Lucrative Investment Opportunities in a Thriving Market: Privatization of Ethiopia’s Telecom and Sugar Enterprises
Ethiopia has embarked on an extensive home-grown economic reform program that aims to bring economic transformation by leveraging the strong economic growth it achieved during the past decade. Using a set of macroeconomic, structural, and sectoral measures, the reform aspires to catalyze productivity growth, the bedrock for an inclusive and sustainable economic growth — While successfully completing public investment projects underway and ensuring the efficiency of public investment remains high on the government’s agenda, transitioning to a private sector-led economy is the ultimate goal. As part of the reform agenda, the government has set out to privatize — partly or wholly — certain public enterprises that either have entirely controlled the market or produce commodities that are in severe shortage.
Accordingly, the government plans to transfer to private ownership nine public enterprises in the telecom and sugar industries before the end of 2021. Ethio Telecom, the telecom enterprise that has for long enjoyed a monopoly in Ethiopia, will be partially (45%) privatized, while the following eight sugar factories will be wholly privatized: Tana Beles, Tendaho, Arjo Dedessa, Welkait, Kessem, Omo Kuraz I, Omo Kuraz II, and Omo Kuraz III.
Ethio Telecom is one of the flagship enterprises of Ethiopia that consistently generate revenues for the state. Among the largest telecom operators in Africa, Ethio Telecom currently has more than 50 million mobile subscribers in a marketplace with a massive potential for expansion. Given that the country will soon issue licenses to two foreign private operators, the enterprise stands to generate additional revenue by sharing its telecom infrastructure. Under the partial privatization plan, 40% of the stake will be offered to international telecom operators while the remaining 5% will be offered to the public. This enables foreign telecom companies to enter a new market by acquiring a stake in an established operator that has been posting annual profit consistently and owns telecom infrastructure throughout the country, a factor that should give the enterprise a competitive advantage in its future operations.
With continued population growth, which is currently estimated to be over 110 million, and the proliferation of industries that put sugar to industrial use, the demand for sugar in Ethiopia has been surging for years. Determined to bridge the huge gap between demand and supply and increase its foreign currency earnings, the Ethiopian government has been undertaking sugar development projects in various regions of the country with a multi-billion USD capital outlay. By transferring eight of these new factories to private ownership, the government aspires to see enhanced productivity growth optimized by private capital and expertise as well as linkage with global value chains. These sugar factories are development projects of a state wherein sugar production has had a significant socioeconomic role, which has now a vast market gap to fill. The huge demand in the domestic market that is bound to grow steadily, solid export opportunities, high demand for by-products of the industry, and exemption from corporate tax for up to six years are certain to make investments in these businesses lucrative. Acquiring these factories will be particularly appealing to foreign investors, as it would diversify their international portfolio.
Acquire Lucrative Businesses Operating in a Positive Investment Climate
During the past three years, Ethiopia has carried out a number of reform initiatives as part of the general economic reform that is aimed at improving its investment climate and business environment. The initiatives included revising the investment, commercial registration and business licensing, and commercial laws, as well as ratifying the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention). The reforms have strengthened legal and institutional systems, thereby enabling easier acquisition and operation of businesses and instilling confidence in the investment and business systems in operation. Apart from this, Ethiopia offers various resources, a workforce, a growing domestic marketplace, and a strong platform for export trade, which are all vital for a successful operation of a business. Ethiopia, therefore, invites international businesses to seize the historic opportunity it has offered to the private sector to acquire the enterprises.