Abstract
Purpose: To critically review the theoretical arguments and debates on privatization, challenges, and prospects in the Ethiopian context, and the various countries experience on privatization with especial focus on sub-Saharan countries and come up with valuable directions to undertake the privatization process successfully. Design/Methodology/Approach: The entire review basis the theoretical end empirical literature published in various national and international reputable journals. Findings: Privatization is not a recent phenomenon globally; different economies practiced it via arguing and debating in terms of its economic and political benefits. Currently, the government of Ethiopia is practicing economic reforms to get ready for the country to join middle-income countries by 2025. In filling this gap, inter alia, the government has taken new initiative to privatize the existing wholly state-owned enterprises, both for local and foreign owners, with the primary objectives of limiting government's participation in the manufacturing and service sectors, and thereby realizing economic efficiency and competition, boosting foreign exchange, rising tax revenues, simplifying problems associated with costs of living through controlling inflation, reducing unemployment and alleviating the problem of good governance. Practical Implications: Finally, it tried to forward sequential steps that the government of Ethiopia should follow at least to mitigate the common mistakes and to undertake the privatization process successfully by alleviating the fear of the citizens that those SOEs would be concerted in the hands of some oligarchies. Originality/Value: the inferences made as a result of this review will offer new insights through which countries like Ethiopia, who are suffering from political unrest and enormous amount of unemployment, can justly distribute the wealth of public enterprises especially to the local citizens and thereby mitigate the unbalanced concentration of resources in the hands of some oligarchies. Keywords : privatization; a state-owned enterprise; privatization debates; Ethiopia DOI: 10.7176/JESD/11-11-06 Publication date: June 30th 2020
Highlights
The state in a given economy and within the existing sovereign power has a public purpose; exercising power in ensuring peace and security for the society, and protecting the country's sovereignty; engaging in economic activities via setting up of business entities undertaking commercial activities (Mihret, n.d.)
In the case of Ethiopia, the country's development strategy rests on the promotion of a free-market-oriented economy, the state's arm in the economy is most noticeable than that of the private sector, the government manifests the lion’s share of the economy
The government of Ethiopia passed a decision on June 5, 2018, to privatize such giant public companies by transferring to both foreign and local investors with the main reason, among others, to alleviate the severe foreign exchange problem in the country
Summary
The state in a given economy and within the existing sovereign power has a public purpose; exercising power in ensuring peace and security for the society, and protecting the country's sovereignty (traditional role); engaging in economic activities via setting up of business entities undertaking commercial activities (Mihret, n.d.). There is no universal or one best way to privatize (argument for contingency theory); areal option is the right choice, but not the obligation, to undertake privatization in an uncertain environment (real option theory); Social structures, including rules, norms, culture and values, guide people’s social behaviours (institutional theory); a country should use monitoring and control mechanisms to manage principal-agent relationships(agency theory); Critical assets are sources that a country should not privatize (resource-based view); a country should make privatization decisions that improve its economic efficiency and society as a whole (transaction cost economics) All these theories have their own prepositions in the literature for empirical investigation (see (Carter, 2013), not the scope of this paper. In Kenya and Côte d’Ivoire (a country generally considered capitalist), the state still holds extensive business holdings in most areas of the economy including multinational corporations and has not excluded private individuals from holding large stakes in the economy, there have been complaints about asymmetrical competition (Steve, 2002)
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