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ETHIOPIA-PRIVATISATION-ECONOMY
Easing control of Ethiopia economy a ‘necessity’: analysts
ADDIS ABABA, June 7, 2018 (BSS/AFP) – Ethiopia’s move to open its markets
has been hailed as a seismic policy shift, but analysts say the new
government had little choice after years of tight control took their toll on
the economy.
Ethiopia boasts Africa’s fastest-growing economy and a slew of new,
ambitious infrastructure projects — but beneath this jewelled facade are
problems.
Despite the heady growth, the economy is showing signs of slowing at a
critical time. Just when the country is facing a demographic crunch, dollars
have become scarce, debt is unsustainable and sectors that are booming
elsewhere in Africa are moribund.
This, say analysts, is what pushed the ruling Ethiopian People’s
Revolutionary Democratic Front (EPRDF) to announce Tuesday it will allow
foreigners to take minority shares in some of its biggest state-owned
industries, among them the country’s sole telecom company and Ethiopian
Airlines.
It also announced plans to privatise a swathe of industries, from
railroads to factories to industrial parks.
“This is potentially a massive change, yes, but it is a change made by
necessity,” said Aly-Khan Satchu, an independent economic analyst based in
Nairobi.
Prime Minister Abiy Ahmed “understands Ethiopia has their backs against
the wall because the model where the government is the main borrower,
guarantor and investor does not work anymore.”
The EPRDF put the Ethiopian state at the centre of its plans to rebuild
the country after 16 years of civil war that ended in 1991 when they removed
the communist Derg regime from power.
Ethiopia’s growth has largely been driven by Chinese investment and loans.
Though it remains one of Africa’s poorest nations, the EPRDF has guided
Ethiopia through a decade of double-digit growth.
This year the International Monetary Fund (IMF) predicts its economy will
expand by 8.5 percent — the fastest in the continent.
Yet this is a drop from 2017’s rate of 10.9 percent — a dip largely
attributed to recent political turmoil.
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ETHIOPIA-PRIVATISATION-ECONOMY 2 LAST ADDIS ABABA
– Limits of state control –
Abiy came to power in April after the shock resignation of his predecessor
Hailemariam Desalegn following years of unprecedented anti-government
protests.
The unrest served as a wake-up call to the administration that its
economic policies hadn’t delivered jobs or benefited the youth.
More than 41 percent of the country’s population of 100 million is under
15, said the United Nations, while the African Development Bank (ADB)
estimates as many as a third of young people in cities have no job.
Ahmed Salim of geopolitical risk advisory firm Teneo Intelligence says the
state-centred approach had reached its limits.
“The economic growth story Ethiopia has enjoyed hasn’t been equally
distributed around the country,” Salim said.
“The Ethiopian model has been remarkable and it’s worked, but now, it’s
just not enough.
“With a country of 100 million people, the public sector is just not able
to cope with that” level of unemployment, Salim said.
The liberalisation was announced after a meeting of the top 36 officials
in the EPRDF, a one-time Marxist group that wields total control over
Ethiopia.
Coming on the same day parliament cut short a nationwide state of
emergency, the move was hailed as a sign Abiy is committed to reforms.
The government currently owns most of Ethiopia’s major industries, and
foreign businesses are kept out of the banking and retail sectors, a drastic
departure from other rapidly-growing African economies like Ghana and Kenya
who have welcomed foreign brands.
With the new policy, Salim says he expects foreigners to take interest in
the sole telecom Ethio Telecom, along with the agriculture, energy and
brewery sectors, where foreigners are already allowed but which may see
increased inflows from once-hesitant companies reassured by Abiy’s new
approach.
– Will they come? –
Charlie Robertson, global chief economist at investment bank Renaissance
Capital, said many prospective investors in Ethiopia may still be turned off
by the tough business climate and economy.
Ethiopia, which the World Bank ranks in 161st place globally in ease of
doing business, has no stock market, few mechanisms for repatriating profits
abroad and last year banned foreigners from personally owning cars.
“Heavy government involvement, a deep suspicion of capitalism, a belief
that the government knows best” all may scare away investors, Robertson said,
adding that he believes the currency remains overvalued despite a 15 percent
devaluation last October.
“Now, the main question will be to see if Abiy is able to back up his
promises,” said Satchu.
BSS/AFP/HR/1010