Recently created to raise the performance of Ethiopia’s state-owned enterprises (SOEs) and to raise the private sector’s participation in the economy, the Ministry of Public Enterprises aims to maximize the country’s entrepreneurial potential, and Minister Demitu Hambisa explains where and why investors should be taking notice.
As Ethiopia is Africa’s political capital, and is now heading the Council of Ministers of COMESA, please discuss Ethiopia’s regional integration efforts.
Africa is indeed the continent with the biggest potential and its economic growth is laying the foundations for further development. As you know, African countries are now focused on integration and collaboration. Ethiopia is unique because it is the political capital of Africa and works to bring peace and stability to the region. There is a shared vision to work together and mutually benefit each other.
The Minister of Housing and Urban Development has commented that investing in Ethiopia is investing in Africa.
Exactly. If you invest here, you have invested in the entire African continent because the infrastructure is connected to every country. Take into account our Ethio-Djibouti Railway, the roads to Kenya and Sudan, and Ethiopian Airlines that is connecting different African countries as well as other continents. You can easily have a large market while being centered in Ethiopia. The trade block of COMESA and the future Tripartite Free Trade Area (TFTA) – Cape to Cairo free-trade zone signed among the three economy blocks of Africa: the Southern African Development Community (SADC), the East African Community (EAC), and the Common Market for Eastern and Southern Africa (COMESA) – will also give enormous potential to reach Africa.
By 2040, the continent is projected to have the largest labor force in the world – 1 billion workers strong – more than China and India combined. What are the challenges, how should they be addressed, and how would you describe Ethiopia’s human capital?
The opportunity for FDI is huge. We have natural resources and human resources that are not yet exploited well. We have the willingness to learn new technologies. This is an opportunity for foreign investors as well; in Ethiopia 70% of the nation’s population are young people eager to learn new technologies. This is among the reasons why Ethiopia is growing fast. When I was working as a general manager in a small enterprise in Oromia Region I was surrounded by youngsters who started from scratch and who are now millionaires. Human capital is a huge resource of Ethiopia.
Thanks to the GTP (Growth and Transformation Plan) Ethiopia is today the fastest growing economy in the world. As former Minister of Science and Technology, what is the role this sector had and will have in Ethiopia’s economic transformation?
Ethiopia has successfully implemented GTP 1 in the last five years with an average growth of 10.1%. Regarding science and technology, the secret is not inventing it but importing knowledge and skills. Using foreign technology is the secret of our development, particularly in the agriculture sector. We are using full-package technologies to boost our economy. Everything we produce is organic and that makes us very competitive everywhere. We are importing and adapting effective foreign technologies that are appropriate for our economic growth. We believe this economic growth will be sustainable if supported by technology. We work hard to have strong foundations for technology transfer in different development sectors.
Last October, the Privatization and Public Enterprises Supervising Authority (PPESA) was restructured and a new portfolio as Ministry of Public Enterprises was created. What is the importance given to these activities by raising the Agency to a Ministry and what are the new responsibilities and mandate?
The main objective of having the Ministry of Public Enterprises is to establish a system to enable public enterprises to play an appropriate role in the economy, develop modern corporate management, and design proper guidelines to help them to achieve their goals. It also oversees and assists the corporate management and financial performance of the public enterprises accountable to other supervising authorities.
The other reason why this Ministry was established is to encourage the private sector to play its role in the economy, to privatize those enterprises that were previously handled by the government. Now the private sector has great capacity to handle those enterprises and the government can focus on the strategy in selected areas of investment, i.e. expanding health centers or building roads. All these infrastructures help investors enhance their performance. For example, if electric power is expanded in the rural area and everywhere, and if telecoms expand everywhere, the private sector can easily manage and easily use that to promote their companies. Private companies can join the economic development in numerous industries, such as textile, agro-processing, mining and manufacturing, among others.
Since 1996 more than 20 billion birr ($1 billion) were obtained from privatized public-owned enterprises. Under GTP 2, 14 enterprises are identified for privatization. Which SOEs do the government want to privatize?
This year we have about 10 or 11 companies we are going to privatize, out of 27 enterprises that we are already running by this time. We plan to privatize agro-processing, manufacturing and textile manufacturing companies (Kombolcha Textile Factory and Bahir Dar Textile Factory for example), and also chemical and mining companies. All these are the ones we are going to privatize.
Additionally, we have a monopoly on tobacco and are going to outsource it too. By this time one company has 29% shares and 71% is owned by the government. We need to sell 30% of these shares to the private sector. A UK-based company joined us to work on this – in the upcoming months we are going to have a bid on this.
How would you describe today’s investment climate in Ethiopia?
The investment climate is very convenient. We have clear policies and strategies and we have identified the priority areas of investment. We have identified about nine industries, among them agro-processing, manufacturing, construction, mining, power, chemical and pharmaceutical industries. Those industries help us to create jobs for youngsters and fulfill the purpose of technology and skills transfer. Other advantages are cheap labor compared to other countries, government commitment to gain FDI, and a strategic location. Ethiopia benefits from FDI in technology transfer, job creation and foreign exchange that lead to economic development.
What role would you say that privatization and the public enterprises under your control play in GTP 2 in terms of exports, job creation and FDI attraction?
The privatization purpose is to increase the role of the private sector in our economic development, for export and for domestic consumption. Our main focus is to support them, to get involved in the export of goods and to satisfy the internal market. By doing this, we achieve two things: our economy is developing by exporting and we get foreign exchange to satisfy the domestic market. People have the chance to have the products they need.
Ethiopia started a climate-resilient economic strategy to be a carbon neutral country quite a few years ago. What message do you think you are sending to the international community by adopting this strategy and how are you ensuring that the public companies and the new investors that will take them over will also be aligned with this strategy?
In Ethiopia, protecting our environment is a priority and we have a clear strategy on that. We are protecting the environment not only for Ethiopia, but also for the international community. We are protecting our natural resources and the environment, particularly our forests. Regarding different industries, we focus on protecting the environment. When we approve an investment make sure we manage and reduce waste from that company. Generally we have a Green Economy Strategy, and we have a strong commitment to implement it in every aspect of our development agenda.
Please describe the role of the state-owned enterprises regarding Ethiopia’s development.
Some of the public enterprises are not only profit makers but also used to strategically support the economic development. In an economic sector that requires huge investments and has relatively low return, the private sector may not invest to the level of the demand. In such cases it is the public enterprises that play a role of filling the gap that the private sector may not address.
These publicly owned enterprises were earmarked for the private sector because the private sector needs an immediate profit. In the important and strategic enterprises for our economic development sectors, such as transport and gas, finance institutions will be handled by the government for strategic alignment with our economic development goals.
What message of confidence would you like to send to international investors about the readiness of the infrastructure and power in your country?
We believe infrastructure and sufficient power are among the critical issues for investment and economic development. Our government has a strong commitment to boost the infrastructure (like railways, roads, telecom, etc.) and power by building hydroelectric power stations, which include the Grand Ethiopian Renaissance Dam. As these projects in infrastructure and power are in a promising stage, they will greatly support in creating a conducive environment for investors.
The power sector is open for FDI. Many investors got involved in this sector but have not expanded yet. We need more investors to work with solar, bio and even hydropower and sell it to the grid. This is a very profitable sector in Ethiopia. We have been working hard and our infrastructure and power are ready to support the private sector.
What is your assessment regarding relations between Ethiopia and the UK?
The UK has been supporting us in every aspect – we use the UK’s aid project to change the lives of our society. We have very good relations with the UK and we appreciate this because they are a strong supporter of our economic development.
You have had different seats in the public sector, from teacher, to House Speaker of the Council of Oromia and Minister of Science & Technology. What is the vision and input you are bringing to the newly established Ministry?
Working in various areas allowed me to learn more, to take challenges and solve problems. I got the chance to learn how to support the investors, how to expand the participation of the private sector and enhance economic development, how to support the government, the society and the community.
I have learned how to make Ethiopia a more competitive market internationally by producing high quality products. Joining an international market is very important to us – we are looking to be sustainable and to continuously supply the international market with our products. In order to achieve this, I need to share my experience and knowledge so that I can support both the private sector and public enterprises.
As a vision, I want to see our public enterprises to become effective, competent and significantly contribute to the economic development of the country.
Steve Jobs once said, “Innovation distinguishes between a leader and a follower”. What innovations are you especially proud of?
For me the innovation is competitiveness. This is the key. If we don’t have the capacity to compete, we will be squeezed. We strive to be competitive on both domestic and international levels.