PM Abiy is getting closer to privatizing Ethio Telecom. I don’t know if this should be a cause for celebration for Ethiopia. For the buyer it’s a boon.
On a whole a sizeable number of urban elites agree on the basic shortcomings and, in some cases, the dire position of Ethio Telecom, and have concluded that ownership transfer of Ethio Telecom from the government to foreign private owner(s) is the only right policy for Ethiopia.
The World Bank, the IMF, other western development institutions also agree with the ‘privatize now’ approach even though conditions in Ethiopia are currently not conducive for the market to work efficiently. Their approach is privatize and things will go well reminds us all of the disastrous Russia and Eastern Europe approach.
I have repeatedly argued for caution on the “easy route” to privatization; once you start selling your prized assets, your growth ambitions become fantasies. What do you tell your children, that you got rid of your telcom infrastructure to develop …what? I still believe the problem of Ethio Telecom is not ownership, but rather misplaced goals and objectives, and not letting the company to operate in a competitive market. The Singapore Telecom case, for example, supports the position that ownership change is not in itself important or sufficient for high performance. Yes, as long as Ethio-Telecom is maintained as an entity to generate income and security control rather than as a strategic resource in a modern economy the company will not generate growth and efficiency.
If there is a real crisis in Ethiopia (and I am limiting myself to the economy), it is the crushing burden of inflation, structural barriers at microeconomic level (excessive regulations, access to land, finance, foreign currency etc), bad laws, failure of imagination, subscale businesses and woefully unproductive SMEs, not Ethio-Telecom.
I claimed earlier that conditions in Ethiopia are currently not favorable for tinkering with Ethio-Telecom? Let me just mention one key technical challenge: the absence of an effective regulatory body.
Privatization that pushes excessively for rapid ownership change while neglecting or insufficiently emphasizing the institutional foundations on which good privatization must be based can lead and has led to failures. Indeed, privatization is more likely to result in increased efficiency and improved equity outcomes if it’s embedded in a set of conceptually appropriate, functioning legal and economic institutions that support and guide market operations. These include: The definition and protection of property rights; contract enforcement and commercial dispute settlement through lawful, peaceful means, or, more broadly, court decisions that are timely and based on the law; a high degree of regulatory capacity; functioning bankruptcy or insolvency regimes; and a public administration that meets minimum standards of predictability, competence and integrity and thus lowers transactions costs. If these institutions are not in place and working effectively, privatization will produce sub-optimal, perhaps negative outcomes.
By default most of our institutions are faltering on all these issues. It is unclear as to precisely how these institutions will attain a state of effectiveness. Nor is it clear just which ones are crucial in what particular circumstances, or in what sequence they should be introduced.
So where does that leave us?
At this stage it is unlikely that the government and its supporters will hold off on the privatization until Ethiopia’s regulatory capacity is enhanced. I suppose it’s going to be “privatize now, regulate later”. In so doing the government conveniently abandons its responsibility to regulate the sector, leaving the field to the foreign firms to regulate their way.
Dear Reader, if this doesn’t strike you as a problem, please check back in a few years.