July 18, 2018 / 8:49 AM / 3 months ago

Exclusive: Ethiopia says reforms 'to unleash private sector'

ADDIS ABABA (Reuters) - Ethiopia is open to selling off a host of state-owned firms, either partially or entirely, as part of major economic reforms designed to “unleash the potential of the private sector”, its information minister said on Wednesday.

In an interview with Reuters, Ahmed Shide said the government of Prime Minister Abiy Ahmed - which has announced a slew of shake-ups since taking office in April - would retain majority holdings in the state-run airline, logistics, telecoms and energy companies.

However, everything else, from hotels to sugar farming to cement production, could be up for sale, with the sole exception of the tightly controlled financial services sector whose fate was yet to be decided, he said.

“The main objective of this is to encourage private sector development in the country,” Ahmed said, making clear that the nation of 100 million was turning the page on decades of reliance on the state to drive economic growth.

“The role of the private sector is very fundamental. We did a lot of state development projects. Now we need to unleash the potential of the private sector,” he said.

Ahmed did not give a time-frame for the privatisations but said the government was tendering for advice from global business consultancies including McKinsey and PwC.

“The detailed planning is not complete but precautions will be made not to have mistakes,” he said. “So we will do it with caution.”

Having come to power less than four months ago, 41-year-old Abiy has turned the Horn of Africa nation - the continent’s most populous after Nigeria - on its head with his plans to reshape politics and the economy.

Besides his stated desire to attract foreign capital into one of Africa’s most closed states, Abiy has brokered peace with Eritrea, with whom Ethiopia fought a border war two decades ago.

In a sign of the speed of the rapprochement, the first commercial flights from Ethiopia to Eritrea in 20 years took off early on Wednesday, just one week after Asmara and Addis Ababa buried the hatchet.

DOLLAR CRUNCH

Although it has been one of Africa’s fastest-growing economies, Ethiopia’s export sector - mainly garment manufacturing and farming - has struggled to take off, meaning the economy is not generating enough dollars to pay for imports.

The shortages have been exacerbated by the government’s massive investment in infrastructure over the last decade.

A top government official told Reuters Addis had asked Saudi Arabia for a year’s supply of fuel with payment delayed for 12 months.

“We are in talks to allow fuel imports,” Fitsum Arega, Abiy’s chief of staff, said.

With some notable exceptions, such as Ethiopian Airlines, the state firms that lie at the heart of the economy are poorly run by inexperienced political appointees with links to the security services or top echelons of the ruling EPRDF coalition.

The banking sector is dominated by the state-run Commercial Bank of Ethiopia, which controls more than half of the sector’s assets, and remains stuck in a time-warp even by African standards, with no way to transfer funds between banks, putting a massive dampener on basic economic activity.

However, Kenya’s Safaricom is poised to roll out its popular M-Pesa mobile phone money service, according to sources, raising hopes the payments technology that has changed the face of Kenya’s economy since 2007 will do the same in Ethiopia.

“It’s really going to alleviate their liquidity constraints,” said Jacques Nel of Cape Town-based consultancy NKC African Economics. “People will be able to start using this electronic currency and won’t have to waste time looking for birr or foreign currency.”

Abiy’s reforms, especially his peace deal with Eritrea, have gone down well with external investors, driving the yield on Ethiopia’s debut 2014 Eurobond - the only easily tradeable Ethiopian asset - down from 7.6 percent a month ago to 6.6 percent this week.

Reporting by Maggie Fick; Writing by Ed Cropley; Editing by Toby Chopra and Robin Pomeroy

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