Newly approved board members of the Ethiopian Investment Holding (EIH) questioned its role, criticizing the government for making State Owned Enterprises subsidiary companies without prioritizing sectors.
The Ethiopian Investment Holdings, Ethiopia’s first sovereign fund founded in January 2022, disclosed that 27 SOEs were placed under its wing, overtaking the custodianship from the Public Enterprise Holding and Administration Agency (PEHAA).
On June 23 and 24, 2022, the EIH convened the CEOs of the 27 subsidiary SOEs for an introductory summit, attended by Ahmed Shide, Minister of Finance and Yinager Dessie (PhD), governor of NBE, among other top government officials.
Frehiwot Tamiru, CEO of ethio telecom and one of the eight EIH board members, confronted the basic decision of blanketing SOEs as subsidiaries of the EIH.
“It is wrong to assume SOEs will become efficient because they are gathered under the EIH. That cannot guarantee success. SOEs will become efficient, only when each are led professionally in their respective sectors. SOEs should be given autonomy, yet with checks and balances. The EIH cannot have the high level of professionalism in every sector,” Frehiwot said during the summit.
She also confronted the EIH for not discussing with each of the SOEs individually, before making them a subsidiary and announcing it at the summit.
“Before I was invited to this summit, I should be communicated and discuss with my teams to evaluate the status and aspirations of ethio telecom. But now, I am discussing with SOEs from various sectors not related to telecom. How can we discuss in this situation,” said Frehiwot.
“Are each of the SOEs positive towards the decision, while the sector of each SOE is different. The EIH must discuss with each of them first, and understand their sector. Asset management is the ABC of every SOE and why is the EIH overtaking this role form SOEs? Rather, the role of the EIH should focus on bringing foreign investments,” added Frehiwot.
Abe Sano, president of CBE, repeatedly enquired about the boundary between the EIH and SOEs.
“There is a dilemma in the way the EIH is structured. My fear arises from the decision of the Ministry of Finance. The EIH is formed by the most powerful executives in the nation and yes the SOEs give a great muscle to the EIH. But on the other hand, there are social, economic and political problems in the country, which SOEs are tasked to bridge,” said Abe.
“Where is the balance of the highest commercial efficiency required from EIH and social and political responsibility required from the SOEs? Politicians are forced to focus on short term obligations they have politically and socially, against the long term success of commercial entities like the EIH. Is there any country in the world where government assets are successfully managed by politicians and that are commercial at the same time?” asked Abe.
The Director General of the Information Network Security Service (INSS), Shumete Gizaw (PhD) was also in a similar frame of mind.
“The legal frameworks in which SOEs operate does not allow them to be purely business oriented. Where is the point of intersection of the EIH and SOEs? Some SOEs are super performing and should not be placed under the EIH. They are better alone. And some SOEs poorly perform. But is that because there was no holding company in the country? What are the criteria for SOEs to become an EIH subsidiary or not? Did the government assess existing SOEs, before establishing the EIH?” asked Shumete.
Mamo Mihretu, CEO of EIH, tried to clarify the complex issues.
“The EIH has shares and active interest in SOEs, which emanates from the establishment law. The EIHs relation with SOEs will depend on their performance. It provides strategic oversight and supports their investment activities. Its role is to provide ideas and concepts on strategies and the decisions SOEs take,” said Mamo.
“If the portfolio of companies underperform, the EIH can pass its own decisions, including mobilizing additional capital, or disposing some of its assets. SOEs should not duplicate efforts and should co-invest if they invest in the same sector,” added Mamo.
With the direction given by Prime Minister Abiy Ahmed (PhD), a committee comprised of the Ministry of Finance and the Office of the Prime Minister, has been conducting studies on the significance of establishing a holding company in Ethiopia.
The study took one year, extracting lessons from various countries around the world. The EIH is established mainly to bridge the gap between finance and Ethiopia’s development plans.
The 27 SOEs now placed under the EIH, generated 350 billion birr in revenue last year, with plans to increase it to 540 billion birr this year. Their asset, estimated to be over two trillion birr, grew by 26 percent from last year.
The SOEs paid a 16 billion birr dividend to the government last year. Their tax contribution to the GDP stood at eight percent, generating 36 billion birr in tax.
Though Mamo says attracting investment is a key priority of the EIH, Girma Wake, board chair of Ethiopian, said this will duplicate the role of the Ethiopian investment commission (EIC).
“The EIH helps to reduce the states hand in the economy. The EIH was not established before, because there was no law governing holding company’s in Ethiopia until recently. So the SOEs remained as they were, until now,” Mamo said.
“We should not allow SOEs to keep reporting losses, sticking to public goods. We will also not allow these institutions to completely shift to pure businesses, dropping the public goods. Therefore, the EIH will maintain the public goods element,” added Mamo.
Birhanu Nega (PhD), one of the EIH board members, eased the tension by recommending the EIH to communicate with each of the SOEs individually.
“All new things can create some discomfort. We should not be worried about that. I think we have to sit down and discuss what is best for all. The EIH is a public institution with great ambition to provide for the development of our country. All the SOEs have the same ambition. But making it work requires patience and conversation,” said Birhanu.
“The EIH should discuss with each SOEs individually to create a clearer understanding. Sovereign wealth funds have good track records internationally and there is no reason why it will not work in Ethiopia, if we do not pull each other into different corners and work for the same objectives. We are not going to be blinded by any ideological thinking,” added Birhanu.
