Ethiopia’s Government: The Nation’s Top Entrepreneur

For the better part of the 20th century, still under monarchical rule, Ethiopia‘s economic policies were relatively liberal. Ethiopia’s eagerness to modernize its economy and society meant that it needed foreign assistance in terms of capital and technology. As a result, Ethiopia allowed and even incentivized many foreign investors to start businesses in Ethiopia. The government was far from passive though, launching state-owned enterprises like the Ethiopian Postal Service—founded in 1894 and later modernized with French and Swiss assistance—and Ethiopian Airlines, established in 1945 with support from the United States and other Western partners. While these efforts spurred economic growth, particularly in modern sectors like trade and transport, the economy remained anchored by subsistence agriculture, with foreign ownership prominent in cities.

Following the Ethiopian Revolution of 1974, which ended the monarchy, the Marxist-Leninist Derg assumed power and, like many Afrocommunist regimes of the era, enacted an aggressive nationalization policy. Privately owned enterprises, including industries and urban properties, were seized—often with minimal compensation. This crippled Ethiopia’s nascent private sector but greatly expanded the government’s holdings. By the late 1990s, the Ethiopian government had a large portfolio of companies - some succeeding, most failing. 

After the fall of the Derg in 1991, the subsequent EPRDF-led government enacted relatively liberal economic policies. Between 1994 and 2004, about 362 SoEs were privatized in full or in part. This was mainly due to pressure from international financial institutions, high public and external debt, as well as the poor performance of SoEs in profitability. Despite these efforts, Ethiopia’s economic system remained far from a free market. The government retained substantial control across key sectors, such as banking, telecommunications, and airlines, while restricting foreign investment with the stated reason of safeguarding economic sovereignty. Consequently, the state, through its affiliated conglomerates, either monopolized or dominated numerous Ethiopian industries.

Current SOEs in Ethiopia

Currently, there are about 40 state-owned enterprises in Ethiopia. Each of these entities runs multiple businesses. For example, the Ethiopian Sugar Industry Group has thirteen factories. The Ethiopian Airlines Group has eight business units including an aviation university. Thus, state-owned enterprises have a vast network of businesses, hiring hundreds of thousands of people and providing services to millions more. With few exceptions (like Ethiopian Airlines), most SoEs suffer from poor performance in terms of service quality and profitability. To mitigate this issue, the Ethiopian government has established a sovereign wealth fund.

The Ethiopian Investment Holdings

The Ethiopian Investment Holdings (EIH) is the nation's sovereign wealth fund. It describes itself as “the strategic Investment arm of the Government of Ethiopia”. A sovereign wealth fund's responsibility is managing a country’s surplus wealth. This means EIH works to ensure SoEs become profitable and manages the reinvestment of profits into the enterprises themselves. Since its establishment in December 2021, the EIH has rapidly expanded its portfolio, now with 40 SoEs under its belt. According to its website, it has a total asset of $45 billion, while the International Forum of Sovereign Wealth Funds, which EIH is a member of, puts that number at $150 Billion, making it the largest sovereign wealth fund in Africa. 

Is Privatisation the Way Forward?

Currently, the Ethiopian government thinks so. The main approach of the Ethiopian government towards liberalization, however, has been the privatization of sectors instead of enterprises themselves. According to Brook Taye, head of EIH, the main strategy regarding SoEs is building up their commercial viability. That being said, some efforts have been made toward privatizing Ethiopia’s SoEs, with Ethio Telecom announcing sales of 10% of its stake in October 2024.

The primary argument for privatization is that it boosts service quality and efficiency. State-owned enterprises (SOEs), with rare exceptions like Ethiopian Airlines, often fall short of delivering top-tier services or reaching their full potential, hampered by bureaucratic inefficiencies, chronic underfunding, and a lack of competitive pressure. Private ownership aims to ignite innovation, accountability, and performance by introducing market-driven incentives, pushing companies to prioritize customer satisfaction and profitability over state-directed objectives. That being said, the evidence for this is far from unanimous. During Ethiopia’s privatization wave from 1994 to 2004, reports highlighted mixed outcomes: while capacity utilization often improved in privatized firms, productivity, and profitability sometimes declined.

Ultimately, it’s a mixed bag—neither privatization nor state ownership guarantees success without effective leadership. Ethiopia’s SOEs hold the potential to drive the nation toward an industrialized future, but only if guided by strategic vision, robust governance, and adaptability can they overcome entrenched inefficiencies and deliver on that promise.