Ethiopia Moves Toward Privatization. It’s Not about Money. It’s About Tech.
Fast-growing Ethiopia, long committed to driving its economy with state investment, has invited foreigners to invest in its state-owned shipping and logistics company. Other coveted sectors usually off limits to foreigners — like telecommunications and banks — weren’t mentioned in the solicitation, Reuters reported.
Foreign investment has been rising from the ground up in Ethiopia, including flower farms and products like wine and apparel for export and manufacturing.
Some foreign-owned firms were vandalized in 2016 during protests that turned violent over government plans to expand the capital. A six-month state of emergency imposed in October has restored some calm to the country, the government said.
A few companies left. Others put plans to expand on hold. Government promises of compensation for the damage have been extremely slow to materialize, adding to investors’ wariness, Financial Times reported.
Ethiopia plans to let foreign firms own stakes in some state-owned companies, “not because of a shortage of finances, but because we want to modernize the system itself,” Prime Minister Hailemariam Desalegn said Monday at a news conference in Addis Ababa.
Desalegn did not say how much investment is needed, or what other sectors need money besides shipping and logistics.
“We are trying to privatize some equity of some of the companies we have,” he said. “When foreign companies get into these kinds of companies, they will obviously bring technologies, know-how and managerial capability.”
Awash winery, which produces Ethiopian wine under 12 brands, recently became fully privatized, Addis Fortune reported. The company is 51-percent owned by 8 Miles, a U.K.- based equity firm headed by Irish rock star Bob Geldof. Geldof partnered with Mulugeta Tesfakiros, who owns real estate firm Muller Real Estate and Langano Bekele Molla Hotels in Ethiopia.
An Italian investor first established the vineyard in 1943. The company was nationalized after the 1974 revolution, and stayed under state ownership until 2012, when part of it was sold to a private company for $20 million. Geldof is known for his humanitarian aid to Ethiopia in the 1980s, Addis Fortune reported.
Ethiopia’s economy is one of the fastest growing in Africa, but the expansion has mainly been fueled by huge state investment in dams for hydroelectric power, new highways and an electrified railway linking the landlocked country to the coast in neighboring Djibouti, according to Reuters.
The new railway will cut the journey to the coast from days to hours and cut down on transportation costs, Desalegn said. “But the logistics issue is critical as well. That is why we want to bring new insight and introduction of new ways of doing business and to modernize the system with some renowned companies’ intervention into the logistics system,” he said.
The U.S. hopes to bring its technology, know-how and managerial skills to Ethiopia. The American Chamber of Commerce of Ethiopia was launched in November, Addis Fortune reported.
“The private sector needs a level playing field that allows fair competition with state-owned enterprises,” said Peter Vrooman, U.S. Embassy Charge d’Affaires at the opening.
Trade between the U.S. and Ethiopia stands at just under $2 billion dollars, Addis Fortune reported. Ethiopia is America’s 81st largest goods trading partner. That’s a lot less than many African countries, Vrooman said. The U.S. would like to see Ethiopian companies export more under the African Growth and Opportunity Act, which allow duty-free access to certain African goods.
Ethiopia is one of the last African countries to have a state monopoly in telecoms, Reuters reported:
State-run Ethio Telecom is committed to improving its network, however. The 4G service (launched in early 2015) initially able to serve 400,000 subscribers, was part of a $1.6 billion deal signed with Chinese firms Huawei and ZTE to expand mobile infrastructure throughout Ethiopia. Ethio Telecom’s plans were complicated by a dispute over the cost of upgrading the existing network, which led it to cancel a slice of ZTE’s portion of the $1.6 billion deal. Sweden’s Ericsson replaced ZTE.
Government officials have ruled out liberalizing the telecoms sector, saying the revenue it generates is being spent on railway projects. Ethiopia plans to build 5,000 km of railway lines by 2020.