Saturday, June 15, 2024

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


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 off 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?
What’s going on?
I am not saying all privatization deals are bad. But if we’re going to do this, let’s be honest with the public and let them know what’s and why is going to occur: It’s going to save this much money…, it’s going to cost this many jobs…, it’s the only best solution…it’s worth it! (handing over Ethiopian public assets to foreign companies)…
The big question inquiring citizens wanted answered today are: Why is there no public hearing on this matter? Why is this young Prime Minister obsessed with the beautification of the palace (which brings no income) and not with the restructuring of Ethio-Telecom to be efficient, accountable, transparent, and profitable? The Palace can wait… it ain’t going to fly away, but a privatized Ethio-Telecom once it’s gone, it’s gone.
Let me ask more 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? What if things go wrong after privatization?
Why is the government not answering any of these questions?
My guess is – First, there is nothing this government can do about it; the order has come from the top – if you know what I mean. Second, this government needs to please the World Bank and its collaborators in order to get more loans. And third, this government wants to conceal the weakness and incoherence of its administration; an administration without genuine indigenous transformation plans for the country.
The common people have no idea what is going on. But to the insiders, every momentous privatization deal has dollar signs on it. Power corrupts, goes the saying.
The real problem with the sale of Ethio-Telecom is not that the government is letting go one of its prized strategic infrastructure to a foreign operator, but rather the fact it’s 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.
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 matter, 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.
Yes, 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 reduce debt is not a smart move. In most cases, privatization has not closed governments’ fiscal deficits, it has in fact even worsened budgetary problems. In Ethiopia’s case, privatization may worsen the fiscal situation due to loss of revenue from the privatized Ethio-Telecom, or tax evasion by the new privatized entity.
The whole affair is a sham! ….Why? Because behind the scenes, the real winners are always the same: the multi-nationals, and their local cronies.

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