Ethiopia: Privatizing Ethio-Telecom now should not be an urgent economic imperative

Editor’s note: Kebour Ghenna has been trying to vividly show the perils attached to intended privatizations scheme, apparently underway, for some time now. This time, he could not hold it anymore and tells it like it is: “Selling Ethio-Telecom to insignificantly reduce debt is not a smart move. It’s a crime! ”

By Kebour Ghenna
September 23, 2019

The government of PM Abye wants to privatize Ethio-Telecom this year. His administration is working hard (rather follow the World Bank template) to establish the legal framework for privatization; the restructuring or reform (as it’s called here) to make the sale attractive to buyers is in progress. The next stage will be to work on the design of the transaction, appraise the assets, develop the criteria for tendering before selling it to the highest bidder.

Knowing quite well that the evidence on the role of privatization of telecom companies in growth and development is mixed, why this rush?

Then what?

What’s going on?

I normally am not against privatization, when it makes sense and when the time is right, which I believe is not the case now.
It looks like the Prime Minster has misdiagnosed the patient’s illness.

Let me ask naïve questions: Why privatize? Should privatization of state enterprises proceed before the institution of a market economy? Or should a market-oriented framework be established first before state-sector privatization? Is privatization the only solution? Who benefits from privatization? Income from the sale of Ethio-Telecom will be used for what?

Why is the government not answering any of these questions?
My guess is – first, to please the World Bank and its collaborators in order to get more loans. Second, to conceal the weakness and incoherence of an administration without genuine transformation plans for the country.

The real problem with the sale of Ethio-Telecom is not that the government is letting go one of the public’s prized strategic state infrastructure to a foreign operator, but the fact it’s (government) putting the cart before the horse. Unlike Western European privatization, for example, where privatization means simply a sale of state assets to an already existing private sector, privatization for economies like ours requires not only the restructuring of the economy but also the creation of private property and the institutions of a market economy, while ensuring a maximization of economic growth and a minimization of social, economic, and political disorder.

Why has Russia, which privatized first as exhorted by Western advisers such as the World Bank and the IMF experienced a perpetuation of inefficiency and persistent economic downturns?

And why has China, which preserved an inefficient economic system against outside advice, experienced, for the most part, increased efficiency and economic growth`?

So why not learn from Russia? Why not liberalize the sector and create an opportunity for private entrepreneurs to operate in the field before privatising Ethio-Telecom.

An interesting example from right home: When champions of market-based reform in Ethiopia looked at the financial sector in the nineties, they did not rush to privatize the Commercial Bank of Ethiopia, perhaps the largest black owned bank in the world. They partially liberalized the domestic market to attract new local banks to enter the market, while strengthening the institutional and regulatory framework. Twenty or so years later we see a vibrant banking sector developing an indigenous competitive financial system to facilitate economic growth. This financial sector liberalization should continue with the development of proper institutional structures, such as tax laws, financial intermediaries, capital markets, foreign banks entry into the Ethiopian market to increase competition, improve allocation of credits, and help easier access to international capital markets. For the financial sector creating a new market was achieved by simply removing state barriers and allowing a private entrepreneurial spirit to take over.

On this sector, Ethiopia embarked on its own path of reform, one markedly different from the “Washington Consensus” model of transition prescribed for and applied to African countries.

Anyway, at this crucial moment of transition (a year before the general election), the first function of the government in Ethiopia should be the maintenance of law and order, and the re-construction of internal political consensus and control, not the sale of Ethio-telecom.

It took Ethiopia years to get into this problem, and it can’t be solved overnight, but there are some short- and long-term measures it must take immediately to mitigate the severity of potential future consequences, at least as far as economic growth and development is concerned. Selling Ethio-Telecom to insignificantly reduce debt is not a smart move. It’s a crime!

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