Since Ethiopia embarked on the road to liberalization and a market economy in the year 1991, the privatization of state-owned enterprises has become one important element of the nationwide reform programme. All the activities undertaken by the Ethiopian Privatization Agency (EPA) are therefore not "stand-alone" measures. They are well integrated into a larger political, legal and economic framework and Ethiopia's historical context.
 Privatization - the political and historical framework |
Since the middle of the seventies, public enterprises has become one of the significant facets of the Ethiopian economy. Persuing its economic and political policy of centralism, the Dergue regime expropriated private owners and nationalized large and medium scale enterprises in the productive, service and financial sectors. The large number of public enterprises further increased through dozens of green field investments in the agriculture, manufacturing, construction, mining, and tourism sectors.
At the end of the seventies, the economy to a large extent was under the dominance of the socialist state and over 200 large public enterprises were operational. These enterprises accounted for over 20 per cent of Ethiopia's GDP. In some sectors, like manufacturing, mining, power and transport the share of public enterprises added up to over 50 per cent of the total production. On the other hand, public enterprises were running under the stringent command of inefficent and overstaffed subsector corporations. Most of them were operating at about 20 to 30 per cent of their attainable capacities.
The new Transitional Government, which in May 1991 removed and replaced the Dergue regime, faced an enormous challenge when it started to redesign the centrally controlled economic system. In order to change the past structural set-up and to prepare Ethiopia for a market economy, restructuring measures formulated under the new Ethiopian Economic Policy were brought on their way soon after the new goverment took over power.
In the long term, the new policy focuses on the transformation of the highly centralized and controlled economic system into a market-oriented one in which the private sector plays a key role. To achieve this, immediate action had to be taken. Domestic and external trade had to be liberalised and state monopolies had to be abolished. The Transitional Government also started to dismantle legal restrictions on private investment and to withdraw the state from controlling prices and markets.
At the same time, public enterprises were made autonomous in terms of management and finance and were cut off from centralised budgetary support. Additional structural adjustments enabled individual public enterprises to reorganize as separate legal entities with their own Board of Management.
Simultaneously, the integration of Ethiopia's economy into the global market was initiated through the reduction of import tariffs and devaluation of the domestic currency. The maximum tariff rate was reduced from 230 to 80 per cent, while the Birr was devalued by 142 per cent against the US-Dollar. These measures, which removed substantial price distortions, changed the course of the economy within a relatively short period of about three years between 1991 and 1994, and strenghtened emerging market forces and national business communities.
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In December 1994, a new Ethiopian constitution was promulgated and national and regional popular elections were held in May and June 1995. The newly elected government immediately initiated further reform programmes, that instantly added to the political stability the country had gained after decades of civil war. The substantial success of the economic transformation created the necessary conditions and conducive environment to commence a privatization programme and for the establishment of an appropriate agency.
In general terms of objectives, the agency was designed to serve Ethiopia's radical change from centralism towards decentralisation and towards democratic governance. To achieve that big leap forward nevertheless ambitious tasks were formulated: The agency should
increase government revenue from sales proceeds of privatization,
achieve economic efficiency and enhance enterprise productivity through private sector ownership,
reduce public sector expenditures on inefficient public enterprises,
determine bid evaluation criteria for the selection of investors participating in privatization;
prepare necessary documents to be used in the privatization process;
design ways and means of encouraging domestic investors to participate in the privatization of enterprises;
take all necessary measures to publicize the privatization programme and its implementation;
through post-privatization monitoring, ensure compliance of investors obligations, and undertake impact assessment of the privatization in general;
establish close relations with relevant institutions in the implementation of the privatization programme with a view to coordinating their actions;
own property, enter into contracts, sue and be sued in its own name;
carry out other activities necessary for the fulfillment of its objectives.
The Ethiopian privatization programme has steadily gained momentum since its inception in 1994 and has evolved and changed in certain perspectives, but still works along the main objective of the Ethiopian Economic Policy launched in the year 1991. It is still designed to support the Ethiopian economy on its long way to sustainable development and growth.
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