A cursory review of the track record of the Ethiopian private sector over the twenty-odd years is encouraging given it is relatively in its infancy though a lot still remains to be done. It remains uncompetitive because it has been unable to break the mold and still does business the same old way.
There are a host of factors to which the anemic state of the sector can be attributed.
In a free market system the private sector is the engine of the economy. In the developed economies its contribution to the Gross Domestic Product (GDP) is substantial. And closer to home, the sector is in a much better shape in northern and southern Africa nations as well as in neighboring Kenya.
Breaking down by economic sectors the private sector’s performance is relatively better in finance, service and commerce than in manufacturing and infrastructure building where foreign investors, particularly the Chinese, play a prominent role. Consequently, it is struggling to stand on its own feet let alone be a driver of growth.
Although the sector is active in import and export activities, the pace at which its share of the country’s import and export trade is growing is sluggish; moreover its contribution to boosting the volume and range of value-added products and/or services is negligible. With the exception of a few commodities the country’s export earnings is way below its potential despite the government’s ambitious targets. And, by and large, importers do lack the appetite to engage in manufacturing and agro-industry with a view to produce locally the food and clothing items they import and thereby contribute to easing the problems observed in connection with these basic necessities as well as helping to lessen the expenditure of desperately needed foreign exchange.
The reason customarily put forward to justify the private sector’s lackluster performance in this regard is the lack of financing. However, there exist rafts of international lenders who are willing to finance viable projects. Among these is the International Finance Corporation (IFC), which has opened offices here and is accepting applications. It’s not only banks which ought to support the private sector play a greater role in the manufacturing and other value-adding sectors, though; the government must also facilitate the conditions which enable citizens to secure the funding they require to invest in these areas. If all this is to be realized, however, the private sector has to take the longer view.
Towards this end, the private sector must first develop a road map setting out its vision and how it plans to go about achieving it. If, at a time the world is becoming a globalized village, it is fixated on businesses which offer quick profits in disregard of opportunities which assure solid and sustainable returns, it is bound to be shoved aside by savvy foreign investors. Unless it hastens to reposition itself immediately from its disproportionate focus on the service sector towards manufacturing, agro-industry and other long-term investments, which admittedly are characterized by disincentives that deter most private sector actors at the moment, the sector’s very existence will be severely tested in the not-too-distant future. It’s not only in terms of finance, machineries or human resource that the private sector needs to enhance its capacity, however; more importantly it must benchmark modern management practices and take it upon itself to be governed by a strictly enforceable code of ethics. Sticking with backward business customs and the mentality of preferring a shortcut to amass profit by co-opting corrupt government officials and middlemen instead of through hard work does not only put paid to healthy competition and exacerbate inflation by increasing the cost of doing business but is also ultimately destined to be self-destructive.
The private sector can contribute its due share to the endeavor to accelerate the country’s development if and when the government provides it with the necessary support. This includes, among others, putting in place a level playing field with a view to fostering competition, introducing policy incentives which take into account both local and global realities, and desisting from emasculating the sector through constant accusation that it is a rent-seeking behavior so that it plays an active role in the economy. No matter how much the government views the sector as a problem child, it has the obligation to help it overcome its shortcomings and become part of the country’s development narrative. At least the fact that it’s the biggest employer after the government should count for something.
It’s primarily up to the private sector to rid itself of the complex problems besetting it. The surest way to go about accomplishing this goal is to engage in a critical self-evaluation with the objective of envisioning the future it wants to see as well as formulating the strategies and securing the resources needed to realize it in compliance with the law and through hard work. If it does not to display the courage to undertake this exercise, its fate will hang in the balance.
[TheReporterEthiopia]