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Departure from developmental state
World Bank press briefing held on Wednesday at the its head office near Wello Sefere

Departure from developmental state

Ethiopia’s reform represents significant shift in development model, WBG said

Bank supporting liberalization of telecom, energy and logistic sectors

Following it landmark decision to continue its long-severed budgetary support for the Government of Ethiopia (GoE) in tune of USD 1.2 billion, the World Bank Group (WBG) is very optimistic in what it called a “structural reform process” the administration of Prime Minister Abiy Ahmed (PhD) is embarking up on to the point where it is convinced that the intentions of the GoE with regards to some of the key service sectors like telecom and logistics is to implement a concrete liberalization and opening up measures.

In fact, the Banks’ experts foresee that the scale of reforms envisaged in the “the three years reform roadmap,” which they discussed with the authorities, is nothing less than a plan for a slow departure from the long-held Developmental State (DS) economic model of Ethiopia. While the model (DS) had been undeniably successful in delivering development outcomes for the country in the past, the Bank believes, it is approaching its inevitable limit as a prudent economic strategy for Ethiopia.

According to Mathew Verghis, macroeconomic expert with WBG, as successful as the state-led economic model has been, thus far, the time has come for a major rebalancing through an extensive participation of the private sector.

While official announcement from the GoE, so far, has been about the planed partial privatization of the some of the government monopolies in sectors like telecom, logistic and air transport, Mathew and his team, on the basis of the discussions they have conducted with the authorities, are convinced that the reform drive is much more bigger, and that it encompasses opening up these sectors for foreign and domestic competition.

“Yes, the original announcement might have been about partial privatization, and that is very encouraging dynamism in itself. However, it is our view that Ethiopia would reap the benefit of privatizing better if this move is augmented with some level of competition in these sectors; and I gather the government’s intention, too, is to move to that direction,” Mathew told reporters at WBG country office on Wednesday. 

Restarting after 15 years, the Bank’s direct budget support emphasizes on three major pillars: development finance, business climate and financial sector, and broader transparency and accountability, says Nataliya Mylenko, task team leader for the Growth and Competitiveness Operation. 

For her, some of the measures taken by the GoE since June— including the implementation of Public Private Partnership (PPP), reforms in the energy and telecom sectors, reforms in the business licensing regulations which significantly reduced business licensing categories, expected reforms in the business competition law and investment proclamation, impending reform in the civil society proclamation, and significant reforms in the regulation of State owned Enterprise—warrants the support offered to Ethiopia.

Carolyn Turk, country director of WBG for Ethiopia, Sudan and South Sudan, as well insists that the intention of the reform agenda is radical enough to reestablish trust with authorities and directly support their policy initiatives.

For Nataliya, the partial privatization measure alone is not something that should be taken lightly. Privatization is a vastly complex process especially in an economic structure like Ethiopia’s, where SoE are not only major actors in some of the indicated sectors, but they are also monopolies, Nataliya explains.

“The authorities has to figure out, what type of regulatory and governance framework is best in these sectors, how will the government divest from this SoEs, and what will be the right of the minority and majority shareholders in these to be privatized companies,” she argues.

Going forward, privatizing these major players would also affect the industries they are operating in, she underscores. “Hence, the specific market structures, the level of competition and the overall industry regulatory mechanism has to be well thought out.”

The global experience with regards to privatization is mixed bag of successful transitions and miserable failures, according to Nataliya.

Broadly considered, privatization is two-step process where in the first stage the modality of privatization is selected and in the second the actual transactions such as the bidding process is undertaken. However, the Bank’s experts are in agreement that the process is still in its early stages in Ethiopia.

Nataliya cautions that the privatization secretariat established by GoE is still in the process of identifying the various modalities of privatization and currently the Bank is providing technical assistance in this regard. “Privatization is an arduous undertaking and as such it is not only marathon but a multiple of marathons,” she concludes.        

It is to be remembered that following the highly contested national election 2005 and the associated violence that claimed the lives of some 200 people, major development partners of Ethiopia, both multilateral and bilateral, discontinued their direct budget support to the country. Instead, the bulk of the development assistance was redirected to program based assistance targeting projects and development programs implemented by the lower tiers of government and NGOs.

However, following the appointment of PM Abiy and the announcement of some of reform measures to be undertaken by his administration, some of Ethiopia’s development partners are expressing their intention to support the policies of the new PM directly. Among them, WBG is the first to take concrete action with its board of directors approving a direct budget assistance package of USD 1.2 billion (composed of 50 percent grant and 50 percent concessional loan) at end of last month.

In a similar fashion, in his recent trip to Europe, PM Abiy has received a pledge from the French President Emanuel Macron for another rare direct budgetary support for his administration.

WBG has the biggest multilateral development partner for Ethiopia for decades now and currently it manages an assistance portfolio of USD 13 billion in Ethiopia which is mostly focused on human development and provision of basic services.