Should Ethiopia Sell Ethio Telecom?
By Staff Reporter
August 23, 2019 (Ezega.com) – Last year, the government of Ethiopia announced plans to sell some key sectors of the economy, including Ethio Telecom, Ethiopian Airlines, and 13 sugar factories.
Following the announcement, some foreign companies have shown interest in these ventures, especially in Ethio Telecom. They include Vietnam's state-owned telecom company, Viettel, Johannesburg-listed MTN, and France's Orange.
The state-owned telecom monopoly has been earning the government hundreds of millions of dollars annually, contributing to the lion’s share of the country’s annual budget, which has been subsidized for decades with foreign loans and assistance.
The late Prime Minister Meles Zenawi was quoted as describing Ethio Telecom as money-printing machine. And former Prime Minister Hailemariam Desalegn equated Ethio Telecom to a cash-cow for the government. Both leaders avoided even discussing the issue of selling off Ethio Telecom. Meles Zenawi, in particular, was dead against the idea of selling Ethio Telecom, even partially. His motivation may, however, have been more about politics than economics, as we will return later.
Prime Minister Abiy Ahmed came with a different idea. He expressed his government’s commitment to liberalizing the economy, including the telecom space. He justified his plan based on the overall benefit to the country, and not just to the government. By selling Ethio Telecom, he argued, the company will be better managed, and the nation will get far better and cheaper telecom services, and technology transfer to local operators and businesses - and more money to government coffers as well. Further, he said, better managed Ethio Telecom will resist competition from giant foreign telecom companies that will come sooner or later.
However, some argue, since the imperial days, telecommunication, Ethiopian Airlines, and shipping lines have served as symbols of freedom for Ethiopia, helping the nation to stand on its feet economically. What will the government do with the money after it sells off Ethio Telecom? According to some of these people, the government wants to sell these companies to ease off its chronic debt burden and foreign currency shortages. They claim it is looking for more of a short-term gain than a longer one. And they claim the temporary relief the government may get from such a sale will be too little and too late, but the consequences will be massive and for years to come.
According to the government strategy, Ethio Telecom will be one company with two wings – service provider and infrastructure developer. A foreign company which will buy 49 percent of the company can benefit from both wings of Ethio Telecom, as the company remains one.
Those who support the government’s decision to sell argue that the foreign companies would bring in dollars to invest on telecom infrastructure, which requires huge investments, amounting to as much as $2.2 billion, to leapfrog the country to latest digital economy.
They claim that communication infrastructure will play a key role for the rapid growth of a country like Ethiopia. The buyer would significantly contribute to the modernization of our archaic system, including the expansion of 4G services, which is now limited to Addis Ababa. Modern telecom service is a key building block to digital economy and the sooner we modernize it, the higher the impact will be, they argue. According to them, we are talking about small money now compared to it can be - huge.
But Ethio Telecom has never been just about economics. Over the years, Ethio Telecom has been used as a political tool by the government. Time and again, it has been used, intentionally, to deny the public the right to information and freedom of expression by closing internet and social media outlets using different excuses.
For instance, Facebook and Youtube services have been shut down after the killings in Bahir Dar and Addis Ababa in June this year. Internet connections were also interrupted on different occasions prior that upon the orders of the government, which claims such platforms threaten the security of the nation – just as previous governments have claimed before them in the last three decades or so, including the government of the late Prime Minister Meles Zenawi, that shut out dozens of websites from Ethiopia for years and years.
Some who favor the sale of Ethio Telecom have this issue in mind. They believe the addition of a third party may diminish the government’s impulses to use Ethio Telecom for political purposes. Even if the government continues to meddle, these people still see benefits from partial privatization. According to them, the modernization of the telecom sector will increase internet penetration and mobile usage so much so that, even if the government attempts to restrict access, far more people will still have access by various technologies, such VPN (Virtual Private Network), than is currently possible. Simply put, the increase in the number of users and the speed of usage will net the country far more informed people than is the case currently. And this is not just about economics, but also about the democracy, rule of law and stablity.
Critics of the status quo also say many African countries provide better telecom services. Even fragile states such as neighboring Somalia started mobile banking a long time ago. Somalia did so because it opened its telecom sector to private companies years ago.
The ruling EPRDF seems confused as to which economic system to follow. In a break with previous administrations, Ethiopia's new Prime Minister Abiy Ahmed declared that he favors free-market capitalism as the country’s preferred economic model, while major public sectors are owned by the government. But some of the current Ethiopian leaders claim they are revolutionary democrats and they would like to adhere to developmental state theory. This has left the general public confused as to which economic policy the country is pursuing.
Those people who argue against the government's move of liberalizing key national businesses claim that Ethio Telecom is like cash cow that can help the state with steady money flow. They wonder why the government wants to sell the cow and buy its milk, instead of making Ethio Telecom efficient and bigger and get more money. They say the government shall rather remain actively engaged as a market player directly providing services and contracting out certain activities, when necessary, to ensure competition, efficiency, service quality, ownership and broader public objectives.
Those against privatization also doubt whether the Prime Minister’s office has good advisors, where a language teacher is appointed as an economic advisor. They wonder whether a new advisory team should be formed with superior expertise and economic knowledge so that it can devise the nation’s strategic development plan and provide guidance to the Ethiopian public.
Some are also requesting the government to create a platform where all concerned stakeholders, including employees of Ethio Telecom, major Ethiopian businesses and the chamber of commerce, discuss the pros and cons of selling the telecom giant. They say a thorough study must be conducted by concerned professionals before the government rushes to privatizing such key businesses.
Over the years, Ethio Telecom has had a good track record of repaying its debt owed to international and local lenders and won the confidence of creditors on reimbursement of remaining debts with grace period of until 2029. Some ask, why would the government sell one of the most successful businesses of the nation?
Some also question the economic benefit to consumers. In a “free economy,” service providers can increase price indefinitely, disadvantaging consumers. According to these people, it is better to work on a strategy to make Ethio Telecom more efficient and more modern while retaining state-ownership. They cite Ethiopian Airlines as an example, which is not only profitable, but also one of the most-competitive in Africa and the world – and still state-owned. They ask, can we run Ethio Telecom with greater autonomy and world-class management team while still under government control?