Ethiopian Investment Holdings is right to demand stronger productivity, accountability and financial discipline from state-owned enterprises. But those objectives should be pursued through collective bargaining and social dialogue—not by putting them on hold.
Ethiopian Investment Holdings is right to demand stronger productivity, accountability and financial discipline from state-owned enterprises. Public assets must be managed responsibly. Enterprises cannot make employee-benefit commitments that they cannot afford, and incentive systems should encourage genuine performance rather than reward inefficiency.
Yet the reported instruction by Ethiopian Investment Holdings (EIH) to temporarily suspend the signing, renewal and revision of collective agreements raises a serious legal and policy question. Can public-enterprise reform be improved by pausing the very mechanism through which employers and workers negotiate wages, incentives and conditions of work?
Ethiopia’s labour framework suggests a different answer. Reform should be pursued through collective bargaining and social dialogue—not by placing them on hold.
This analysis is based on the reported contents of the EIH instruction. Its full legal effect will depend on the exact language of the letter, its duration, the enterprises it covers, the status of agreements already in force and the particular legal powers EIH relies upon. But the broader principle is clear: a review of benefits and performance systems should strengthen lawful industrial relations, not weaken them.
A legitimate reform objective
The objective behind EIH’s reported decision is understandable. Ethiopia’s state-owned enterprises face real pressures. Some need stronger corporate governance, clearer accountability, better financial management, improved productivity and more commercially oriented operations. Enterprises managing public assets must be able to cover their costs, invest, compete and generate sustainable value.
The Federal Government-Owned Enterprises Proclamation No. 1314/2024 seeks to promote operational and commercial efficiency, productivity, profitability, transparency and improved financial performance in public enterprises. EIH itself was established to manage state-owned enterprises and other government assets strategically, improve the effectiveness of public investments and support long-term value creation.
It is therefore reasonable for EIH to ask whether employee benefits, incentives and allowances are financially sustainable. It is reasonable to examine whether they are linked to productivity, whether they are consistently applied and whether they help enterprises perform better.
A review of incentives can be necessary. A review of collective agreements can also be necessary.
But reviewing collective bargaining is not the same as suspending it.
That distinction is central to this debate.
Collective bargaining is not optional
Collective bargaining is not an administrative favour granted by an employer. It is a legal institution designed to regulate employment relations, reduce workplace conflict and create predictable rules for workers and employers.
Article 42 of the Ethiopian Constitution recognizes the right of workers to form associations, including trade unions, and to bargain collectively with employers or organisations affecting their interests. This constitutional principle is given practical effect through Labour Proclamation No. 1156/2019.
The Labour Proclamation recognizes the right of trade unions to bargain with employers and the corresponding right of employers to bargain with workers organized in trade unions. It defines collective bargaining as a process of negotiation intended to conclude, renew or modify collective agreements.
This is important because collective bargaining is not confined to requests for salary increases. It covers many of the workplace issues that directly shape enterprise performance and workers’ lives. These include wages, allowances, incentives, overtime, working hours, safety and health, promotion, transfer, discipline, grievance handling, work rules, training and bipartite social dialogue.
These are precisely the issues EIH says it wants to examine: performance systems, employee incentives, accountability and enterprise sustainability.
Collective bargaining is therefore not outside public-enterprise reform. It is one of the principal legal mechanisms through which reform can be discussed, negotiated and implemented.
International standards reinforce the right
Ethiopia’s commitments do not arise only from domestic law.
Ethiopia has ratified the ILO Freedom of Association and Protection of the Right to Organise Convention, 1948 (No. 87), and the Right to Organise and Collective Bargaining Convention, 1949 (No. 98). Both conventions have been in force for Ethiopia since 4 June 1963.
Convention No. 98 is particularly relevant. Its Article 4 calls on states to promote voluntary negotiation between employers and workers’ organisations in order to regulate terms and conditions of employment through collective agreements.
The ILO’s position is that collective bargaining must be voluntary and free from undue interference. Workers in state-owned commercial and industrial enterprises should retain the right to negotiate collectively. An enterprise does not cease to be an employer merely because it is owned by the state.
Ethiopia has not ratified ILO Convention No. 154 on Collective Bargaining or Convention No. 151 on Labour Relations in the Public Service. But this does not remove the protections already created by Conventions Nos. 87 and 98, the Ethiopian Constitution and Labour Proclamation No. 1156/2019.
State ownership cannot erase workers’ collective rights.
Performance reform needs bargaining
EIH’s concern with productivity and sustainability is valid. An enterprise should not maintain benefits it cannot finance. Compensation systems should not be disconnected from performance. Public enterprises should not accumulate labour costs without considering whether those costs are consistent with financial viability, investment needs and long-term competitiveness.
But none of these concerns requires a blanket suspension of collective bargaining.
The Labour Proclamation already provides a constructive framework. A party that wishes to begin collective bargaining may submit a written request and proposals. The other party is expected to appear for bargaining within the period set by law, and both sides are expected to negotiate in good faith.
That process can address exactly the issues EIH wants reviewed.
Management can present data on enterprise finances, production, costs and productivity. Workers and their representatives can examine how performance is measured and whether targets are realistic. The parties can negotiate incentive systems that reward measurable results while protecting employees from unfair assessments.
They can discuss whether bonuses should be linked to quality, safety, efficiency, customer satisfaction, innovation or output. They can examine how machinery breakdowns, power interruptions, shortages of raw materials and other operational difficulties beyond workers’ control should affect performance assessments. They can agree on training commitments to ensure workers have the skills required by new productivity targets. They can establish transparent procedures through which workers may challenge unfair performance scores.
This is not an obstacle to reform. It is reform through industrial relations.
A performance system designed without workers may appear efficient on paper but generate distrust at the workplace. A negotiated performance system is more likely to succeed because workers understand how targets are set, believe they are achievable and can see how incentives will be calculated.
Existing agreements require protection
The greatest legal concern concerns collective agreements that are already in force.
A collective agreement is not simply an internal management policy that can be turned on or off through an administrative instruction. It is a negotiated legal instrument between an employer and a workers’ union.
The Labour Proclamation provides that collective agreements take legal effect from the date of signing unless the parties agree otherwise. It also provides procedures for review, renegotiation and modification, including where significant economic changes occur. Such changes should be handled through the legal mechanisms available and through mutual engagement—not through unilateral cancellation or indefinite suspension.
Any EIH review should therefore distinguish carefully between collective agreements that are already concluded and valid, benefits and entitlements workers have already earned, agreements presently under negotiation, agreements nearing expiry and entirely new bargaining processes.
Existing agreements and accrued rights should remain protected. Wages already earned, overtime payments due, leave entitlements, approved allowances and other benefits established under valid agreements should not be delayed, withdrawn or reclassified by administrative instruction.
For workers, collective agreements are not abstract legal documents. They can determine overtime arrangements, workplace safety, leave, transportation support, housing-related benefits, grievance procedures and safeguards against arbitrary discipline. A broad pause in bargaining can therefore create uncertainty not only about pay, but also about the everyday protections workers depend upon.
The state has a higher duty
The issue is particularly sensitive because the enterprises concerned are state-owned.
In a private company, the employer and the public authority responsible for enforcing labour law are institutionally separate. In a public enterprise, the state may be owner, policymaker, regulator and—indirectly—the ultimate employer. EIH exercises ownership and strategic oversight, enterprise management acts as the direct employer, and government institutions remain responsible for enforcing labour law and protecting workers’ rights.
This overlap creates a higher responsibility.
The state’s ownership authority should not replace the legal process governing employment relations. If public enterprises need to restructure incentives, improve productivity or change employment conditions, those objectives should be pursued within collective bargaining and social dialogue.
This does not mean that public enterprises should escape financial discipline. Enterprises managing public assets have a special responsibility to demonstrate efficiency, accountability and responsible financial management.
But commercial accountability and workers’ rights should reinforce one another. A public enterprise must be accountable not only for what it earns and spends, but also for how it treats the people whose work produces that value.
A better way forward
EIH can pursue its reform objective without freezing workers out of the process. If it believes a temporary pause is necessary while it reviews incentives and performance systems, that pause must be narrowly defined, legally justified and time-bound. “Temporary” should not become an open-ended administrative arrangement. EIH should clearly state which enterprises are covered, which benefits or incentive mechanisms are under review, the criteria to be used, the duration of the assessment and the date by which final guidance will be issued. Certainty is essential for workers, unions and management.
The review should also expressly confirm that collective agreements already in force remain legally valid and that workers’ accrued rights will be protected. Wages already earned, approved overtime payments, leave entitlements, allowances, pension-related contributions and benefits due under existing agreements should not be delayed, withdrawn or reclassified by administrative instruction. A collective agreement is a negotiated legal instrument, not a management policy that can be switched on or off at the discretion of a shareholder body. If an existing provision has become financially unsustainable, the appropriate response is to use lawful procedures for consultation, renegotiation or modification.
A review of financial incentives should not shut down all dialogue between enterprise management and unions. Negotiations should continue on matters not directly affected by the assessment, including occupational safety and health, training, harassment prevention, grievance handling, work rules, leave administration and other non-financial working conditions. Even on financial issues, the better approach is not a blanket freeze but a short, mutually agreed consultation period supported by clear information and a defined timetable.
Meaningful dialogue requires information. If EIH or enterprise management believes that a benefit, bonus or allowance is unsustainable, workers’ representatives should receive enough financial and operational data to understand and evaluate that claim. They should be able to see how labour costs relate to revenue, productivity, investment requirements, debt and other operating pressures. Workers cannot be expected to accept “financial sustainability” as a slogan. When evidence is shared in good faith, unions can participate responsibly in identifying solutions, whether through redesigned bonuses, phased adjustments, productivity-sharing arrangements, skills development or other negotiated alternatives.
EIH should use this moment to establish a structured social-dialogue process involving enterprise management, recognized trade unions, the Confederation of Ethiopian Trade Unions and the Ministry of Labor and Skills. The purpose should not be to seek permission for a decision already made. It should be to develop a common framework for collective agreements that are financially sustainable, productivity-oriented, fair and consistent with Ethiopian labour law. That framework can address transparent performance measures, incentives linked to controllable and measurable results, safeguards against arbitrary appraisal, training commitments, occupational safety, job security, gender equality and effective dispute-resolution procedures.
That approach would transform the present controversy into an opportunity. Rather than treating collective bargaining as an obstacle to enterprise reform, EIH could help make it more transparent, evidence-based and capable of supporting financially sustainable public enterprises. The aim should not be weaker dialogue. It should be better dialogue—one that allows workers, management and the state to share responsibility for productivity, accountability and the long-term success of enterprises owned by the Ethiopian public.
The real test of reform
Ethiopia needs public enterprises that are financially disciplined, commercially viable, professionally managed and capable of generating sustainable value.
But it also needs an industrial-relations system based on legality, trust and worker participation.
The real question is not whether workers’ rights are compatible with enterprise reform. They are.
The real question is whether reform will be carried out with workers or over them.
EIH is right to ask whether employee incentives correspond to performance. It is right to examine financial sustainability. It is right to demand accountability from enterprises managing public assets.
But those goals should be pursued through evidence, consultation, negotiation and legally grounded social dialogue—not through an open-ended pause on collective bargaining.
The strongest reform will not silence dialogue while a new system is designed. It will use dialogue to design a system that workers understand, enterprises can afford and the public can trust.
Reform should change how institutions work. It should not suspend the institutions through which workers and employers are meant to work together.
