Restructuring Soes is Key
Ethiopia’s state-owned enterprises (SOEs) are not just a problem but a beacon of potential. They can play a pivotal role in driving economic growth and social development. However, their persistent inefficiencies have hindered the nation’s progress. These inefficiencies, rooted in weak corporate governance, political interference, and a lack of capacity, have led to significant financial losses, distorted markets, and stifled innovation.
One of the causes behind the underperformance of SOEs is the lack of corporate governance. Mismanagement, corruption, lack of transparency, and checks and balances have been the hallmarks of SOEs. Interference, particularly in appointing SOE leaders based on political affiliation rather than merit, exacerbates the problem. This often leads to poor decision-making, a lack of strategic vision, and a culture of complacency. The former Metal and Engineering Corporation (MetEC) case, where leaders were appointed based on political connections rather than competence is a stark reminder of the consequences of such practices.
The impact of these inefficiencies is far-reaching. SOEs often operate at a significant financial loss, draining public funds that could be utilised elsewhere. This misallocation of resources hampers economic growth and limits the government’s ability to invest in essential public services. Moreover, inefficient SOEs can stifle competition, distort markets, and hinder the development of the private sector.
A comprehensive reform agenda is urgently needed to address these challenges. Establishing a solid corporate governance framework is paramount. This involves implementing transparent recruitment processes for leadership positions, ensuring board independence, and strengthening internal controls. Empowering boards and holding executives accountable can create a culture of performance and efficiency.
Minimising political interference is equally crucial. While the government may have legitimate interests in guiding the strategic direction of these enterprises, it is essential to avoid micromanagement and undue influence. By granting SOEs greater autonomy and operational flexibility, they can make more informed decisions and respond effectively to market dynamics.
Investing in capacity building is another essential step. This involves providing training and development opportunities to employees at all levels, particularly in financial management, strategic planning, and operational efficiency. The government can enhance their performance and competitiveness by equipping SOEs with the necessary skills and knowledge.
Advancing privatisation or partial privatisation of SOEs is a strategic move. While not a panacea, privatisation can introduce market discipline, improve efficiency, and attract much-needed investment. For instance, privatising the failing breweries a few decades ago made them the country’s second and fourth biggest taxpayers last year. This massive transformation happened because the multinational companies that bought the breweries invested in them, significantly increasing efficiency and profitability. However, it is necessary to carefully assess privatisation’s potential benefits and risks on a case-by-case basis.
While focusing on SOE efficiency is crucial, creating a fair and conducive environment for the private sector is equally important. The preferential treatment often accorded to SOEs, particularly in finance, health, and education, can stifle private sector growth. The government can foster a dynamic and competitive business environment by levelling the playing field and implementing enabling policies, such as tax incentives for private businesses and streamlined regulatory processes. Fairness is critical to a thriving economy.
Addressing the inefficiencies of Ethiopia’s SOEs requires a multifaceted approach. By implementing comprehensive reforms, strengthening corporate governance, minimising political interference, investing in capacity building, and considering privatisation where appropriate, the government can unlock the potential of these enterprises and contribute to a more prosperous future for Ethiopia. EBR
13th Year • November 2024 • No. 135