Liberalization is Inevitable Should be Planned

Liberalization might increase prospects for foreign investment—it nurtures competition and improves efficiency. When trade and investment obstacles are lifted, businesses must engage in a more intense competitive field for market share. Resultantly, consumers will purchase goods and services of superior quality at lower prices. It can also inspire innovation and the improvement and efficiency of production methods of businesses. The ensuing cost savings may then be passed on to customers in the form of lower prices or better quality. A more prosperous firm then leads to increased tax revenue for governments.

Countries often attract foreign investors who offer capital, technology, and jobs when they open up their economies and this influx of fresh resources has the potential to promote economic development. Technology is transferred, as is best practices to locals.

However, liberalization is not without flaws. Large and well-established enterprises typically perform better than small businesses or those that are just starting out, when government relaxes any limitations placed to nurture local and budding companies. This may result in the concentration of wealth and power in the hands of few—even to the point of complete takeover of the state by corporations. Another fear and commonly leveled accusation is that of capital flight, tax evasion, and financial crimes that undermine government’s regulatory authority.

Liberalizing the telecom and financial sectors of Ethiopia has been up for debate for decades now. Since the time of prime ministers Meles Zenawi, Hailemariam Desalegn, and the current Abiy Ahmed (PhD), the issue has been visibly on the table. For Ethiopia, it is primarily the issues of protecting a budding private sector, securing the state’s cash cows, and the lack of necessary skills and institutions to regulate foreign corporations that have delayed the decision to open the door to foreign investors in the financial and telecom sectors.

Liberalizing telecom was put to rest with the sale of the first telecom license to the neighborly Safaricom for USD850 million. The impact of this massive move and entrance into the Ethiopian economy is yet to be seen even though the debate around the decision’s correctness is still ongoing among many macroeconomists who consider the decision untimely, if not totally wrong.

Now, the incumbent has decided to open up the financial sector at a cabinet meeting on September 3. This might sound mysterious coming from an administration that postponed the bid for a second telecom license, arguing various plaguing challenges might not play in the nation’s favor.

The period hosting these two historic decisions—the entrance of the second telecom company and announcement of the opening of the financial sector—is one where internal challenges are more visible and perhaps more damaging than ever before with instability and full-out war having been conducted amongst Ethiopians.

Given that the West has never been impartial during these confrontations, the decision of the federal government to liberalize the financial sector could be seen as a way to solicit much-needed support from the US and its allies. This is not an unorthodox view as the US and its allies have supported or downplayed political developments solely for the sake of their corporations’ benefits. That may be and no decision is single-sided and effects are multiply-pronged. However, the choice must foremostly end up benefitting the nation and its people. EBR

10th Year • Sep 2022 • No. 110