In August, Brook Taye took on the role of chief executive at Ethiopian Investment Holdings (EIH), inheriting a critical responsibility in Ethiopia: the reform of the country’s state-owned enterprises (SOEs).

Since its inception in 2021, EIH has served as the Ethiopian government’s strategic investment arm, managing a diverse portfolio of 40 companies with a total value in the tens of billions of dollars. This includes significant entities such as the national airline, the state telecom company, and the country’s top bank, as well as enterprises involved in electricity, manufacturing, construction, trading, chemicals, hospitality, and insurance.

“We see ourselves as an entrepreneurial state,” Brook remarks, noting his position as a member of the committee steering Ethiopia’s economic policies. “We strongly believe that substantial developmental progress can be realized through our state-owned enterprises.”

The creation of EIH embodies the ambitions of Prime Minister Abiy Ahmed, who presides over its board. His first six years in office were characterized by political turmoil, including a devastating conflict in the north and ongoing unrest in various regions.

The Ethiopian government is currently working to breathe new life into its economic strategy after launching an IMF program in July. It has devalued the birr and opened certain sectors like banking to foreign competition. However, Brook emphasizes that this does not signify an immediate shift toward privatization.

“Market liberalization does not mean we are liquidating state assets,” he clarifies. “The government does not possess a privatization strategy; instead, we focus on reforming state-owned enterprises.”

Commanding heights

For years, the Ethiopian state has maintained a dominant role in the economy. Ethiopian Airlines was established during Emperor Haile Selassie’s rule. Following his ousting in 1974, the country fell under a military regime aligned with the Soviet Union that nationalized land and businesses.

After 1991, the Ethiopian People’s Revolutionary Democratic Front (EPRDF) led the country, initially influenced by Marxist ideologies but later emphasizing capitalism within a “developmental state” model. In the first two decades of its governance, over 300 state-owned enterprises were privatized; however, the government continued to play a vital role in the economy, providing protection and preferential access to financing for its remaining firms.

“The government regarded these enterprises merely as tools for policy implementation, neglecting their commercial viability,” Brook explains, drawing from his background as a regulatory analyst, private equity fund manager, and ministerial advisor. “This oversight exacted a heavy toll, contributing to the debt burden we now face.”

The core philosophy behind EIH, he details, is that it “must operate, think, and communicate as an owner” of its assets, rather than functioning solely as a regulator. He is focused on enhancing the firms’ commercial viability, particularly their return on assets, and aims to co-invest in new projects alongside private sector entities, as exemplified by a recent partnership with a Japanese firm to produce passports.

While EIH has not disclosed specific financial figures for its portfolio, it reported that its companies generated $18.5 billion in revenue for the financial year 2022/23. In the first quarter of this year, from July to September, it provided the government with a dividend amounting to 5.8 billion birr ($46 million).

Even though some of its companies, like Ethiopian Airlines, are highly profitable, others face difficulties. The IMF has identified the debts of state-owned enterprises as an “acute” fiscal risk, particularly highlighting loss-making entities in the railway, electricity, and sugar sectors, which are under EIH’s management.

A chunk of debt equivalent to 9% of GDP was transferred from state companies to a newly created corporation in 2021, where it is now classified as government debt—though this “did not come with operational improvements,” as cited by the IMF this year.

“We have a very limited number of struggling companies,” Brook asserts. “Their challenges stem either from legacy issues, such as those tied to the sugar enterprises, or from cyclical market fluctuations. The rest are thriving.”

Despite the government’s default to foreign bondholders and the IMF’s call for a quicker pace of reform, there is pressure to sell off state assets for immediate revenue. Nevertheless, Brook believes Ethiopia has gleaned vital lessons from the experiences of other African nations and Eastern European states, where hasty privatizations led to disastrous results.

“They divested when companies were weak,” he insists. “No prudent owner would do that. One wouldn’t sell their house in a down market; instead, you would enhance its attractiveness to secure a better sale price.”

Telco troubles

Efforts by EIH to partially privatize companies sometimes struggle to find suitable buyers. The government has yet to successfully sell a 45% stake in Ethio Telecom, the country’s leading telecom provider. Brook attributes this challenge to a “plethora” of factors, including the global economic situation, the COVID-19 pandemic, and the unrest in northern Ethiopia.

“The 45% offer is still on the table,” he confirms. After unsuccessful attempts to attract a telecom operator, the government may explore investments from financial sector firms.

Meanwhile, the government is selling a 10% stake in Ethio Telecom to domestic investors, with Brook reporting that this process is progressing “very well.” He emphasizes that this sale does not conflict with the 45% offer, as the government “has no intentions of retaining a majority [stake]” in the long run.

This sale of Ethio Telecom shares is part of the preparations for the launch of the Ethiopian Securities Exchange (ESX) in January. As the largest country without a stock exchange, Brook—who previously served as director-general of the Capital Markets Authority—argues that it is high time for such an establishment.

“The market holds the potential to mobilize significant financial resources for development,” he affirms. “It would create a proper yield curve for treasury bonds and notes, and attract funding from local markets, while also benefiting foreign institutional investors.”

Brook indicates that EIH aims to list firms involved in shipping, printing, insurance, and duty-free operations in addition to these developments.

Taking wing

Realizing Ethiopia’s economic ambitions faces considerable obstacles amid ongoing political, social, and security challenges. Investors may be hesitant to commit to a nation where traveling beyond the capital entails risks of kidnapping on the roads.

Yet, Brook maintains optimism about the long-term future of Africa’s second most populous nation. When asked about the models he admires, he points out “Ethiopia—it’s called Ethiopian Airlines.” The national carrier has survived 79 years of upheaval throughout various regime changes. “What has assured its endurance? One consistent factor: it has been managed commercially, free from interference.”

Critics contend that the Ethiopian state has been too slow to withdraw from its economic stronghold. Others warn against prematurely divesting important assets like Ethio Telecom before fully realizing their economic potential.

Brook appears to envision a balanced strategy, where the government retains control of major enterprises while allowing them to compete more effectively, even against foreign competitors—similar to how Ethiopian Airlines has faced rivals from other African carriers.

“We must liberalize because Ethiopia doesn’t win gold medals in the 10,000 meters [in Addis Ababa],” he declares. “We claim victory in Paris and earn gold due to the competition.”