Ethiopia is trying to reform its economy and as a result it plans to amend the public enterprises proclamation for the first time in 25 years.
Public enterprises have suffered from poor management and project handling. They are often also in debt. The government hopes that changing rules around public enterprises will improve the situation. On Monday August 12 a discussion entitled: ‘Addis Woge’ facilitated by the Office of the Prime Minister reviewed the changes the country has been going through and new policies that Prime Minster Abiy Amhed wants to implement.
Brook Taye, an advisor at the Ministry of Finance (MoF) and one of the three panelists, said that in the past seventeen months the government’s economic reform plan has centered around sustainable solutions for problems like inflation, the hard currency shortage and settling public debt, making it easier to do business and privatizing government entities. Privatization has been an area of focus during the reform process.
“As you know the public enterprises like sugar projects, rail lines and energy are highly indebted. To alleviate this, the government has negotiated with four Chinese financers and rescheduled their debt settlement,” Brook said.
This has provided relief for the government and helped it to analyze ways to settle loans related to privatization, the advisor said.
The government is working hard to finish the projects and get them up and running so they can pay off their loans. A consultant has estimated the sugar projects’ value. They have also conducted environmental and factory assessments. When all these studies are completed, hopefully in a few months, six sugar factories will be ready for privatization.
The government has already shortlisted the potential buyers of these sugar industries.
During the privatization process the government also established the Ethiopian Communication Authority. This will provide a legal framework for privatizing telecom. Plans are for around 49 percent of the telecom to be sold off. 
They have evaluated the public enterprise law to determine how the telecom should be administrated. “To improve public enterprises, we’ve looked at debt and ways of handling projects and administration, so we will make amendments based on this feedback,” Brook said.
For some reason public enterprises did not understand the concept of debt ratios until they were hopelessly in debt, he said.
In the new draft law, the debt ratio must be balanced with enterprise revenue. As a back-up if this fails to occur, the board of directors of that enterprise will be informed and the supervisor will have to take action.
Inflation and access to foreign currency need major structural changes and as a result are being studied carefully for ways major improvements can be made.
Messay Tadesse, who comes from the private sector, underlined that the government has a clear stand on the privatization process for the inclusiveness of local contribution. “The share of local investors and local citizens should be part of privatization process,” Messay a private businesses consultant said.
Including the Diaspora in the financial sector is a good move which can bring significant change to the economy because it would make accessing finance easier. However, some laws like suppliers’ credit should focus on Ethiopian businesses, according to Messay. He said that if the law includes locals accessing suppliers’ credit it would change the role of the domestic business in the economy.
About two years ago, the central bank amended the suppliers’ credit directive that includes foreign investors’ access to the suppliers’ credit, which was used by hard currency generators. The program was designed to allow them to access hard currency without a hassle. However, local investors who wanted to engage in a similar investment with foreign investors had to wait for the LC process at banks. This took a long time because foreign currency is scarce which made it difficult to import raw materials and spare parts.
On different occasions local investors expressed their thoughts that the directive would force domestic businesses to close because they could not compete with foreign investors or supply their products to the local market. Then, because inputs for their products are scarce their production cost would rise and this would create additional problems since it is harder for them to mass produce than their competitors.
“We believe that if the law allows locals it would drastically change the market,” Messay said regarding access to the suppliers’ credit for local investors.
He said that private businesses create about 500 thousand jobs every year, but access to finance is the major challenge for the private sector. “The access to finance mainly focuses on the manufacturing industry. However this impacts support sectors like marketing, packaging or logistics. But the finance goes to manufacturing,” Messay said.
The 27 percent NBE Bill is also the other problem imposed on private banks. For every loan approval they must purchase this from the National Bank of Ethiopia. “The question of how long this will continue is important. Since they continue applying the NBE Bill, the share of money supply to the public sector is higher,” he argued.
Brook Fikru, who spoke about improving coffee earnings said that they are focusing on incremental and fundamental change. “There are many people involved in the coffee business so it would be hard to implement progressive changes but over time we can make progress,” he said. Brook, who primarily represents coffee buyers, says this method has worked in other businesses as well.
“We cannot run the coffee business like foreign companies,” he added.
He said that the country has registered economic growth in the past since the baseline was very low. “However, the quality of growth is questionable. The economic growth should be inclusive and economic freedom will be considered,” he added.
Regarding inflation, Brook expressed his concern that the financial sector should maintain the value of the currency. “Someone who saves their money at banks, when the value of money is dropping is experiencing a fundamental problem. The major banking problem in the country is maintaining the value of money. Otherwise it is difficult to register change for the society,” he elaborated. “The reform should be measured by the change of a single family,” he added. Currently the lending interest rate at banks has reached up to 25 percent at commercial banks, while inflation has been the major issue for over a decade.
Brook said that compared with the problems in the country the planning for change is vital. “I believe our planning the role of the private sector and the government has not been properly developed compared with the problems,” he explained.
Mamo Mihretu, advisor of the PM, said that the government’s economic reform direction draft document has been discussed at the Council of Ministers in June. He said that the government reform has focused on the change of public life. “The reform called ‘home grown economic reform program’ has been finished and will be tabled for discussion by experts in the near future,” he said.
The program targets the stable macroeconomic sphere with the support of the private sector to create more jobs.
The job creation, export slow-down accompanied by foreign currency challenge, poor project performance and debt burden, inflation and weak private sector involvement related with access to finance are the major areas that would be solved by the program.
To achieve the reforms macroeconomic reform, structural and sectoral reforms are the pillars, according to the PM’s advisor.
Under the macroeconomic reform five sub points are included including: the reform of public enterprises including the change of the public enterprises law amendment that includes improving project handling. Under the macroeconomic reform proper fiscal policy measures will be taken with the goal of improving the tax system and reducing the budget gap besides accelerating the privatization process, according to Mamo.
Regarding to improve access to hard currency the government has targeted to work on export, remittance and privatization process.
Structural change is also expected in agriculture, mining, and manufacturing, to bring in more hard currency and create more jobs.
Mamo said that the government will give proper attention to investors when it comes to reforming the mining sector. “The tourism sector is also the other area that the government gives attention to reform the economy,” he explained.
The ICT and creative industry are also expected to be part of the economic reform program that will be implemented in the coming three years.
Tadesse Tilahun, CEO of NOC who attended the discussion, commented that the private sector should have a role in the public enterprises by involvement at the board. “To improve the project management at public enterprises the role of experts from the private sector is crucial since it is not politics due to that individuals from private sector should involve on boards at the public enterprises,” Tadesse said.
Tewodros Abraham, who came from the logistics sector, said that opening of the logistics sector to foreigners is a good move. But he argued that the government is taking reactive measures on the logistics sector than give prior attention like sectors for instance the price of commodity hike is related with logistics. “Access to capital and issue of land are crucial for the sector. The manufacturing industry shall get finance but if the logistics sector do not get equal opportunity it would be difficult to provide value added services for the industry,” Tewodros said.
Attempts are being made to obtain input from the public regarding economic reform. He stressed that discussion with the public with regard to privatization of mega projects is crucial. He admitted that creating jobs is a major challenge but that with a lot of effort progress can be made.
Roba Megerssa, CEO of Ethiopian Shipping Logistics Services Enterprise, said that there is not a logistics financing scheme so more should be done to reform logistics.
“Due to lack of attention and cooperation the sector is being affected. For instance, because coffee is not packaged here but instead is sealed at the port; for every TEU there is an increase of USD 13. The case is related with the axel load issue with other countries like Djibouti but it can be solved by discussion,” Roba said.
Economic reform targets jobs, forex, locals
Shipping Lines building demolition raises eyebrows
Youth organized to demolish houses around the La Gare area told the Woreda administration that they were unhappy about being sidelined from demolishing the Shipping Lines and Varnero Buildings.
The Woreda 7 administration of Kirkos sub-city organized close to 500 unemployed youth from La Gare, Filwuha and Commerce areas in 18 teams to demolish houses to make way for the Eagle Hill project.
According to the agreement with the Wereda administration, the youth will demolish and sell properties to earn money and already participated in the demolition of most parts of the area.
One of the team members told Capital that they were expected to earn more from the two-building, but the Woreda administration took over the task without informing them and auctioned by themselves in the absence of the representative of them.
For the demolition of Ethiopian Shipping Lines and Logistics Service Enterprise building, seven individuals won the auction at a value of over a million birr.
Capital asked the Woreda administration head Haftu Gebreegziabher but he refused to comment.
The Eagle Hills project is being built by the Dubai based real estate developer at the cost of 50 billion birr. It should be finished in seven years. The project includes hotels, malls and apartments.
Nine thousand condos to be transferred shortly
Around 9,000 40/60 condo houses between one and three bedrooms will be transferred in the next three months according to close sources in the Addis Ababa Housing Project Office (AAHPO).
The houses are located at 12 different sites where condos are being constructed. They are in the finishing stages. Those who save at least 40 percent of the total cost will qualify for the lottery draw.
Currently the office is making a contractual agreement with the second-round condo winners and from the 17,000 of these people, 40 have honored the agreement so far at the Commercial Bank of Ethiopia.
“The office is waiting for the progress of the contractual agreement on the houses that were drawn last fiscal year. When the agreement is completed, the third round 40/60 condo draw will be carried out on the 9,000 houses based on the current rules and regulations.”
The sources added that the office is in the planning stage to start the constriction of 300,000 houses in the center and on the outskirts of Addis Ababa in a bid to address the housing deficit in the city.
Among the 300,000 new houses planed, 200,000 of the houses are in the 20 /80 schemes while the rest are in the 40/60 schemes.
“This housing is a big plan for the city who suffered a lot from housing shortages and high rental costs, the budget of the house, the year of completion and the exact place of the construction will be studied and the administration will reveal this plan to the public in the near future,’’ a source at the housing office told Capital.
The administration retook over 200 hectares of land in various parts of the city form investors including 54 hectares of the MIDROC fenced land but no plan has been made so far as to which places will serve for the construction of the condos.
So far, the government has constructed less than170,000 houses but one million people need homes. Takele Uma, the vice mayor of the city previously announced his administration prepared 1,500 hectares to build homes.
The 11th EPRDF congresses which was conducted a year ago raised a new strategy which will facilitate a plot of land and a loan program for private home developers. The document stated that unlike the previous policy land and finance will be facilitated for house developers. In addition, foreign real estate developers will be able to engage in the housing scheme in addition to local investors.
Strict safety rules come to construction sites
The Addis Ababa City Construction Bureau has drafted a new health safety construction regulation requiring contractors to fulfill mandatory safety materials and procedures before they start work.
The proclamation forces the contactors to provide the necessary safety dress and shoes, have separate toilets and dressing rooms for both genders, showers, dining rooms, a clinic with a nurse and doctor.
Using wooden scaffolding for more than one project is also forbidden in the draft regulation and the contactors should have health insurance coverage for workers.
A system will be put in place so that site management can quickly obtain information about unsafe practices and defective equipment. Safety and health duties should be specifically assigned to certain persons, the draft regulation reads.
All contractors (including utilities, specialist contractors, contractors nominated by the client and the self-employed) have a part to play in ensuring that the site is a safe and healthy place to work.
Contractors are in danger of having their licenses permanently revoked if they violate safety rules multiple times.
Demelash Gebremariam head of the bureau said that the goal of the regulation is to decrease death and injury and project delays due to poor occupational health environments at the construction sites.
“Numerous work-related injuries, illnesses, property damages, and process losses occur at different workplaces but due to underreporting or misclassification as a result of lack of thorough standards, or unfamiliarity with the existing guidelines, people are not normally aware of such events and their actual or potential consequences. Thus, effective corrective actions are required.”
Recent research indicated that although there are appropriate health and safety rules for governing construction work, there is lack of enforcement of regulations from government & regulatory bodies responsible for ensuring compliance and they are not properly resourced to carry out their legal responsibilities. Clients and consultants do not consider safety issues as perquisites for awarding projects and they do not even include this as criteria in the contract. Many projects don’t include regular training, and supervising by trained staff.
