The government has taken big steps in the pre-privatization process in order to make the grand privatization of major public enterprises become a reality. The process is taking into consideration the macroeconomic imbalance of the country.
The energy sector is the major debated public enterprise. It has been studied more than others under consideration.
On Monday April 22 pre privatization work was addressed at a briefing to the privatization advisory council, which was assigned by Prime Minister Abiy Ahmed at the Office of the Prime Minister.
Telecom
In his presentation Eyob Tekalign, State Minister of Finance, stated that some of the public enterprises’ valuations would be finished in the near future.
He said that with regards to the telecom sector, a detailed study has been conducted. The results will determine the next course of action. Either the state run telecom will continue managing infrastructure and communication services or those two tasks will be separated and overseen by two separate entities. The study also analyzed if additional businesses could be brought into the telecom sector.
He said that the details of the study will be submitted to the committee in the near future. The valuation work has been commenced but it may take up to six months.
A telecom regulatory law has been also drafted for the telecom sector, and the public hearing was held a week ago. He said that based on the proclamation, a strong regulatory body will be established. Currently the proposal in this regard is in the final stages and it will be finished in a couple of weeks.
Energy
The energy sector has involved many public enterprises. It is expected to be privatized partly and this is in the process of taking place.
Eyob said that the Ethiopian Electric Power and Ethiopian Electric Utility are undertaking a huge debt burden. He said that initially there needs to be a detailed study to solve the debt issue and the sector needs structural reform. They are hoping the study will provide them with solutions as they seek a way out of debt. According to Eyob, the debt structuring shall be evaluated by relevant government bodies including financial institutions. The study may indicate that some of the debt shall be annulled in consideration of its profitability when it includes the private actors. “We will present this to the advisory committee in the recent future,” he said.
He told Capital that the investment in the energy sector is over 300 billion birr, and the loan on the energy sector is more than other enterprises. Experts said that some of the loans might be annulled or the payment period may be extended.
Logistics
The logistics sector has been also studied and the focus is on how to improve the operation as opposed to focusing on the privatization of the shipping enterprise. The study, which was finalized on April 10, focused on improving the sector that shall also accelerate the economy in general. Eyob said that the committee will see the study in detail by the coming week.
Sugar
The sugar sector has already taken one step and a Request for Information (RFI) has been published two weeks ago to understand the prospective buyers.
He said that the government is undertaking the sugar policy to indicate the future operation on the sector. “The RFI, which have 15 questions including the experience and capital capacity of interested buyers, will give us input for drafting sugar policy,” the State Minister added.
The factory assessment and valuation on five factories is being undertaken on the selected five sugar factories. The valuation work is expected to be finalized in the coming 2 months.
Railway
According to the presentation, the railway sector is the challenging area since the capital city light railway is still subsidized and difficult to return to profitability. “However, the Ethio-Djibouti line shall be returned into the normal track with little improvement at the corporation,” he explained. The sector is the other public enterprise with huge debt that is included in commercial loans. “For the railway sector we have developed the general reform document that defines the railway sector’s contribution for the economy and evaluates the future investments,” he added.
Public enterprises proclamation
One of the reforms regarding the pre-privatization process is the amendment of 27 year old public enterprises proclamation. The proclamation requires several changes since the public enterprises will be experiencing international competition, is going through a draft amendment process and stakeholders at the government apparatus including the public enterprises are talking about it. Public Enterprises Law Proclamation no. 25/1992 was issued in 1992 during the transitional government period.
The privatization proclamation is also the other law that will be reformed as per the upcoming privatization process.
The study targeted to enhance the country’s economy in general terms, according to the State Minister.
“The current study and evaluation is part of the economic reform and correlated with the macroeconomic imbalance of the country. It is not only just the privatization process,” Eyob concluded during his presentation.
Abiy, who chaired the discussion, reminded the council that they have a crucial role in the pre and privatization process more than just accompanying the process. “We shall do the process by just putting policy but we need such kind of council coming from various opinions and expertise would provide significant input on the process,” he says, “you shall influence the policy even though you might not be directly voting.”
In the discussion one of the committee members stated that the role of the advisory council was not behind the public relations work.
Other participants in the opening of the discussion expressed concerns that putting public enterprises up for sale at this period, when there is instability in some places, might affect the value of the enterprises. “The timing might not be good for selling the enterprises since major potential buyers would not have confidence in the situation in the country,” the council member explained.
Abiy argued that even though the timing is crucial, international investors are still highly interested. “Investors do not think like local politicians. Investors undertake several and detail evaluations before coming but making the country stable is our major homework as mentioned,” he responded.
He recommended the telecom privatization process follow the sugar approach and issue RFI to know the real interested investors and to transfer to the next step.
Regarding the privatization of the telecom sector the PM claimed that has more meaning besides generating hard currency from the sales.
“For instance involving the private sector will help us improve of the doing business index, which considers automation that is not only an application problem but it is further that shall improve in several areas in the economy,” he explained.
“If we lag on involving the private sector it might be dying. On the current technology that pushes the artificial intelligence on the front our sector might not go far. The convergence of the technology is now growing and at the same time the bypass tech is growing we have to include others since it is important technically and financially,” the PM, who is a well-trained IT specialist, gave details regarding the necessity of the role of the private sector to save the country monopoly, which is one of the most profitable public enterprise but accused by its clients on its poor performance.
The PM has expressed his concern about the telecom company that shall be significantly affected regarding revenue and capable on technology if the privatization delays more.
Eyob supports Abiy’s argument. “The recent study of the International Finance Corporation (IFC), a private wing of the World Bank, indicated that the telecom sector at least needs further USD 2.2 billion to be on similar position to countries like Kenya,” he told journalists after the meeting.
“Currently our telecom industry is not widely expanding the sector’s technology, while world is using the 5th generation. This sector needs more investment since it is crucial to build digital economy,” he added.
He informed that the detail of the study will be presented for council on the coming week.
In relation to the concerns of the current economic slowdown the PM stated that there is a perception that the economic growth is slowing. “In real terms the economy is not slowing down in this budget year except the export sector, which is mainly the agriculture sector,” he argued.
He showed that the financial sector has registered a 20 percent growth on different banking operation aspects, while the tourism sector has registered a 36 percent growth so far in the budget year.
He said that the economy in the past focused on a big push model on aggregate demand approach. The country has undertaken several projects by local resources and international loan and grants.
“There is limitation on the supply side. Now we are in a policy change and focusing on aggregate supply by expanding governed actors (the private sector) on the aggregate supply side,” the PM explained how the current privatization process shall expand the aggregate supply.
The privatization process is not only focused on generating hard currency, but filling the gap on market failure, according to him.
He shows the performance of the sugar project that consumes huge public money but failed to be real.
“If we can finish the sugar project we shall also face the marketing, but if we join on JV or fully privatize we get better deals,” he added.
Eyob told journalist that the pre privatization process is undertaken by several well experienced professionals gathered from different local and international sources. “The council is helping us strongly, this is the fourth time we have met,” he told Capital.
The council is the upper body for the process and the macroeconomic committee chaired by the PM and is the direct body for the operation and the steering committee which includes several ministers is following the process at the ground work to evaluate the technical committee work and transferring it to the macroeconomic committee.
“The technical committees are different groups of committees that are made up of professionals in the field. Every sector has from six to eight local or international experts,” Eyob said.
The airline pre privatization process has not started yet. Sugar and telecom sectors are likely to be the first to be privatized.