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Privatization looms

Privatization looms

-Ethiopian reaches milestone in fleet

By Birhanu Fikade and Dawit Endeshaw

The Ethiopian Airlines Group (Ethiopian) marked a progressive milestone this week by receiving the delivery of its 100th Boeing aircraft to serve its 110 destinations across the world, while in the same week the Ethiopian government has passed the unprecedented decision to privatize the national flag carrier and a handful of other State Owned Enterprises (SoEs), which are considered to be the crown jewels of Ethiopia for many years.

Received by joyous diplomats and dignitaries, Boeing-787 Dreamliner aircraft landed at the Addis Ababa Bole International Airport on Thursday before it departed to its launching route to Geneva, Switzerland. Tewolde GebreMariam, Group CEO, said during the reception, “With the addition of the 100th aircraft, Ethiopian has reached a historical milestone that enabled the airliner to become first both in fleet size and in terms of operating the youngest and modern aircrafts in Africa.” According to the CEO, the average age of the 100 aircrafts is less than five years.

Spreading wings across international routes, Ethiopian has been able to establish flights to major destinations in Europe with its latest flight to Geneva. Currently, out of the 110 destinations, 12 are in Europe. The City of Manchester, Istanbul and the like are in the making.

Despite its expansion and market consolidation, Ethiopian is said to be up for privatization. On Tuesday, Executive Committee of the Ethiopian Peoples’ Revolutionary Democratic Front (EPRDF) has decided to privatize some of the major SoEs including well-performing Ethiopian.

Ethiopian, Ethio Telecom, Railway Corporation, Ethiopian Electric Power and a number of Sugar Plants are to be partially privatized with the majority stakes still remaining under government’s ownership. However, many disagree with this decision. In fact, pundits have downplayed the move to privatize Ethiopian as careless. Zemedeneh Negatu, Chairman of Fairfax Africa Fund, questions the wisdom of privatizing Ethiopian and urges the government to reconsider its decision.

There are also concerns as to how Ethiopian’s assets and goodwill will be valued and how the shares are going to be floated to potential buyers. Given the efficiency and competence of the airliner, the unprecedented decision of the government to privatize it is also feared not to jeopardize the growth of the flag carrier.   

Privatization looms
Arkebe Oqubay (PhD) (right) explains about the brand new Boeing 787 aircraft Ethiopian has acquired
while Tewolde Gebre Mariam (second from left) happily smiles conceding successful milestones

 

The CEO defends saying privatization will in fact help the company grow further. According to Tewolde, Ethiopian has so far been able to expand into a group and running eight major profit centers. These include: Ethiopian Regional Services, Ethiopian International Services, Ethiopian Cargo & Logistics Services, Ethiopian Maintenance Repair and Overhaul (MRO) Services, Ethiopian Aviation Academy, Ethiopian In-flight Catering, Ethiopian Ground Services and Ethiopian Airports Services. The CEO also said that the hospitality business and the aerospace and aircraft manufacturing business will also be part of the privatization plan.

When asked how Ethiopian is going to be valued and how share prices are going to be set, Tewolde told The Reporter that, it is not going to be problematic as it has been acquiring stakes across African airlines over the years.

Ethiopian has a 40 percent stake in the Togo based Asky Airlines, another 40 percent ownership in Air Malawi, a 49 percent share in the Chadian and Guinean airlines, and the full control of an emerging airline in Mozambique with 99 percent ownership are some of the partnerships Ethiopian has been involved with so far. Having that, the privatization of the national flag carrier might need a cross-equity partnership which Tewolde sees as an important step to expand Ethiopian’s business portfolio.

With a contribution of close to USD 200 million to the country, annually, Ethiopian is sought to do more to ease the hard currency crisis in the country. Meanwhile, a recent World Bank report indicates that the overall hard currency intake of the airliner is estimated to be three times as much as coffee, a major export commodity for the nation.     

In a related news, the half-day EPRDF Executive Committee meeting, chaired by Prime Minister Abiy Ahmed (PhD), chairman of the party, and its decision to privatize some of the key SoEs in Ethiopia caught everyone by surprise as it contradicts the current ideological as well as policy practice of the ruling party.

The ruling party is known for advocating strong state involvement in the economic spheres in line with the teachings of the developmental state theory. However, the decision which was said to be passed unanimously by the 36-member EPRDF Executive Committee addressed a range of bold economic reforms considered to be outside of the realm of the developmental state model.

The reform sought to open up the space to private sector players to invest in government projects and companies working in railway, sugar, industrial park, and hospitality.

“This will create an inclusive growth,” reads the statement. In addition, the reforms are said to boost the country’s foreign currency generation capacity, and ease the cost of living.

In this respect, the party decided to transfers government-owned stakes at key SoEs including Ethio telecom, Ethiopian Airlines, Ethiopian Shipping & Logistics Service Enterprise as well as some of the hydroelectric power plants. “The government, however, will remain a majority shareholder in the aforementioned enterprises,” the statement noted further.

This decision has created a division of opinion among the public, to say the least.

Social media commentators have also seen division of opinion on the matter. While some commentators criticize the party for shifting its long-held ideological and policy fundamentals, others argued that such bold decisions should not be made by a closed group like the 36-member EPRDF Executive Committee, representing the interest of four parties with in the Front.

Though the statement repeatedly affirmed the involvement of local investors in the privatization of government-owned power, telecom, aviation and other companies, some commentators questioned this assertion saying that Ethiopia is yet to create such local capitalists who can compete equally with multinational corporations which are now openly expressing their interest to invest in Ethiopia’s SoEs.

Ironically, the reform came just few months before President Mulatu Teshome (PhD) told foreign journalists that his country is not ready to open sectors such as telecom and banking to foreigners in any form or shape.

Ethiopia is not ready yet for accepting investments in telecoms and finance,” Mulatu said during a joint news conference with his Polish counterpart, Andrzej Duda, during his latest visit to Poland.

The latest policy shift coming from the core of party was welcome by multinational companies with inherent interest to invest in Ethiopia.

MTN and VODACOM, major telecom players in Africa, have openly expressed their interest just hours after the statement was issued.

In an email response to The Reporter, MTN said that it is excited by the potential opening up of the Ethiopian market.

“Ethiopia presents many existing telecommunication opportunities and we look forward to further discussion with Ethiopian officials on potential partnerships and opportunities,” read an email response from Karen Byamugisha, external communication specialists from MTN Group.

He also disclosed that MTN has recently renewed its license to provide value added services in Ethiopia and will continue to maintain an office in Addis Ababa.

Headquarter in Johannesburg, MTN operate across Africa, Europe and Asia. Its total asset is estimated above 14 billion dollars.