After decades of socialist rule under the Derg regime, the Ethiopian People’s Revolutionary Democratic Front (EPRDF) adopted market reforms including privatisation of state owned enterprises (SoEs) in 1991. This is a historic literature review, which traces the causes, scale, modalities and impact of the privatisation programme.
The literature on the early privatisation programme is sparse, covers different time periods and uses different sources of data from the Ethiopian Privatisation Agency and the World Bank as well as estimates based on econometric analysis of data from industry surveys. The literature provides details of the number of SoEs privatised in various sectors, but does not provide the names of the SoEs. The information on the impact of privatisation generally involves comparisons of the performance of privatised versus state-owned firms.
Ethiopia is a late starter in terms of privatisation in Africa (Nellis, 2003). Privatisation was facilitated through the sale of the SoEs, which were converted to share companies in some cases (Bennell, 1997). The literature is unclear as to whether companies were sold in their entirety or in part. The main causes of privatisation were as follows:
- Pressure from international financial institutions (Deneke, 2001; Nellis, 2003).
- Large public debt and external debt leading to a high budget deficit (Selvam, 2007).
- The poor performance of SoEs in terms of production and profitability (Hansson, 2004; Selvam, 2007).
- Poor growth prospects of SoEs (Selvam, 2007).
There were two phases of privatisation: the first wave occurred from 1991 to 1994 and the second wave lasted from 1999 to 2004. There are a number of varying estimates of the scale of
the privatisation in the literature, as follows:
- 223 SoEs were privatised from 1994-2002 (Gebeyehu, 2000).
- 362 SoEs were privatised from 1994-2004 (Selvam, Meenakashi, & Iyappan, 2005).
- 166 SoEs were privatised from 1996-2000 (Deneke, 2001).
- 287 SoEs were privatised from 1997-2009 (Altenburg, 2010).
- 160 SoEs in the manufacturing sector were privatised from 1994-2010 with a focus on textiles and apparel, food and beverages, tobacco, leather goods and chemicals (Wodajo & Senbet, 2017).
The literature is divided with regard to the impact of privatisation on firms and the economy as a whole, more specially:
- SoEs outperformed the private sector with regard to equipment per person, the value of productive assets and employment (Gebeyehu, 2000).
- The production level declined by 14.21% in the post-privatisation period (1995-2004) (Selvam, 2008).
- There was no improvement in productivity in the manufacturing sector from 1994 to 2010 (Wodajo & Senbet, 2017).
- There were modest gains in after-tax profit from 1995 to 2004 (Selvam, 2008).
- Selvam (2008) finds that technical efficiency improved after privatisation but Gebeyuhu (2000) finds that technical efficiency was not higher in privatised firms.
- No positive shifts in management philosophy or training were found (Selvam, 2008). Capacity utilisation was lower in former SoE’s but higher in firms that were privately owned since inception in comparison to state-owned firms (Wodajo & Senbet, 2017).
By 2003 privatisation slowed down (Hansson, 2004). There were concerns about corruption leading to the re-nationalisation of some firms (Wodajo & Senbet, 2017). Privatised firms were
hindered by shortages of raw materials, competition from imports and political and economic uncertainty (Deneke, 2001). The main beneficiaries of the privatisation programme were two
large business conglomerates: the Endowment Fund for Rehabilitation of Tigray (EFFORT), which is an endowment fund owned by the EPDRF and the MIDROC Ethiopia Investment Group,
owned by Sheik Mohamed al-Amoudi (Wodajo & Senbet, 2017). These two business empires benefit from preferential treatment from the government and operate as a duopoly that undermines competitiveness (Wondwosen, 2009).
There is little mention of gender in the literature although some authors do acknowledge that the lack of information on the impact of privatisation on female workers is a shortcoming (Selvam et
al., 2005).
