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Privatize slowly

Getachew Beshahwred is a fellow of the Institute of Chartered Accountants in England and Wales. Currently, he is Managing Director of GB & Co, a firm of Chartered Accountants and Registered Auditors. He is a graduate of accounting from Addis Ababa University where he lectured for three years after graduation.
Getachew has over 25 years of experience in accounting, auditing and taxation. He was Senior Manager of Accounts, Audit and Taxation before he set up GB & CO in 2004.Getachew provides consultancy services, including file reviews, to a number of other firms of chartered and certified accountants. Capital sat with him to talk about the trends of Ethiopian privatization and the stock market. He says ownership and efficiency does not have a cause and effect relationship. Privatization should be Ethiopian privatization, based on deep analysis and discussions with scholars, sector by sector. He presented a paper on the privatization experience of the United Kingdom during the Privatization and Stock market regional Conference and Exhibition organizsed by HST and CAPITAL. Excerpts;

Capital: Has Ethiopia waited too long to privatize?
Getachew Beshahwred: Yes, it is late but not too late. It seems the government has already decided to embark upon privatization starting with Ethio Telecom in 2020. However, my advice is to wait a little bit longer and continue with this conversation with all stakeholders and allow all companies under consideration for privatization to restructure/ reorganize and become more efficient and more competitive. At the same time, we need to develop the necessary legal and regulatory structure including workers’ rights-working conditions and a minimum wage. When ready the government can then decide, for each company, whether they should continue under public ownership, and the method of privatization if privatization is the preferred option not pushed up by foreign agencies or for reducing the deficit.

Capital: Most people think that, public owned companies are inefficient, is there any correlation between ownership and efficiency?
Getachew Beshahwred: Generally, when we see public held companies as compared with private counterpart they are less efficient, because of that, there is a generalization that publicly held companies are well performed but it is not necessarily true. Ownership by itself is not hindrance, it about the quality of leadership determined the efficiency, there is no reason that a certain company would be profitable, if independently operate without political intervention. However, the attitude of the owner, in this case government matter a lot. Private companies operate in a way to engage in commercial mentality to earn more and the public owned firms should also do on the same manner. In this regards, Ethiopian Airlines is the best example to mention. In 2018, Ethiopian Airlines’ net profit margins were 6.4 percent while the net profit margins of The International Air Transport Association (IATA) group as whole was between 3.9 and 4 percent, you can actually see that government owned companies are performing very well. Similar cases are there in Ethiopian Airlines which is well suited to compete globally, it is the attitude of the owner actually. Therefore, this no cause and effect relationship between ownership and efficiency, rather there is a cause and effect relationship between competition and efficiency, to bring efficiency you don’t necessarily need privatization. You can create a competitive environment where the market is crafted by the government and the rules and regulations that the government crafts to envisage a competitive environment to allow others to enter the market. The only thing we need to do it is to make our existing public owned companies more competitive, allow them time to become competitive, otherwise if we just open up the market before they are ready, it will be a mess for the country. The bottom line is, there are a lot of ways to make a certain firm competitive, change of ownerships alone doesn’t achieve efficiency.

Capital: Some factories like, Bahir Dar textile factory, were transferred to regional states or endowments, can we say that they are privatized?
Getachew Beshahwred: Well I heard about it, but still it is government ownership, it is actually transferred from the national government to local government, if this was to privatize, it is just wasting time and resources, I don’t know the logic why they did that, in the face of privatization doesn’t make any sense. There are also companies owned by political parties.

(Photo: Anteneh Aklilu)

Capital: How have the policies of Prime Minister Abiy Ahmed affected privatization?
Getachew Beshahwred: The first thing is this kind of venue is important to share experiences the proverb goes as a clever man learns from his own mistakes, but a wise man learns from the mistakes of others. We need to look to other countries how thing gone so far. In principle, to go for privatization is maybe right, but we have to take time and deeply analyze the trends; to choose the better that suits us. We don’t need to rush for it pushed by foreign agencies and governments. Therefore as a country we need to see what is good for us. And we should do it sector by sector, there is a presumption that private are good and public is bad, which are promoted by many. No! It is not the case, there are areas where privates are good and better when government handle it, and still there are areas where the two can do together, what we call the private public partnership (PPP), so the government has to really consider what is best for the country.

Capital: What should Ethiopia’s privatization look like?
Getachew Beshahwred: Our privatization should be Ethiopian privatization. We shouldn’t be pushed by outsiders in any case even for budgetary issues. Budget deficit come and go but if you lose institutions which have been built over so many years we cannot get back once we lose them. It is good to embark on the privatization but with due cautions and consulting Ethiopian experts both inside and outside. The biggest treat for the privatizations is the political conditions that hinder in attracting foreign investors.
As a country we must unite and work hard to reduce the political tension and to attract investors.

Capital: Many scholars are against the privatization of Ethiopian Airlines what is your opinion?
Getachew Beshahwred: As far as Ethiopian Airlines is concerned, I see no reason for privatization. With the sale of ET we will lose much more than what we might gain. It is competitive and efficient as compared to other similar even bigger airlines. I cannot imagine any other airline whose safety reputation would improve after a major crash, as it happened with ET. It is wining prizes, for both the airline and its leadership, year after year. No wonder why many foreign investors cannot wait to put their hands on ET.
As it has done in the last 70 years it should improve, restructure and reorganize to continue with its astonishing growth. It is a service company and like any other service company its service will be as good as its employees. It should be able to recruit and train the best and retain them. It is a national pride and it should be kept that way. It belongs to us all not just to the government, the board or the executives. Like those before them, they are caretakers. It is a good advertisement for the country. It is Ethiopian. In the worst-case scenario, after privatization, at some point in the future, the name Ethiopian could disappear from Ethiopian Airlines. The desire to keep ET in public hands is not just sentimental but is also based on hard facts-business. In addition, ET has value to Ethiopia and Ethiopians which cannot be measured, under any valuation technique.
In short, No ET should not be privatized.

Capital: What about Ethio-telecom?
Getachew Beshahwred: With ethio telecom there are two things, we have to see sector by sector what is good for the country, the first is to make and push the company to become more efficient. Then, the government can partially privatize or open the market for other firms to compete with ethio-telecom.

Capital: What is your opinion about starting the stock market?
Getachew Beshahwred: It seems the government has made up its mind to set up a stock market and the business community supports this idea. Hence the question at this time is what kind of stock market do we need and how soon. Yes, we need a stock market. However, once more we need to ensure that we have the necessary skilled man power, technology and regulatory structure in order to start and run a stock market even in its simplest form. My fear is that at this stage we do not have the necessary human resources, institutions and legal and regulatory framework to start a stock market and I am not convinced enough is being done.
Hence, we should start it in its simplest form. It is likely that almost all banks and insurance companies could be listed immediately at the establishment of a stock market and others could follow. That would be a good starting base. However, the banks and the insurance companies in my view do not have the necessary capacity/skill/human resources/technology to assist in the establishment and operation of a stock market and I do not see any significant preparation. That worries me. There should be a program of training both at home and abroad. We cannot afford to do this on the basis of trial and error. We also need to learn from other successful stock markets and from those that are not so successful.

Capital: The problem of skilled human power in the field in your discipline may be one of the challenges, what can we say about that?
Getachew Beshahwred: In my view the training and regulation of accountants and auditors should be strengthened as a preparation for privatization and the establishment of a Stock Exchange. In May this year, I had a chance to meet the immediate past Director General of the Ethiopian Accounting and Auditing Standards Board and we have discussed a number of areas, (training, regulation and enforcement) where improvements are needed, in view of the forthcoming privatization and the establishment of a stock exchange. I will try to have further conversation with the current leadership. The profession in consultation with the government, the business community and other stake holders needs to develop new training and qualification programs and a regulatory framework that is fit for the future business environment.
Finally I would like to say that we are in an exciting time in Ethiopia. The reward is huge but that can be achieved only if we are united as a people and country.

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