Can privatization solve Ethiopia’s problems?

Here is a new paper by Ermyas Amelga, excerpt:

Privatization will not just solve the GTP’s financing problem, a worthy enough accomplishment in its self, but would also help address macroeconomic problems. These include funding/driving aggregate demand, financing aggregate investment, solving the foreign exchange shortage, rebalancing the balance of payments, dampening inflation and reviving general economic activity. May seem improbable but its not.

In the context of the huge financing needs to fulfill the plans under the GTP, privatization represents an excellent means of cashing out on the accumulated net worth of Ethiopia’s SOE’s. Indeed, there is arguably no more justifiable use of this accumulated net worth than spending it on the GTP that the government itself believes is worthy of supreme sacrifice from all corners of society.

This paper is a very good introduction to both Ethiopia’s corporate problems and also their fiscal problems.  Privatization is not entirely fashionable these days, but the current situation in Ethiopia presents perhaps the strongest case for it.  So if your initial reaction is “Ah privatization, that is the failed strategy that China rightly rejected”…you are making exactly the same mistake made by many privatization proponents in the 1990s.  Ethiopia is starved for revenue, foreign exchange, and the country needs more private sector involvement/

And lo and behold, Ethiopia has in fact just announced a major plan to privatize many parts of some of the major state-owned companies.

By the way, I wish to thank Chris Blattman for an introduction to Ermyas and also for valuable ideas and information related to Ethiopia.


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