About privatization

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Ethiopia’s economy has been growing impressively over the past ten years or so. There is no denying that as a result we have seen major investments in both the public and the private sector. As fast as the economy is growing, this comes with challenges as well. One of the challenges the country is currently facing is the shortage of hard currencies, which is not surprising as we depend on the import of many goods and materials, all to be paid oversees. Other challenges that the Ethiopian economy faces are the steep inflation and high unemployment rates. Now, in a bold move to deal with these challenges, the Government has recently announced, that it intends to privatize some public owned enterprises, including Ethiopian Airlines, Ethio Telecom, electricity generation projects and the Ethiopian Shipping and Logistics Services Enterprise. Floating minority shares would seem the most obvious modality but mixed ownership or full privatization of some state-owned enterprises are also suggested. The move, which is expected to attract private investors, will mean a major reform of Ethiopia’s economy indeed.
Let us look a bit more into privatization in general. Privatization is commonly defined as the transfer of ownership, property or business from the government to the private sector. The government ceases to be the sole owner of the entity or business. In general, privatization is considered to bring more efficiency and objectivity to the company. One of the objectives of privatisation is, therefore, to transfer ownership to private investors so that the enterprise will become efficient and profitable. The objective of privatisation is based on the view that private sector operations outperform their public counterparts. Also, privatization can simply reduce the size of government. Fewer government workers and fewer people supporting a larger role for government means less of a drain on the nation’s budget and overall economic efficiency.
For decades before the 1980s, governments around the world began taking on a variety of tasks that the private sector previously had performed. Then in the 1980s, public sector expansion began to turn in many parts of the world. Those supporting the shift from public to private management believe that it will boost the efficiency and quality of remaining government activities, reducing taxes, and shrinking the size of government. In the functions that are privatized, they argue, the profit-seeking behaviour of new, private sector managers will undoubtedly lead to cost cutting and greater attention to customer satisfaction. Since the 1990s, throughout the world, governments are turning over to private management the control of everything from electrical utilities to prisons, from railroads to education. Critics of widespread privatization say that private ownership does not necessarily translate into improved efficiency. More important, they argue, private sector managers may not hesitate to adopt profit-making strategies or corporate practices that make essential services unaffordable or unavailable to large segments of the population. A profit-seeking operation may not, for example, choose to provide health care to the needy or extend education to poor or learning-disabled children. A key question then is under what conditions managers will be more likely to act in the public’s interest and this is where Government will have to continue playing an important role in terms of defining the public interest, legislation and designing proper rules and regulations. Privatization will be most effective when management serves the public interest and the best way to align the private sector and the public interest is through competition among potential providers, which may include governmental entities. It is now up to competitors how to respond to the needs and wishes of the public.
Back to the intended privatization of some of the most prestigious and successful Ethiopian enterprises, it will be very interesting to see what modalities of privatization will be chosen and perhaps maybe more interesting, who will be given and who will take the opportunity to invest, buy shares and help shape the future of these enterprises. Unique opportunities will present themselves but who will take them? Will it be foreign investors, multinationals, the diaspora, Ethiopian nationals? The economy will be reformed indeed. Who will benefit?

Ton Haverkort