Government versus Private Sector Led Economies
State led command and mixed economies are characterized by government owning major means of production. The state allocates resources via directs investments. The government directly controls prices be it for inputs, goods, services, Foreign Exchange (FX) or interest rates. They feature dominance of State Owned Enterprises (SOEs) and substantial corporate shareholding ownership in strategic markets. Government has direct management of macroeconomic outputs. They have highly centralized long run national plans, active strategic industrial policies and state interventions through subsidies.
The World Bank’s 2023 Business of the State (BOS) report showed Ethiopia had at least one traditional SOE in slightly over 40% of all economic sectors and at least one BOS firm in 50% of all sectors. The World Bank contends that traditional State-Owned Enterprises (SOEs) firms focus on central government and majority ownership while Business of State (BOS) BOS is any firm with at least a 10% public sector ownership stake. The World Bank highlights that that complex, indirect, subnational, and minority state ownerships are very prevalent globally more so after Covid19 pandemic with these types of enterprises generating half of all BOS related revenues.
Private sector led market economies on the other hand has the market forces of demand and supply allocating resources, managing production, and determining prices. Individual households and businesses own the means of production, make investment decisions, and operate based on profit maximization motives. Government roles in these economies is limited to providing public goods and services (for instance national defense, protecting lives and property, maintaining law and order, infrastructure (roads, railways, bridges , airports, seaports, energy, ICT, water, sanitation), regulating markets, market infrastructures and institutions , preventing monopolies and market dominance.
Ethiopia is widely acknowledged to be in the midst of transitioning from a government led economy hinged on mega state infrastructure into a private sector led economy anchored on the ingenuity and resilience of her entrepreneurs. The late Meles Zenawi Asres (9 May 1955 – 20 August 2012) who served as Ethiopia’s President between 28 May 1991 and 22 August 1995 and Prime Minister between 23 August 1995 and 20 August 2012 architected the 1991 to 2018 Ethiopian government “developmental state” model. This was heavily influenced by the successes of China, East Asian Tigers (Hong Kong, Singapore, South Korea, and Taiwan) and Tiger Cub (Indonesia, Malaysia, the Philippines, Thailand and Vietnam) model. The results were outstanding from heavy direct investments to modernize the economy via railways, roads, dams, industrial parks, monopolies (telecommunications, banking, aviation, logistics, and power) and a double digit GDP growth of around 10% in the period 2005 – 2019.
Heavy public borrowing led to macroeconomic imbalances. Output gap between the economy’s actual GDP and its long run potential full employment GDP. Divergence between national savings and national investments. Aggregate demand outpaced aggregate supply causing high inflation which further created economic uncertainty, severely eroded purchasing power, disproportionately impacted lower-income households, and distorted interest rates. Labour market supply of workers outpaced demand by job creators (government enterprises and MSMEs) leading to high unemployment. .
Fiscal deficits from government expenditure outpacing tax revenues (PAYE, corporate income tax, VAT, excise tax, customs and duties), SOEs dividends and appropriations in aid (A-in-A) fees led to public debt borrowings ‘’crowding out’’ the private sector from credit markets. The external sector current account deficit imbalances emanated from goods and services imports exceeding exports. The current account deficits signified high dependency on foreign capital to finance domestic consumption and investments, heavy burden of repaying principal and interest on the foreign currency debt and made the local currency vulnerable to excessive depreciation.
Ethiopia from 2018 onwards started embarking on reforms which will culminate into a dynamic private sector led economy. The Home-Grown Economic Reform (HGER) agenda was launched in 2019 to address major economic and structural imbalances (GDP output gap, savings investment gap, inflation from aggregate supply versus aggregate demand imbalances, fiscal deficit from government revenues lagging expenditure and public debt ‘’crowding out’’ the private sector from credit and current account deficit from imports exceeding exports occasioning foreign debt pressures and Ethiopian Birr depreciation. Phase II of the HGER is hinged on pillars across macroeconomic and financial sector stability, promoting private sector–led growth, expanding trade and investment , unlocking productive potential, and strengthening institutions.
Invest Heavily in Ethiopia’s Startup Ecosystems in Ethiopian Cities for Rapid Private Sector Development (PSD).
The Global Startup Ecosystem Index (GSEI) by StartupBlink has been updated annually since 2017 and currently ranks the startup ecosystems of 1,473 cities and 118 countries. It levers three sub-scores. The quantity sub score measures the activity level of the ecosystem. This includes the number of startups, the number of investors, the number of co-working spaces, the number of business incubators and accelerators, and the number of startup-related meetups.
The quality sub score assesses the impact and success of the activity in the startups ecosystem. These include private sector startup investment, the number of startup employees, and the number and size of Unicorns and exits above USD$1Billion. It also covers the traction of startups (traffic, domain authority, and customer base), bigtech research & development (R&D) centers, branches of Multinational Corporations (MNCs) and value of exits with a valuation below US$1B. Other parameters includes the number and size of global startup events and conferences held in the country or city, the presence and impact of Pantheon members and global startup influencers, the number of startups accepted by top global accelerators per ecosystem, as well as the number and market capitalization of listed companies in technology sectors.
The business environment sub score evaluates how supportive the overall conditions are for startup growth. This includes the diversity index, internet speed, cost of internet, internet freedom, R&D investment, and availability of various technological services (payment portals, ride-sharing apps, cryptocurrency). It further comprises of the level of English proficiency, the country’s passport strength, availability of startup or Nomad Visas, corporate tax rate, startup-friendliness of labor laws, and Corruption Perception Index-CPI. The other indicators includes the number of peer-reviewed scientific papers published, the sovereign debt credit score, top universities per location and corporate startup activity per location.
The StartupBlink local ecosystem partner is Entrepreneurship Development Institute [Ethiopia]. Ethiopia’s startup ecosystem innovators business environment global ranking in 2026 stood at number 120 of 125 nations. The country posted an annual startup ecosystem growth rate of +4.4% as the ecosystem value grossed USD$1.1 Billion which ranked 84/125. Ethiopia Software and Data industry ranked 99/125.
Addis Ababa startup ecosystem was ranked 422nd in the global top 1,000 cities with its 5.5% annual ecosystem growth rate proving to be inadequate to keep pace with faster growing global peers culminating in its 32 spots annual drop. The city total score stood at 1.044 which constituted a national share of 100% .The Minister for Labor and Skills, H.E Ms. Muferiat Kamil, noted that, “Ethiopia’s reform-driven administration has created a supportive legal and policy environment that empowers private businesses to innovate and expand, thereby strengthening entrepreneurship nationwide and beyond. We are witnessing the emergence of a bold generation of innovative entrepreneurs willing to take risks and establish diverse businesses.”
The most notable startups ecosystem builders includes the Ministry of Innovation and Technology (MInT) which oversees national innovation policy, startup ecosystem strategy, and digital transformation programs including the Next Ethiopian Startup initiative and ICT Park development. The Entrepreneurship Development Institute (EDI) Institute under the Ministry of Labor and Skills delivers entrepreneurship training, business development services (BDS) and access-to-finance programs and it’s also the national host of the UNCTAD EMPRETEC program. International Finance Corporation (IFC) through private sector investment, telecom liberalization advisory, digital skills programming, and Environmental, Social and Governance (ESG) capacity building for the capital market. IceAddis is Ethiopia’s first innovation hub and tech startup incubator, providing co-working space, incubation, acceleration programs, and ecosystem advocacy through continental networks such as AfriLabs.
The key startup ecosystem milestones in Ethiopia includes the 2011 launch of IceAddis as the first innovation hub and tech startup incubator. The government set up the Ministry of Innovation and Technology in 2018 to lead national digital transformation and ecosystem growth. Safaricom launched commercial mobile services, ending decades of state telecom monopoly in 2022. Climate tech startup Kubik closed a record US$ 5.2 million seed round in 2024 to expand sustainable building material production. Parliament in 2025 passed the Startup Business Proclamation which established a formal legal framework and a national startup fund.
The valuations of leading startups on DealRoom Ethiopia with aspirations to reach the USD$1bn Unicorn status includes Komari Beverage, an FMCG founded in 2017 valued at $104—156m which offers lightly sweet fruit-flavored cocktails with zero sugar and carbohydrates that include 5% ABV in apple, lime and pineapple flavors, providing consumers with a high-quality beverage option that fits all occasions. Roha Medical Campus which offers affordable and advanced healthcare services through various hospitals and facilities is valued at $168—252m. Standard Bank Group was the exclusive financial adviser to M-BIRR which raised €8m ($9.8m) worth of equity in 2018 from European Investment Bank (EIB). EthioChicken founded in 2010 raised almost USD$ 3 million in 2017 and is today valued at $20—30m.
Ride (Hybrid Designs is the dominant ride-hailing mobility and logistics platform in Addis Ababa.Yegara host is a meaningful portal for social participation and self-discovery. Gebeya valued at $8—12m is a pan-African tech talent and marketplace platform providing software-as-a-service (SaaS) and workforce solutions launched in 2016.Chapa is an Ethiopian financial service and a global data engineering technology-based service provider of payment gateway, payment instrument, and bill aggregator solutions. Dodai is a Japanese e-mobility company focusing on the manufacturing and assembly of electric motorcycles and batteries launched in 2021 valued at $32—48m.Belcash / HelloCash provides fintech and digital payments. ArifPay provides digital point-of-sale (POS) and mobile payments has an enterprise value of $14—21m.
Call to Action for Transformation of Ethiopia’s Startup Ecosystem.
Ethiopia needs to become a startups nation serially churning out transformational USD$1billion valued Unicorns through interventions including taxpayer funded incubators and accelerators; pervasive university ideathons, hackathons, venture capital funds, spin-ins, spin-outs, spin-offs; and corporate venturing and venture capital funds. Other investments in the startup ecosystem external environment includes Ethiopia’s 12 Pillars of the World Economic Forum (WEF’s) Global Competitiveness Index (GCI), the 16 Criteria of the World Bank’s Country Policy and Institutional Assessment (CPIA), the Edelman Trust Barometer Performance , the 4 Clusters of the Mo Ibrahim Index of African Governance – IIAG, the 11 World Bank Topics on Ease of Doing Business Conditions and 7 Pillars of the World Intellectual Property Organization Global Innovation Index.
Migwi Nduku can be reached via nikaminduku@gmail.com
