backward linkages. In other words, suppliers bring inputs to the producer on time and in the specified quality and quantity. The producer, in turn, supplies the market to meet the specified demand of consumers. When both the supply and demand sides are congruent, wastage of resources is diminished. Balancing demand with supply is the most difficult task of the economic planners and managers in developing countries, including Ethiopia.
All economic sectors that produce for satisfying the markets, both internal and external, may not have accurate information on quantity and quality of goods and services demanded. This may lead to unforeseen losses that may disrupt the production process. Information on demand may be collected or gathered by the producer to meet the needs of the market. A sample of consumers may be approached for gathering information on their market needs. This helps the producer to have some knowledge on what to produce for the market. Such information also helps the manufacturer to engage in some kind of innovation to meet market demands. The private manufacturing enterprises may engage in innovative solutions to meet the market challenges. In this situation, the involvement of the private sector in Ethiopia is critical for ensuring efficiency. Efficient producers aim to deliver goods and services as effectively as possible. This implies that the private sector management practices are effective and efficient than others.
The “strategic alliance” between the state and private sector operators contributes to improved delivery of goods and services to the market. This strategy combines the efficiency of the private sector with the objective of the public sector to ensure accessibility and equity. This is very critical for Ethiopian consumers and investors. It saves costs through shared investments that minimize risks. In so doing, it reduces the financial burden on public finances resulting in economic efficiency and effectiveness. Moreover, the involvement of the private sector leads to output of higher quality due to competition and innovation. Lack of competition caused a decline in the standard of goods and services produced by both public and private sector producers. In the absence of competition, operators become less innovative in the production process. Lack of competition breeds fatigue and obstructs innovative ideas.
A competitive environment stimulates economic development in a given country. In Ethiopia, the focus on economic development and progress energizes the local economies through job creation and infrastructure development. With employment and income generation, demand for goods and services is created. To meet this demand, innovation and expertise is required. Access to expertise brings in specialized skills and knowledge from the private sector. Innovative experts may not be available in the public sector at all times.There is, therefore, a need for strategic alliance between the public and private sector. However, there may be challenges to such an alliance including divergent objectives, legal hurdles, transparency and accountability, risk management and management complexity. Each of these challenges may cause disruptions in the production of goods and services needed by the Ethiopian people.
The alignment of objectives of the private and public sector may be unattainable due to divergent interests. It is a challenge to ensure that both parties have aligned goals and priorities in different sectors of the economy. Achieving strategic alliance between the two sectors may imply regulatory and legal hurdles. In this situation, it is beneficial to the macro-economy, covering all economic sectors in a complementary fashion. This requires navigating the regulatory framework and establishing clear legal agreements. Such agreements bring the public and private sector operators that ensure strategic alliance for transparency and accountability. Establishing transparency and accountability in operations and financial performance is crucial to gain public trust in Ethiopia. Sector agencies and private operators in the country have to come together in devising effective risk management strategies in their operations.
Effectively management and sharing of risks requires robust planning and communication. The agency responsible for planned operations devises ways and means of controlling wasteful risks in advance. However, coordinating the private and public sectors or two entirely different entities with different motivations, cultures and management styles may be complex and difficult to handle.In this regard, it is advisable for concerned Ethiopian agencies to learn from the experiences of successful developing countries. Good examples of strategic alliances are observed in infrastructure projects implemented in Ethiopia and other countries. These are construction of highways, bridges, and public transportation network in which the private companies, both local and foreign, are involved. These companies handle construction and maintenance, while the state conducts strict oversight and funding.
Similarly, in other sectors, there are private enterprises that manage hospitals or clinics, for example, providing services while the Ethiopian government ensures standards and affordability. In the education sector, there is cooperation in which private enterprises deliver teaching technology or run schools, improving the quality of education. The strategic alliances between the state and private sector can, therefore, deliver immense benefits in terms of service delivery to the Ethiopian community. Initially, need assessment is conducted to harmonize services to be delivered and what the members of a community need for improving their standard of living. This has to be done effectively and efficiently to deliver services at low cost. In other words, strategic alliance between the state and private sector helps to deliver services to the public with high efficiency, relevant innovation, and better service quality. However, these endeavors require careful planning, clear agreements between the two sectors, and strong and modern management system. This arrangement would overcome challenges and guarantee the success of strategically allied and collaborative state and private sector endeavors.
BY GETACHEW MINAS
THE ETHIOPIAN HERALD FRIDAY 5 JULY 2024
