Privatized resort set for auction over unpaid government debt
Ethiopia’s state-owned enterprises struggled to achieve key financial targets for the public sector last year due to liquidity shortages and large-scale capital investments, according to a new report from the administration overseeing government corporations. The challenges came despite efforts by many state firms to bolster capital reserves through recapitalization programs
The Ethiopian government had planned to generate 457 million birr in dividends from nine state-owned enterprises under the Public Enterprises Holding and Administration (PEHA) in the last fiscal year, but only succeeded in reaching 10 percent of that target.
The two state firms expected to contribute most of the targeted half billion birr dividend, the Ethiopian Postal Service and the Ethiopian Industrial Inputs Development Enterprise (EIIDE), both failed due to liquidity problems, according to a PEHA report. The report also noted that the Enterprise is constructing a new 18-story headquarters, but has so far only covered 48 percent of the projected construction costs with funds mobilized.
“Most SOEs are investing in recapitalizing, which is why the dividend target was not met,” said Zemenu Dagninet, PEHA’s communications director. “Once they have capital, they will pay dividends to the government in the future.”
PEHA replaced 28 board members during the year, appointing 34 new members, highlighting management instability within the state-owned companies. However, the nine SOEs under PEHA did manage to increase profits before tax to 8.2 billion birr for the year, surpassing the 6.69 billion birr target. This represents a 61 percent rise from the previous year’s profits.
The Development Bank of Ethiopia (DBE) accounted for most of the profits at 79 percent. Ethio Engineering Group, formerly known as MetEC, had planned to generate one billion birr from asset sales but only achieved 400 million in actual sales.
The nine SOEs under the watch of PEHA are commonly the poor-performing SOEs. The well-performing SOEs, which includes 26 SOEs, are managed under the Ethiopian Investment Holding (PEHA). These include giants like Ethiopian Airlines, Ethio Telecom, and Commercial Bank of Ethiopia (CBE), among others. PEHA’s report excludes the SOEs under EIH.
The 26 have registered 100 billion birr in profit during the 2022/23 fiscal year, out of the 900 billion birr aggregate revenue, according to Yasmin Wahabrebi, deputy CEO of EIH, speaking to state media last week.
Apart from managing the nine SOEs, PEHA is also responsible for collecting revenues from SOEs privatized before. To this end, PEHA collected half a billion birr from previously privatized SOEs. This was collected from five SOEs previously privatized.
“Some of these are in court processes. Several privatized former SOEs are failing to pay costs on time. So we are taking them to court. The principal and interest accumulated on previous privatized OSEs is huge,” said Zemenu.
Asella Malt factory, Tepi Green Coffee, Sodere resort, Ethiopian crown cork and can manufacturing enterprise, Dire Dawa Ras hotel number two, and Residential Housing Corporation are a few of the former SOEs that failed to pay their costs, according to Zemenu.
“After they are privatized, they are transferred to the owners. But the buyers failed to pay the full payments. Some of them are changing names and ownership to evade payments. The interests are piling on the principals. Some of them are in court,” he said.
Sodere Resort, which was sold to DEK Oromia Business Investment Plc years ago, is currently set to be auctioned in the next few weeks, after the buyers failed to pay 60 million birr to the government in the first five years following the privatization. The resort was put up for auction in July but the owners of DEK managed to obtain a court injunction. However, this time the federal high court has lifted the injunction and ordered the auction to take place on October 9, 2023.