Chapter Seven

Public enterprises in Ethiopia

7.1 introduction
Public enterprise is a business or organization that is owned and operated by the government
or state. Its primary purpose is to provide essential services to the public, such as
transportation, healthcare, and energy

Public enterprise, a business organization wholly or partly owned by the state and controlled
through a public authority.

Public enterprises play a significant role in the economic development of countries around the
world. In Ethiopia, public enterprises are essential for the development of infrastructure,
provision of services, and creation of employment opportunities. The characteristics of public
enterprises are unique, different from private enterprises, and are governed by various laws
and regulations. This article provides an overview of the characteristics of public enterprises,
shows the relevant proclamations that govern them in Ethiopia, discusses their organization,
operation, and liquidation, and highlights the privatization of public enterprises in Ethiopia.

The characteristics of public enterprises are different from those of private enterprises because
they are owned by the government, and their primary objective is to serve the public interest.
Public enterprises are established to provide essential services that may not be viable for
private businesses, primarily when there is a high risk associated with the operation, and the
return on investment is low. Public enterprises are also established to regulate the market,
stabilize prices, and prevent monopolies.

In Ethiopia, public enterprises are governed by various proclamations and regulations that
define their roles, responsibilities, and management. The Ethiopian government has established
several public enterprises to provide services such as energy, transportation, communication,
and banking to the public. The relevant proclamations that govern public enterprises in Ethiopia
include the Public Enterprises Proclamation No. 25/1992, the Public Procurement and Property
Administration Proclamation No. 649/2009, and the Public Financial Enterprises Supervision
Proclamation No. 1038/2017.

The organization, operation, and liquidation of public enterprises in Ethiopia are also governed
by various laws and regulations. Public enterprises are established through legislation that
outlines their objectives, management, and powers to operate and regulate the market. The
Ethiopian government has established a Public Enterprises Supervising Agency (PESA) to
oversee the performance and management of public enterprises and ensure their efficiency
and effectiveness. The liquidation of public enterprises in Ethiopia is regulated by the Ethiopian
Commercial Code and the Public Enterprises Proclamation.

7.2. Public Characteristics

A public enterprise is necessitated by the need ―to find an effective and efficient economic

organization under socially satisfying conditions.‖ Hence, the economic and social aspects
converge in a single entity. It is a borderline entity sharing the features of a public entity and
business. A public enterprise combines dual features (in status and functions) as enterprise
aiming at profit while at the same time having public nature as a public entity.

It is proposed that the most effective methodology for identification is to specify the tests
which need to be met if an institution can properly be identified as a public enterprise. To this
end, certain tests can be employed, namely: ownership test, public purpose test, the field of
activity test, the concept of investment and return, the concept of marketing and the
commercial accounts.

These tests are believed to enable us conceptualize the notion of public enterprises and have a
better understanding of the entity based on its features.

A. Public ownership.

One manifestation of the public dimension of public enterprises is that they are owned by the
public. Sometimes distinction is made between ownership in the legal sense as a formal claim in
the framework of the legal order and ownership in the economic sense which inquiries into the
actual beneficiary from the thing The public is presumed to exercise the ownership through the
state, the government, local authorities or municipalities. The word ―public‖ is therefore used
as ―of or pertaining to the people, relating to or belonging to, or affecting a nation, state or
community at large; as opposed to private‖. Obviously, an enterprise becomes public if it is
wholly owned by public authorities.

In other words, there will usually be no doubt about the nature of an entity if ownership

exclusively belongs to a public authority. In this regard, Proclamation No. 25/1992 is explicit and

considers as public only those which are wholly owned by the state. However, public ownership
of enterprises becomes ambiguous when ownership is not full. Ownership may vary ―along a
continuum from zero to one-hundred percent presenting‖ a challenge to specify the cut-off
point

which distinguishes public from private enterprises.34 A predicament may thus arise regarding
enterprises that are only partly owned by a public authority as in the case of joint investment or
ventures. In the different laws which define the term, we have seen that although ownership is
an essential element, the extent of public investment is not resolved.

It is assumed that a majority shareholding by a public authority makes the enterprise a publicly
owned.

According to this view, an entity becomes a public enterprise if it is owned by public authorities,
central, state or local, to the extent of 50% (fifty percent) or more as that ensures managerial
control. From the various definitions examined above, we can observe that certain
proclamations merely require the existence of public share in an investment to consider it
public. However, it may be inquired whether an enterprise in which the stake of the
government is less than private contribution and consequently with reduced financial stake and
control can be considered as a public enterprise.

It can be argued that an entity with minority governmental shareholding may still be regarded
as a public enterprise depending on whether the other elements of the public dimension are
present.

Accordingly, it is submitted that with adequate measure of public control and public
management, an enterprise becomes public even if the government has minority holding.

What if the minority holding is devoid of any other characteristic of a public entity? In response
to such challenges, some suggest that the ownership boundary should be set at 50 percent
which appears to be the logical way of determining the public aspect of such enterprises based
on the stake of the government.
We can also inquire into the effect of indirect ownership. Where a fully state owned public
enterprise acquires majority holding in a newly formed enterprise, or if two public enterprises
that are fully owned by the government set up an enterprise, the question becomes whether
indirect ownership by the state confers public character on the new entity. In such cases, the
government is the indirect source of finance. Yet, one of the laws which extend the application
of the term to partial public ownership, excludes (from the definition) those share companies in
which the state owns shares through public enterprises.38 Distinction is often made between
ownership by the Government and ownership of public enterprises which are autonomous and
independent legal persons. Even though the Government ultimately owns the net assets of
such enterprises, it is doubtful to conclude that what is owned by the enterprises is owned by
the state. One can thus argue that ownership should be limited to direct ownership by the
state, the government, or local authorities.

b) Public purpose

A public enterprise has multiple purposes, including public purpose. The designation of purpose
is one of the conceptual differences between public and private enterprises. In particular, the
impact of the activities of the enterprise on the society is an essential element of the
distinction. The goals of public enterprises emanate from the state and the society and are
meant to attend to public purpose. But public purposes enunciated by public enterprises to
some extent depend on value judgment in addition to preferences of functions assigned to the
enterprises.

Moreover, the role of public enterprises hinges on the role and nature of the state which in
turn depends on economic and political considerations.

Ideally, the state may be considered as representative of the people, which will administer
public enterprises on behalf of the latter. However, in reality, it may become an agent of the
ruling class or group or interest groups. Thus, it is argued that the state may not define public
purpose in such a way that the public enterprise would serve the interest of the people as a
whole.

The establishment of a public enterprise usually presupposes the attainment of some public
policy goals. The rationale for setting up these enterprises is that they are better instruments
for promoting developmental goals. This could be reflected in the corporate objectives of or the
allocation of resources in an enterprise. For instance, one of the purposes of EthioTelecom is
―to engage, in accordance with development policies and priorities of the government, in the
construction, operation, maintenance and expansion of telecommunications networks and
services.‖ Unlike ordinary enterprises, the priority is set by the government irrespective of
economic returns and prudent business practice. Ethiopian Grain Trade Enterprise, inter alia,
aims at the stabilization of markets for farmers' produces so that they will be encouraged to
increase their outputs. These objectives may not be profitable in business terms. However, the
idea is that the public benefits from the realization of the objectives.

Unlike a private business, profit is not the only motive that drives the enterprise or its decisions.
It has public purpose to achieve such as employment, public service, access, fair distribution,
economic development, and other elements of public interest. However, the question remains
whether they are supposed to cater for a particular public purpose though it could threaten the
commercial existence of the enterprise. This issue was raised when Ethiopian Grain Trade
Enterprise submitted its report to a committee of the Council of Peoples‘ Representative. In
response to a query posed by the committee, it was argued that stabilizing the market cannot
be undertaken unless the government guarantees to make up for the imminent loss incurred by
the Enterprise.

C) Public Control and Management.

Government‘s inherent power enables it to exercise control on private or public enterprises.

However, the control it has over public enterprises as an owner is internal control which
involves ―agent-principal‖ relationship between the government and the enterprise. As
enterprises are controlled by persons who have made the investment, government control over
public enterprises is primarily practiced through its power to appoint top management. A public
enterprise is controlled and managed by the owner, i.e., the relevant public authority.

Accordingly, one of the items to be stated in the establishing legislation is the name of the
supervising authority which protects and promotes the interest of the public in the enterprise.
Thedesignated public authority is responsible to appoint and remove the members of the board
who are empowered to appoint and direct the management of the enterprise. It also appoints
external auditors, approve financial reports of the enterprise and external audit reports and
approve the investment plan of the enterprise submitted to it by the Board. It is through these
tools that public authorities control public enterprises.

D. Public accountability
A public enterprise has to be accountable in some way to a legitimate organ representing the
public. The question that entails on what matters and to whom the public enterprise is
accountable will depend on the precision of goals which have been set for the enterprise, the
agreed upon criteria of evaluation, and clarity of who the evaluators are or to which agency is
an enterprise reporting. All proceedings and records of activities of the organization must be
available for public (government) scrutiny when demanded. Indeed it is customary that
performance reports of public enterprises are regularly submitted to the government.

7.3 Over view of proclamations pertinent of public enterprise in

Ethiopia

There are several proclamations in Ethiopia that are pertinent to public enterprises. Some of
the key ones include:

1. Public Enterprises Proclamation No. 25/1992: This proclamation establishes the legal
framework for public enterprises in Ethiopia. It defines what constitutes a public enterprise,
sets out the objectives and functions of public enterprises, and outlines the governance
structure for these entities.

2. Public Procurement and Property Administration Proclamation No. 649/2010: This

proclamation governs the procurement of goods, works, and services by public enterprises. It
sets out the rules and procedures for procurement, including the requirement for competitive
bidding, and establishes the Public Procurement and Property Administration Agency to
oversee the process.

3. Ethiopian Investment Proclamation No. 769/2012: This proclamation regulates investment in

Ethiopia, including investment in public enterprises. It sets out the rules and procedures for
investment, including the requirement for a business license and the protection of investors'
rights.
4. Ethiopian Privatization Proclamation No. 146/1998: This proclamation provides for the
privatization of public enterprises in Ethiopia. It sets out the procedures for privatization,
including the valuation of assets and the sale of shares to private investors.

5. Ethiopian Revenues and Customs Authority Establishment Proclamation No. 587/2008: This
proclamation establishes the Ethiopian Revenues and Customs Authority (ERCA) to collect taxes
and customs duties on behalf of the government. Public enterprises are required to pay taxes
and duties to ERCA in accordance with this proclamation.

Overall, these proclamations provide the legal framework for public enterprises in Ethiopia,
governing their establishment, governance, procurement, investment, privatization, and
taxation.

7.4 Organization, operation and liquidation of public enterprises

Public enterprises in Ethiopia are created and owned by the government. They play a crucial
role in the country's economy by providing essential goods and services such as transportation,
communication, energy, and health. In this article, we will discuss the organization, operation,
and liquidation of public enterprises in Ethiopia.

7.4.1 Organization

The organization of public enterprises in Ethiopia follows a centralized system where the
government owns and controls the enterprise. The government appoints a board of directors
that is responsible for overseeing the operations of the enterprise. The board of directors is
appointed by the Prime Minister and consists of government representatives and experts in the
relevant fields.

The board of directors appoints the management team responsible for the day-to-day running
of the enterprise. The management team is accountable to the board of directors, and the
board is accountable to the government.

7.4.2 Operation

The operation of public enterprises in Ethiopia is guided by various laws, regulations, and
policies of the government. These laws, regulations, and policies outline the objectives of the
enterprise and the procedures for achieving them.
Public enterprises in Ethiopia are expected to operate on a commercial basis, meaning they
should generate enough revenue to cover their costs without relying on government subsidies.
However, some enterprises may receive subsidies from the government to ensure they operate
as a public service.

Public enterprises in Ethiopia are required to submit annual reports to the government,
including financial statements and performance indicators. The reports are used to evaluate the
enterprise's operation and ensure it complies with the government's objectives.

7.4.3 Liquidation

The government may decide to liquidate a public enterprise if it is not performing well, or if it is
no longer needed. The liquidation process follows a legal procedure that involves selling the
enterprise's assets, paying off its debts, and distributing the remaining proceeds to the
government.

The decision to liquidate a public enterprise is made by the government, and it can be
influenced by factors such as economic conditions, changes in government policies, and
competition from private enterprises.

There are five main steps involved in the process of organizing an enterprise. The steps are:

Determining Activities

Grouping of Activities

Assigning Duties

Delegating Authority

Coordinating Activities

The activities will depend upon the nature and size of the enterprise. For instance, a
manufacturing concern will have production, marketing and other. The various activities are
then classified into appropriate departments and divisions on the basis of functions, products,
territories, customers etc. Similar and related activities may be grouped together under one
department or division. Grouping of activities helps to secure specialization. Each department
may be further sub divided into sections and groups. Grouping of activities should not only
allow specialization but keep in view the human factor, nature of activities and the needs of the
organization and the people.The individual groups of activities are then allotted to different
individuals on the basis of their ability and aptitude. The responsibility of every individual
should be defined clearly to avoid duplication of work and overlapping of effort. Each person is
given a specific job best suited to him and he is made responsible for its execution.Every
individual is given the authority necessary to perform the assigned task effectively. Authority
delegated to a person should be commensurate with his responsibility. Through successive
delegations a clear hierarchy of authority or chain of command running from the top to bottom
of the structure is established. An individual cannot perform his job without the necessary
authority or power.

The activities and efforts of different individuals are then synchronized. Such co-ordination is
necessary to ensure effective performance of specialized functions. Interrelationships between
different jobs and individuals are clearly defined so that everybody knows from whom he has to
take orders and to whom he is answerable. Public enterprises have been considered as key
operational instruments to achieve economic and social development and bring technological
innovation in a number of developing countries. Government intervention through public
enterprises has been also intended to encourage and strengthen economic development in the
private sector. More commonly governments considered public enterprises to play crucial roles
and fill the gaps when the private sector demonstrated itself to be too weak or disinterested
toundertake economic activities but deemed important to the objectives of the
developmentprograms of the government.

7.5 Privatization of public enterprises in Ethiopia

Privatization of public enterprises in Ethiopia has been a topic of discussion and implementation
for several years. The government of Ethiopia has been pursuing a policy of privatization since
the 1990s, with the aim of promoting economic growth and improving the efficiency of state-
owned enterprises.

The privatization process in Ethiopia has been slow and gradual, with the government initially
selling off small and medium-sized enterprises to local investors. However, in recent years,
there has been an increase in the number of large-scale privatization programs, including the
sale of state-owned enterprises in the telecommunications, energy, and transportation sectors.

The Ethiopian government has also established a Privatization and Public Enterprises
Supervising Agency (PPESA) to oversee the privatization process and ensure that it is carried out
in a transparent and fair manner. The agency is responsible for identifying potential investors,
conducting feasibility studies, and negotiating the terms of the sale.

The privatization of public enterprises in Ethiopia has been met with both support and criticism.
Supporters argue that privatization will improve the efficiency of state-owned enterprises,
attract foreign investment, and promote economic growth. Critics, on the other hand, argue
that privatization will lead to job losses and the loss of public control over essential services.
Overall, the privatization of public enterprises in Ethiopia is a complex issue that requires
careful consideration and planning. The government must ensure that the process is carried out
in a transparent and fair manner and that the interests of all stakeholders, including workers
and consumers, are taken into account.

According to proclamation No.146/1998, Article3, in Ethiopia, the privatization program has

targeted on the following objectives:.

 to generate revenue required for financing development activities under taken by the
government;

 to change the role and participation of the government in the economy to enable it
exert more effort on activities requiring its attention;

 To promote the country‟s economic development through encouraging the expansion

ofthe private sector.

Reference
 Google Wikipedia

 Commercial code Ethiopia

 Module of Worabe university