Ethiopia’s Private Sector Problem: Too Weak to Trust, Too Weak to Grow

By Kebour Ghenna

There is a curious contradiction at the heart of Ethiopia’s economic policy.

The government says it wants a strong private sector. It wants exporters, manufacturers, investors, and entrepreneurs. It wants jobs, innovation, foreign exchange, and growth. It wants Ethiopian companies capable of competing under the African Continental Free Trade Area (AfCFTA) and beyond.

Yet it often behaves as though the private sector is something that must be carefully watched, managed, guided, licensed, restricted, supervised, and at times pushed out of business.

One is left wondering: does the Ethiopian state actually trust business?

In America, the answer is relatively straightforward. The government regulates business because business is powerful. Giant corporations dominate markets, influence politics, and command resources larger than those of many countries. The concern is not weakness; it is excessive strength.

The logic goes something like this: business creates wealth, but if left entirely alone, it may also create monopolies, pollution, financial crises, and a handful of billionaires with enough influence to shape public policy.

Whether one agrees or not, the argument follows a certain logic.

Ethiopia is different.

Most Ethiopian businesses are not giant corporations plotting world domination. They are small, undercapitalized, cash-starved enterprises trying to survive another month. Many struggle to obtain foreign exchange. Many struggle to obtain credit. Some struggle simply to keep the lights on.

Yet the policy mindset often appears remarkably similar to that of countries worried about powerful corporate giants.

This raises an uncomfortable question.

If business is weak, why treat it as though it is strong?

The answer may lie less in economics than in history.

For generations, Ethiopian governments have tended to see themselves as the principal agents of development. Roads, dams, airlines, telecommunications, banking, industrial policy, these were viewed as matters too important to be left entirely to private actors.

The state built. The state planned. The state directed.

Business was expected to participate, but rarely to lead.

The assumption was understandable. Ethiopia emerged from poverty with little domestic capital, limited industrial capacity, and a private sector that lacked both scale and experience.

The state stepped into the vacuum.

The problem is that what begins as a temporary arrangement has a habit of becoming permanent.

A government that does not trust business because it is weak may inadvertently ensure that business remains weak.

And here lies the paradox.

Business is weak because it lacks capital.

It lacks capital because financial systems are restrictive.

It remains small because market opportunities are limited.

And because it remains small, the government concludes it cannot yet be trusted with a larger role.

Round and round the circle goes.

The irony is that many of the world’s most successful development stories followed a different path.

The governments of South Korea, Taiwan, and later China certainly did not leave everything to the market. But neither did they treat business as a necessary inconvenience.

They nurtured it, protected it, financed it, challenged it, and occasionally disciplined it. But above all, they expected it to grow.

Their message was simple:

“We will help you become strong. Then we will expect results.”

In Ethiopia, the message sometimes sounds slightly different:

“We will trust you when you become strong.”

The difficulty, of course, is that strength rarely emerges without trust.

This is not to say governments should abandon regulation. Every society needs rules. Markets have their own excesses.

Businesspeople are no more virtuous than politicians. Give either group unchecked power and trouble usually follows.

But there is a difference between regulating a sector and fearing it.

The deeper issue is whether business is viewed as a partner in development or merely as a sector to be managed.

If it is merely something to supervise, it will remain small and dependent.

If it is treated as a partner, held accountable, certainly, but also empowered and trusted, it may eventually become what policymakers say they want it to be.

There is another irony here.

Governments often worry that successful businesses will become too powerful. But in Ethiopia, the greater danger may be the opposite. A country without strong domestic businesses eventually finds itself dependent on foreign capital, foreign technology, foreign expertise, and foreign markets.

The absence of strong local enterprises does not eliminate power; it merely transfers that power elsewhere.

Nature dislikes a vacuum, and so does economics.

If local entrepreneurs are not allowed to grow into national champions, others will gladly occupy the space. The choice is rarely between strong business and no business. More often, it is between strong domestic business and strong foreign business.

This becomes particularly relevant as Ethiopia enters a more competitive era under the AfCFTA. The continent is moving toward larger markets, deeper integration, and fiercer competition.

Ethiopian firms will not be competing against theories. They will be competing against real companies from Kenya, South Africa, Egypt, Morocco, Nigeria, and increasingly from Asia and the Gulf.

Good intentions and protective regulations will not be enough.

The question facing Ethiopia is therefore not whether its private sector deserves more trust.

The question is whether the country can afford to wait until the private sector becomes strong before granting it the opportunity to become strong.

History suggests that nations become prosperous not when governments defeat business, nor when business defeats government, but when both discover that they need each other more than either cares to admit.

The most successful economies are neither state-dominated nor business-dominated. They are built on an uneasy but productive partnership in which the state sets the direction, creates the enabling environment, and protects the public interest, while businesses invest, innovate, take risks, and create wealth.

Perhaps Ethiopia’s challenge is not a shortage of entrepreneurs, nor a shortage of ambition.

Perhaps it is a shortage of trust.

And that may be the most expensive deficit of all.

Next week, I will offer my view on how to shift this way of thinking.** YE NEG’HE SEW YARGEN!!

Editor’s Note : The article appeared first on the author’s SM page.
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