Lecture Five Privatization Belaynew Ashagrie, HU College of Law, 2015

Meaning and raison d'être of Privatization Meaning of privatization: It is a process of transferring ownership of business from public sector/government/ to the private sector/business. Broadly speaking it is “privatization refers to transfer of government functions to the private sector including revenue collection and law enforcement.” Belaynew Ashagrie, HU College of Law, 2015

What is being privatized? It has no limits Belaynew Ashagrie, HU College of Law, 2015

Why privatization? It improves the use of public resources It improves operating efficiency It improves dynamic efficiency Belaynew Ashagrie, HU College of Law, 2015

How to privatize? Governments must create a conducive environment Governments must streamline the privatization process Governments must prepare the enterprise for privatization Belaynew Ashagrie, HU College of Law, 2015

Arguments for and against Privatization Proponents have the following arguments: Performance Corruption Accountability Goals Security Belaynew Ashagrie, HU College of Law, 2015

Arguments Opponents of privatization said: Performance Corruption Goals Capital Lack of market discipline Cuts in essential services Concentration of wealth Political influence Downsizing Profit Belaynew Ashagrie, HU College of Law, 2015

Privatization in Ethiopia Earlier in 1960’s there was a great belief that the government will engage actively in managerial, administrative and distributive functions. However, this thought does not have an acceptance in the period after 1990’s due to various reasons. In such period many governments across the world come to understand to reduce the engagement of the government in such activities. Belaynew Ashagrie, HU College of Law, 2015

Privatization in Ethiopia In addition, many international financial institutions such as he World Bank and IMF pushed countries to privatize government held companies to the private sector. This measure is usually known as Structural Adjustment Policy (SAP). Such institutions similarly had forced the Ethiopian government to privatize publicly owned enterprises. Belaynew Ashagrie, HU College of Law, 2015

Privatization in Ethiopia In 1991, in Ethiopia: There have been many public enterprises, Some of the enterprises were run in crisis, Some of the enterprises survived due to government subsidy and others due to monopoly position, Arguments for and against privatization have arisen. Belaynew Ashagrie, HU College of Law, 2015

Privatization in Ethiopia Against privatization: said that government is not inherently inefficient and that failures had to be attributed to institutional weaknesses in these public enterprises. Failure of public enterprises did not necessarily mean privatization was the solution. Belaynew Ashagrie, HU College of Law, 2015

Privatization in Ethiopia The groups who are gainst privatization asserted that PE would be efficient if: greater administrative autonomy is assured, they are put in harder budget constraints, the number of employees number is cut into appropriate size, merit based recruitment and promotion of workers is set in motion and enforced strictly, and flow of profits to the central treasury is required by law. However, this argument advocated for parallel growth of the private sector. Belaynew Ashagrie, HU College of Law, 2015

Privatization in Ethiopia Argument for privatization: Said that reform does not help in achieving economic efficiency; transfer of public enterprises to private hand would do. Belaynew Ashagrie, HU College of Law, 2015

Privatization in Ethiopia Proponents of privatization raise three things: PE performed very poorly not only in Ethiopia but also in many East European countries; If PE can be managed like private enterprises there is, then, no economic advantage for the government to retain them under its control. Some body else can do the job with equal and even better and greater efficiency. Argument of parallel growth of private sector has ignored the following points: Belaynew Ashagrie, HU College of Law, 2015

Privatization in Ethiopia The country has very low infrastructure The purchasing capacity of the people is very low due to the policy adopted by Dergue Nationalization adopted by Dergue resulted in loss of confidence of domestic and foreign investors There was also a pressure from IMF Belaynew Ashagrie, HU College of Law, 2015

Privatization in Ethiopia Finally, the economic policy of the transitional government in 1991 favored continuation of certain state enterprises. See: The Preamble of Proclamation No 25/92 (second paragraph) and The preamble of Privatization Proclamation No 146/98 (first paragraph) Belaynew Ashagrie, HU College of Law, 2015

Reasons of privatization in Ethiopia Art. 3 of the Proclamation To generate revenue required for financing development activities undertaken by the Government; To change the role and participation of the Government in the economy to enable it exert more effort on activities requiring its attention; and To promote the country’s economic development through encouraging the expansion of the private sector. Belaynew Ashagrie, HU College of Law, 2015

Privatization Laws Ethiopian Privatization Agency Establishment Proclamation No. 87/94 It establishes the Ethiopian Privatization Agency Establishment of the Board of Trustees for Privatized Public Enterprises Proclamation No 17/96 It establishes the Board of Trustee Privatization of Public Enterprises Proclamation No. 146/98 Proclamation No 412/2004 It merged the Ethiopian Privatization Agency and the Public Enterprises Supervising Authority Belaynew Ashagrie, HU College of Law, 2015

Art. 2(1) of Privatization Proclamation 146/98 defines privatization as: “Transfer through sale, of an enterprise or its units or asset or government share holdings in a share company to private ownership and includes: The making of an enterprise a government contribution to a share company to be formed with the participation of private investors; and The privatization of the management of an enterprise.” Belaynew Ashagrie, HU College of Law, 2015