Wednesday, January 18, 2023
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BusinessGov’t holding company under-formation

Gov’t holding company under-formation

A conglomerate dubbed ‘Government Holding Company (GHC)’ is under-formation; it is going to be an umbrella company which will be a hub for all State Owned Enterprises (SOEs) that are currently being overseen by the Public Enterprises Holding and Administration Agency (PEHAA). The holding company will be administered by a Board to be established.  

The Ministry of Finance (MoF) is currently evaluating a draft law crafted and tabled by PEHAA and envisages the commercial and institutional organization of the new holding company.

The Government Holding Company (GHC) has gone into establishment after the Parliament amended the 62 year old Commercial Code of Ethiopia last year. The new Code, for the first time, allows the formation of a holding company.  

The decision to re-organize SOEs under a commercial wing came following an over three years business study undertaken by Mckinsy. Fully commercialized, the holding company will also sell shares to the public and private sector. However, the GHC will be owned by the government.

Under the company, finance will flow from one member enterprise to another and will be liable to debts member enterprises take out and fail. In addition, it will also prepare its financial statement, pay taxes and conduct annual general meetings, as a company.

If the MoF approves the draft, PEHAA will dissolve over the next two years. The Ministry, which currently oversees SOEs along with PEHAA, will transfer its role to the GHC.

“SOEs will be detached from the civil service and will be fully commercialized. Currently, SOEs recruit based on the civil service standard and scales. But this approach failed to make SOEs competent with the private sector. The transformation was needed to lead SOEs in a commercial and market based system, instead of public institution bureaucracies. There will be no political appointment for the leadership positions of SOEs,” Wondafrash Assefa, public relations head at PEHAA told The Reporter.  

Eyob Tekalign (PhD), State Minister of Finance, also said “Our major plan for this year is to bring SOEs under a strong holding umbrella,” during his interview with The Reporter. He added “We are reforming SOEs fundamentally.”

The holding company will house all SOEs, including the Ethiopian Airlines Group, the Commercial Bank of Ethiopia, ethio telecom, Ethio Business Group, Ethiopian Construction Works Corporation, and others.

SOEs contribute close to 10 percent to the Ethiopian GDP, according to the Agencies document. After SOEs were criticized for contributing way less than the privileges and resources at their disposal, the government embarked on privatizations and deregulations, since PM Abiy Ahmed (PhD) came into power in 2018. The government also tried Public Private Partnerships (PPP) as an alternative route to execute mega projects which the private sector could not undertake.

While some doubt molding giant enterprises engaged across diversified sectors would end up making them successful, others take the move positively. In fact, the government just established the Liability and Asset Management Company (LAMC), which is wiping half a trillion birr debt accrued by SOEs.  

Gebeyaw Simachew, corporate business lawyer, who also participated in the crafting of the new commercial code and a consultant to a number of state, endowment and private enterprises, takes the move as encouraging, despite having some reservations.

“According to the commercial code, board members are picked by the shareholders, so the government will pick board members for the new holding company. This means the board will comprise of Ministers and government officials; that is not any different from the existing trend,” said Gebeyaw.

“The board must be comprised of employees, among others. In Germany, employees must make up a third of the board. We inserted this article in the commercial code but canceled it from the final draft. This makes employees feel and work as owners, and finally make the company efficient,”Gebeyaw added.

Michael Teshome, a business law expert and director of the Ethiopian Arbitration Center, underlined that the success or failure of the GHC will be determined by the extent of power and responsibility it will be bestowed with.

“If the board members of the GHC are going to be affiliated with the SOEs or the government or anybody, there will be problems. If the holding company will be fully independent, it can make wise, market based decisions and the SOEs can be successful. Of course, the government will intervene in major decisions like international bids, contract administration and transactions concerning national interest. But overall, the detachment from the MoF and PEHA will be good for SOEs,” said Michael.

Regarding the government’s sudden shift from total deregulation to commercializing SOEs, Michael again takes the government’s decision as a wise move.

“The privatization and liberalization launched under the reform is simply a misconception. Complete deregulation of SOEs will critically affect the government, not only the economy. Therefore, the latest decision avoids both state monopoly and also the happening of cases similar to the US Sherman Anti-Trust Act,” said Michael. The US Sherman Anti-Trust Act was the first US Federal Act that outlawed monopolistic business practices.

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