Beyene Hailemeskel, is the former Director General of the Public Enterprises Holding and Administration Agency (PEHAA), which oversees 21 state-owned enterprises (SOEs) in Ethiopia. He joined the agency 20 years ago, gradually climbing the ladder to the top position. Beyene, who argues that state intervention remains a crucial driver of Ethiopia’s economy, stresses SOEs are undergoing deep reforms to the core. EBR paid audience to Beyene’s reflections on SOEs’ performance and futurity, weeks before he tendered his resignation at the end of October 2020.
There are 21 public enterprises under the watchful eyes of the Public Enterprises Holding and Administration Agency (PEHAA), while an additional 22 SOEs are under the supervision of other government institutions. What are the basic features of the SOEs under the Agency’s control?
In general, SOEs are mandated to discharge specific social responsibilities, besides conducting business. Usually SOEs are expected to cover their expenses from their own revenues. But they are also expected to generate profit. Sometimes, however, SOEs operate sans profit in order to discharge their social responsibilities. SOEs under PEHAA’s supervision have long term investments and handle national projects that take longer to generate profit. They are for-profit companies but they have additional mandates as they are public enterprises.
How do you evaluate the performance, efficiency and contribution of SOEs under your supervision?
During the 2019/20 fiscal year, the 21 SOEs under our supervision created job opportunities for 164,000 people. Indirectly, these enterprises support 700,000 people. Their contribution towards the national economy is 10Pct of GDP and 20Pct of governmental tax revenue. Combined net profit is ETB56 billion in 2019/20. In terms of generating foreign currency, Ethiopian Airlines and the Commercial Bank of Ethiopia (CBE) generated USD8 billion during the last fiscal year, mostly in the form of service export and remittance.
Which enterprises are profiting well and which are performing poorly?
We categorize our enterprises into three groups. Ethiopian Airlines, CBE, and Ethio Telecom represent the lion’s share regarding revenue and profit. In 2018/19, five enterprises reported losses. But in 2019/20, all enterprises were profitable bar one. The Development Bank of Ethiopia, Sugar Corporation, and Ethio Engineering Group (formerly Metals and Engineering Corporation) are among the enterprises continually in the red. Enterprises engaged in manufacturing and hotels are also performing below capacity.
Board members and senior managers of SOEs are usually political appointees. Is this one of factors for their poor performance?
SOE management has three layers. The first layer is PEHAA, which oversees the SOE. The second is the board of each SOE, and third layer are the senior managers. The Director General and other directors at PEHAA are recruited through the normal civil service procedure. Concerning the board members and senior managers, we have adopted a modern corporate administration system drawn from best practices the world over as of the end of 2018/19. Board members and senior managers must have technical as well as leadership skills. But this doesn’t mean that there are no politically appointed board members and managers. But I believe this doesn’t matter, since they all have rounded knowledge and capability.
But, the capability of SOEs to attract skilled senior managers who do not have political attachment is minimal.
This is not true in all cases. For instance, Ethiopian Airlines is capable of attracting the best minds in the sector. CBE is another SOE with upper management of equal or superior capabilities compared to other Ethiopian private banks.
The government decided to restructure the accumulated debts of SOEs recently. Could this help them?
The accumulated debt of some SOEs is large because they are undertaking massive projects. On the other hand, CBE is a major source of credit for the other public entities. The accumulated debt has placed heavy pressure on CBE. Since both are SOEs, the debt restructuring will solve the problems of both the creditor and debtors. The ultimate objective of the restructuring is to help SOEs finalize their projects as fast as possible. If their debt is cleared, these enterprises can access additional finance and finalize projects.
But it is difficult to restructure the debt for some. We are still discussing whether to restructure or postpone the repayment period for some SOEs.
The government has announced that another public entity will be established to handle SOEs’ accumulated debt. What kind of company will this be?
The formation of a company to handle SOE debt is at its initial stage. We are waiting for a decision from the government to determine how the company should be formed and operated.
SOEs are usually blamed for crowding out the private sector. Do you agree with this argument?
This can be seen from two perspectives. From a sectoral perspective, there is no sector in which the private sector has failed to invest in because it is monopolized by the government. For instance, the government invested in sugar factories because private investors didn’t want to do so. The same goes for power generation and railways.
The second angle is finance. Did the private sector fail to access finance because the government was overbearing and all the money was taken by SOEs? The answer is no. SOEs mainly get credit from CBE. So, the private sector can access finance from other banks operating in the country. There is ample room for both public and private actors.
How is the privatization process of Ethio Telecom and the liberalization of the telecom sector progressing?
Even now, new operators are coming to the scene. The number will increase after the sector is liberalized. Then, Ethio Telecom will have to compete with new operators, which is a very good thing from the consumer’s angle. There will be improvements in the service rendered and the public will have options. Ethio Telecom is preparing itself for competition.
The second is privatization. Ethio Telecom has been the sole operator in the sector. For now, 40Pct of Ethio Telecom will be privatized, while 5Pct will be sold to the Ethiopian public. The remaining 55Pct will remain under government ownership. This will change the structure of the company form 100Pct government owned to partially government owned.
Various studies are underway by local and foreign firms concerning the privatization and liberalization of the telecom sector. The exact decisions and steps will be disclosed after the outcomes of the studies are wrapped up.
What is the progress of the liberalization and privatization process in other sectors and SOEs?
Privatization of Ethiopian Electric Power is at an early stage, while various studies have been undertaken to privatize sugar factories. The privatization of sugar projects first requires the deregulating of the sugar market, which has been monopolized by the government so far. We are waiting for the outcomes of the studies. Once we know all the outcomes and conclusion of the studies, the government will decide. But this takes time.
How can the government privatize SOEs operating with large debts?
For instance, some sugar factories have now started production. These factories can be profitable and repay their debt if they are privatized with their liabilities. But for some enterprises that have not started production and have massive debt, this is quite impossible. That is why the privatization process cannot be a one-size-fits-all approach, and must go piece by piece, based on studies. EBR
9th Year • Nov 16 – Dec 15 2020 • No. 92