The Concept and Characteristics of

Public Enterprises in Ethiopia:

An Overview
Tewodros Meheret ♣
Abstract
The role of public enterprises in Ethiopia is manifested in the
quantum of capital they command and the magnitude of the
economy’s dependence on such enterprises. Essential services such
as electricity, telecommunication, shipping and logistics, transport
and the like are mainly, if not solely, provided by public enterprises.
Owing to the dearth of research on the subject, there is the need for
conceptual clarity on the notion and the legal forms (or designations)
of such enterprises. Leafing through the relevant laws, one
encounters many definitions. Moreover, the form or designation of
public enterprises and the diversity of the legislation applicable
thereof necessitate inquiry into the concept and their characteristics.
Key words
Public economic enterprise, Public enterprise, Company,
Corporation, Ethiopia
DOI http://dx.doi.org/10.4314/mlr.v8i2.3
______________
Introduction
The state has a public purpose in the exercise of its sovereign power. Such
power is inherent in statehood and justifies the existence of a government.
That is primarily manifested in the specific function of governments in
discharging their traditional role of ensuring peace and security. But any
modern state assumes responsibility beyond its traditional function of
maintaining peace and order and protecting the country from external
aggression, and it engages in economic activities. To accomplish this, one of
the options is setting up an entity that undertakes commercial activities.

♣
LL.B, LL.M, Lecturer and Attorney-At-Law, Addis Ababa University, School of
Law. The author can be reached at [email protected]
333
334 MIZAN LAW REVIEW, Vol. 8, No.2 December 2014

Such enterprises have become a universal phenomenon in all contemporary

societies.1
However, the reason why and the extent to which such a role is assumed
varies depending on the political economy or ideology of a state. It is
common to find enterprises owned by the state in different countries despite
variation in their ideologies.2 Yet, this does not render ideology irrelevant as
the utility they will have in a country is a function of the political, economic
and philosophical underpinning of the legal system. Therefore, the question
concerns the allowable limit of direct government activity in the market.3
This article discusses ‘public enterprise’ as a concept from the standpoint
of Ethiopian law. Because of ambiguities in the various laws and due to the
diversity of forms (or designations) utilized, it has become difficult to
clearly identify what exactly the term ‘public enterprise’ refers to. Some
prefer to use the term ‘public economic enterprises’ so that the scope
becomes broad enough to include other forms through which the state is
engaged in economic activities. The first section of this article introduces the
concept and highlights the ambiguities in the use of the term. The second
section briefly deals with the salient features of a public enterprise so that
the multiplicity of definitions can be handled with due caution. The third
section explores the different forms of economic enterprises (that are set up
to carry out commercial activities) with a view to bringing to light the
diversity of form and its implications. The fourth section spells out the
raison d’être of such enterprises, followed by the last section which briefly
continues discussing the theme in the Ethiopian context.

1. Defining the term ‘public enterprise’

Nomenclature is part of the discourse on public sector enterprises which has
been the source of ambiguity.4 In Ethiopia, one of the major proclamations

1
Law and Public Enterprises in Asia (1976), International Legal Center, (Praeger
Publishers), p. v.
2
For instance, we can mention the Tennessee Valley Authority of the USA and you
may call to mind state owned corporations of China.
3
Owen E. Hughes (1998), Public Management and Administration, (Palgrave
Macmillan), p. 1.
4
Kauzya John-Mary(2005), The Question of the Public Enterprise and Africa’s
Development Challenge: a Governance and Leadership Perspective, p. 4, Paper
presented during the Ad hoc Expert Group Meeting on “Re-inventing Public
Enterprises” held in New York from 27 to 28 October 2005, available at
The Concept and Characteristics of Public Enterprises in Ethiopia: An Overview 335

on public enterprises defines the word ‘enterprise’ while other laws use the
term ‘public enterprise’. It may be inquired whether the law uses the term
“enterprise” differently from the word “public enterprise”. But, the body of
the definition clarifies the potential confusion by describing it as a public
enterprise. Despite the multiplicity of terminologies in the proclamation,
they conceptually refer to the same thing as can be gathered from other laws
as well.
The need for a definition is not only academic for it has far reaching
practical ramifications. Apart from ensuring conceptual clarity and delimiting
the boundaries of the notion, the need to define public enterprise is felt
practically in circumstances when the Auditor General’s exercise of power
requires recognition of entities as public enterprises. Where the law
empowers a body to audit them, or when Parliament exercises its power to
review performance or a regulatory organ, it is essential to distinguish the
entities that come under such a law.
Moreover, the enjoyment of rights and the assumption of responsibilities
(such as investment incentives, privileges, rights and criminal liability of
their officers) that are specifically applicable to public enterprises require
marking out the entity. For instance, the definition of the term in criminal
law has the purpose of creating liability on the officials of such enterprises
under certain circumstances. Identifying such enterprises is also essential for
economic decision making and statistical data on the size of the public sector
with a view to analyzing economic implications and other issues. The same
applies to the pursuits of developing policy, strategy and planning, and
undertaking comparative research studies.5
Unlike other similar enterprises such as business organizations, the
attempt to distinguish an entity that can be regarded as a “public enterprise”
may present challenges analogous to abstract concepts.6 Several reasons
explain why it is difficult to define the term. Some of the reasons include the
highly elastic nature of the concept, its contingency on local environments,
the convergence of both public and enterprise aspects in a single entity7 and

< http://unpan1.un.org/intradoc/groups/public/documents/un/unpan021612.pdf>,
(accessed on 07/08/2014).
5
See V.V. Ramanadham (1984), The Nature of Public Enterprise (St. Martin’s
Press) p. 61-63.
6
Ibid, p. 63.
7
Praxy Femandes and Pavle Sicherl (1981), Seeking Personality of Public
Enterprises, (International Center for Public Enterprises in Developing Countries)
P. 16-17.
336 MIZAN LAW REVIEW, Vol. 8, No.2 December 2014

the need to make it conceptually and operationally satisfactory.8 It is also

suggested that the variation in definitions are informed by ideology, values,
interests, dispositions and circumstances that bring public enterprises into
existence.9
The most effective and logical way of formulating a definition would be
to identify the essential characteristics and the dependent and independent
variables affecting the “public enterprise”.10 Generally, the term public
enterprise refers to enterprises established under the ownership of the state
or public authorities. However, the particular features of such enterprises are
not the same in all definitions. For instance, International Center for Public
Enterprises has adopted the following definition:
Any commercial, financial, industrial, agricultural or promotional
undertaking – owned by public authority, either wholly or through
majority shareholding – which is engaged in the sale of goods and
services and whose affairs are capable of being recorded in balance
sheets and profit and loss accounts. Such undertakings may have
diverse legal and corporate forms, such as departmental undertakings,
public corporations, and statutory agencies, established by Acts of
Parliament or Joint Stock Companies registered under the Company
Law.11
This definition is broad enough to embrace all forms of public economic
enterprises established across countries and ideologies. However, it does not
hold true in all legal systems because of the peculiar factors of a country
may prompt a definition that fits the setting. For example, the law governing
public enterprises (Public Enterprises Proclamation No. 25/1992) through which
the transition from command to market economy was realized in Ethiopia by
transforming the role of public enterprises defines it as “a wholly state
owned public enterprise established pursuant to the same Proclamation to

8
Supra note 5, p. 63.
9
D. O. Adeyemo and Adeleke Salami (2008) A Review of Privatization and Public
Enterprises Reform in Nigeria, Contemporary Management Research, Vol. 4, No.
4, December 2008 p. 402, also <available at www.cmr-
journal.org/article/download/607/2280>
10
Supra note 7, p. 18.
11
Prahlad K. Basu (2005), “Reinventing Public Enterprises and Their Management
as the Engine of Development and “ in Growth Public Enterprises: Unresolved
Challenges and New Opportunities, United Nations, p. 10.
The Concept and Characteristics of Public Enterprises in Ethiopia: An Overview 337

carry on for gain manufacturing, distribution, service rendering or other

economic and related activities.”12
This definition embodies three basic elements that determine the feature
of a public enterprise. The first element relates to ownership and requires an
enterprise to be wholly owned by the state so that it can be characterized as a
public enterprise. Hence, mere existence of public investment share in an
enterprise does not suffice (irrespective of its percentage) unless the
government is the sole owner. The law excludes enterprises in which we
find joint investment of the two sectors, namely, private and public,
irrespective of the quantum of the investment.
The second element requires establishment under the proclamation. The
proclamation sets the legal framework for entities established by the State
for the purpose of economic activities for gain. The requirements for their
formation, operation, structure, and exit are embodied in the proclamation.
The government’s act should indicate that the entity established is governed
by this legislation13 if it is a public enterprise. The third element in the
definition of ‘public enterprise’ under Proclamation No. 25/1992 is the
purpose of the entity which distinguishes it from the main function of the
State. Public enterprises are commercial entities as distinguished from
administrative agencies which carry out regulatory activities and render
public service.
Subsequent to this definition, several proclamations have come up with
diversified usages of this term. The first modification is introduced14 by
Privatization of Public Enterprises Proclamation No. 146/1998 which states:
“enterprise means a public enterprise governed by the Public Enterprises
Proclamation No. 25/1992 or an establishment designated by the

12
Public Enterprises Proclamation No. 25/1992, Negarit Gazeta, 51st year, No.
21(Hereinafter referred to as Proc. No. 25/1992), Art. 2(1); Its predecessor
defines the term as “any public enterprise established by regulations issued
pursuant to this proclamation. Article 2(2) Public Enterprises Public Enterprises
Proclamation No. 20/1775 (Negarit Gazeta 34th year, No. 15February 4, 1975);
See also Regulations No. 5/1975 (Negarit Gazeta 34th, year, No. 31, June 4,
1975).
13
Public Enterprises Proclamation No. 25/1992, Article 6(2)..
14
In fact, earlier the term was defined in Proc. No. 17/1996 Establishment of Board
of Trustees for privatized public Enterprises, but in connection with privatized
public enterprises as "Enterprise" means a public enterprise established under
Proclamation No. 25/1992 or under a similar legislation and privatized pursuant
to the Ethiopian Privatization Agency Establishment Proclamation No. 87/1994,
or a branch thereof.
338 MIZAN LAW REVIEW, Vol. 8, No.2 December 2014

Government as a public enterprise for the purpose of the application of the

this Proclamation.”15
Accordingly, there can be undertakings which the Government may
classify as public enterprises for the purpose of privatization. This definition
does not seem to have the objective of broadening the scope of the term as
the limb added is meant to designate some entities as public enterprises for
the purpose of the proclamation, i.e., privatization. Although the use of the
term is broader as compared to the meaning embodied in Proc. No. 25/1992,
it does not change the content of the definition for the purpose of the public
enterprise proclamation. It simply denotes that for the purpose of
privatization some entities may be considered as public enterprises.
Proc No. 412/2004 further offers another definition which considers
public enterprise as an enterprise as defined under Article 2(1) of the Public
Enterprises Proclamation No. 25/1992, or as a wholly state-owned share
company. But it excludes those enterprises for which specific supervising
authorities are designated by other laws or decisions of the Government.16
As compared to the definitions discussed in the preceding paragraphs, this is
narrower as it excludes some public enterprises, and it is meanwhile broader
because it extends the application of the term to share companies wholly
owned by the state.
It can be argued that the Proclamation amended the requirement of total
state ownership which was one of the elements under Proclamation No.
146/1998 and Proclamation No. 277/2002.17 However, this definition is
incorporated in a proclamation issued to establish an authority and the
purpose of the definition is to identify the enterprises that come under the
supervision of this administrative agency. In addition to the absence of
explicit repeal in it, Proclamation No. 412/2004 clearly makes reference to
Proclamation No. 25/1992. One can thus conclude that Proc No. 412/2004
does not have the purpose of amending Proclamation No. 25/1992 in this
regard. Yet, according to one of the cardinal principles of interpretation, the
latter legislation prevails over the former, and the latest and prevailing
intention of the legislator is expressed in the most recent legislation. The

15
Privatization of Public Enterprise Proclamation No. 146/1998, Federal Negarit
Gazeta, 5th Year, No. 26, Article 2(3).
16
Privatization and Public Enterprises Supervising Authority Establishing Proc. No.
412/2004 Federal Negarit Gazeta 10th year, No. 57 (Hereinafter Proc No.
412/2004).
17
Getahun Seifu, “Revisiting Company Law with the Advent of ECX”, Mizan Law
Rev., Vol. 4(1), p. 111.
The Concept and Characteristics of Public Enterprises in Ethiopia: An Overview 339

application of the principle presupposes that simultaneous application of the

two is impossible because of the ensuing contradiction.
The two definitions have two distinct goals. Proclamation No. 25/1992 is
an overarching proclamation applicable to any public enterprise irrespective
of the supervising authority designated. On the other hand, as indicated
above, the objective of the definition in Proclamation No. 412/2004 is to
identify those entities which are supervised by the authority. However, the
enterprises which fall outside the scope of Proclamation No. 412/2004 are
still public enterprises under Proclamation No. 25/1992.18 Even though these
enterprises are not governed by Proclamation No. 412/2004, a different
supervising authority is named thereby enabling them to fall under the
definition articulated under Proclamation No. 25.1992. In other words, the
definition given in Proclamation No. 412/2004 has no intention of
identifying public enterprises per se, but merely selects those enterprises
which will be governed by that particular proclamation or supervised by
Privatization and Public Enterprise Supervising Authority.
What is peculiar about Proclamation No. 412/2004 is that it introduced a
new form of public enterprise (i.e. state-owned share company) that was not
recognized under Proc. No. 25/1992. Hence, share companies owned by the
state are considered as public enterprises under Proclamation No. 412/2004
even if, for legal and practical purposes, they are business organizations by
and large regulated by the Commercial Code. Yet, the share companies
referred to herein are different from business organizations recognized as
such by the Commercial Code.
For the purpose of this particular law, reference is made to “a share
company partially owned by the state, but excluding those share companies
in which the state owns shares through public enterprises”.19 It mainly
encompasses companies created by conversion of public enterprises into
share companies. In fact, this is a temporary situation by which privatization
is facilitated as can be drawn from article 5(1) and 5(4) of Proclamation No.
146/1998. It is a solution to fill the gap created between conversion and
privatization of a public enterprise. However, the transition could, for
various reasons, take longer time than anticipated. Despite the categorization
of certain share companies into public enterprises (in Proc. No. 412/2004),

18
This can be clearly understood from article 14 of proclamation No. 412/2004
which uses the term public enterprise to refer to those which are excluded. It is
explicit that the definition is for the purpose of determining the scope of
supervisory power of Privatization and Public enterprises Supervising Authority.
19
Proc. No. 412/2004, Article 2(3).
340 MIZAN LAW REVIEW, Vol. 8, No.2 December 2014

they are subject to different legal regimes thereby confirming that the term
“public enterprise” has retained the meaning ascribed to it under article 2(1)
of Proclamation No. 25/1992.
Subsequent laws came up with an array of definitions which kept on
introducing additional elements broadening the scope of the term. Article
2(4) of the Revised Federal Ethics and Anti-Corruption Commission
Establishment Proclamation No. 433/2005 defines the term as “any Federal
Public Enterprise or Share Company the ownership of which is fully or
partly owned by the Government.” For the Criminal Code, it is “a Federal or
Regional Government enterprise or share company, in which the
Government has total or partial share as an owner”.20
In line with the federal state structure, Art. 2(21) of Trade Practice and
Consumers’ Protection Proclamation No. 685/201021 and Article 2(3) of the
Commercial Registration and Business Licensing Proclamation No.
686/2010 classify public enterprises into federal and regional. According to
these proclamations, a business organization whose shares are totally owned
by the federal government or a public enterprise established by a regional
state are deemed to be a public enterprise. Likewise, Article 2(10) of
Investment Proclamation No. 769/2012 defines the term as an enterprise,
partially or wholly owned by the federal or regional government established
to engage in production, distribution, service rendering or related economic
activities in the form of commerce.
One of the tasks of the Office of the Auditor General is to audit or cause
to be audited the accounts of the federal government offices and
organizations.22 According to Article 2 of Proclamation No. 669/2010, the
term government “organization” means any production, distribution, service
rendering, regulatory or any other trading organization wholly or partially
owned by the federal government.23 In light of this proclamation and the
laws highlighted in the preceding two paragraphs, it can be observed that
there is a new element added in the definition of a public enterprise by

20
Art. 402(3) The Criminal Code of Ethiopia Proclamation No.414/2004, 9th May
2005. Addis Ababa.
21
It is interesting to note that the definition is omitted in the new proclamation
(Trade Competition and Consumers Protection Proclamation No. 813/2013)
which repealed proclamation no 685/2010.
22
Office of the Federal Auditor General Establishment /Amendment/ Proclamation
No. 669/2010, Article 5.
23
Office of the Federal Auditor General Establishment /Amendment/ Proclamation
No. 669/2010. Article 2.
The Concept and Characteristics of Public Enterprises in Ethiopia: An Overview 341

including enterprises which are partially owned by the state. Moreover,

distinction is made between enterprises which may be established by the
federal and state governments.
It can generally be noted that the above definitions share features that
expressly mention or impliedly incorporate the definition of public
enterprises embodied in Proclamation No. 25/1992. However, there are
additions and exclusions introduced by each proclamation, and the elements
which distinguish one definition from the other are diverse. Proclamation
No. 25/1992 was enacted at the time when the form of state structure was
unitary, and the concept of regional public enterprise is brought up later on
along with Ethiopia’s current federal structure.
It should be noted that the foregoing analysis is for the most part based
on laws applicable to enterprises set up by the Federal government. Regional
states can also establish enterprises for the purpose of carrying out
commercial activities.24 Hence, in understanding the concept, it is imperative
to take into account the role of public enterprises established by regional
states, as well. However, owing to the absence of a legal framework or due
to the diversity of laws governing such enterprises in regional states, a
comprehensive definition (that can be applicable to all) is lacking.
The share of ownership is also another source of diverse definitions. The
question whether public enterprises are characterized by total or partial state
ownership (even under settings of majority holding) is answered differently
under various laws. For some scholars and jurisdictions, majority holding in
a commercial entity suffices to consider it as a public enterprise. For others,
full ownership or the form of the entity is an imperative factor.
The form of an economic entity (corporation, share company, public
enterprise) entails diverse outcomes regarding its status depending on the
definition that is pursued. The diversity in definition thus insinuates a
chaotic situation in the legal regime on public enterprises as every
legislation comes up with its own definition of the term thereby rendering it
practically impossible to ascribe a distinct meaning to the term. Thus, one
has to be specific as to which context or subject matter or legislation he/she
is referring to if the term is to have a meaning in the midst of prevailing

24
For instance, Oromia Regional State established Arsi Forest Enterprise and Bale
Forest Enterprise under Regulation No. 86/2007 and Regulation No. 88/2007
respectively ; Amhara regional State formed the Amhara Seed Enterprise,
pursuant to Council of Regional Government Regulation No. 66/2009; Hareri
Regional State established Government Houses Administration Enterprise under
Proclamation no. 16/1991.
342 MIZAN LAW REVIEW, Vol. 8, No.2 December 2014

ambiguities and inconsistencies. These challenges in interpretation thus call

for closer examination into the characteristics of public enterprises.

2. Characteristics
A public enterprise is necessitated by the need “to find an effective and
efficient economic organization under socially satisfying conditions.”25
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.26

2.1 Public Dimension

The ascertainment of the public dimension in the realms of ownership,
purpose or otherwise, is recurrent in the discourse on public enterprises.
Public enterprises are singled out as part of the broader stream of the public
sector.27 Hence, questions may be posed as to what makes a purpose public
or how public are public enterprises. The term “public” can mean
accessibility and benefit to the general public, ownership by the public, or
ownership and control by public authorities. With regard to public

25
Pavlve Sicherl (1981), “Concepts of Public Enterprise in Different Socio-
Economic Systems” in Praxy Femandes and Pavle Sicherl (ed.), Seeking
Personality of Public Enterprises (International Center for Public Enterprises in
Developing Countries), p. 80.
26
Praxy Femandes(1981) “Public Enterprise-A Word and A Vision” in Praxy
Femandes and Pavle Sicherl(ed.), Seeking Personality of Public
Enterprises(International Center for Public Enterprises in Developing Countries),
p. 98-99.
27
Supra note 7, p. 16.
The Concept and Characteristics of Public Enterprises in Ethiopia: An Overview 343

enterprises, it is ownership by public authorities which stands out even

though that is not the only factor which determines the status of the entity.28
It is necessary to identify the features which bestow on it public
character. There is no consensus on the elements which fairly describe the
public aspect of enterprises. For some, it is non-private accretion of net
benefit, public decision making and social accountability which primarily
stand out.29 For others, the critical factor is the question of public purpose.30
At any rate, in the absence of consensus on the factor which fundamentally
establishes the ‘publicness’ of a public enterprise, we can select some
essential factors as highlighted below.
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 inquires into the actual beneficiary
from the thing.31 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”.32 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.33 In this regard, Proclamation No. 25/1992 is explicit and
considers as public only those which are wholly owned by the state.

28
Supra note 7, p. 18.
29
Supra note 4, p. 14.
30
Supra note 7, p. 18.
31
Supra note 25, p. 85. The distinction has been said to be important to study the
potential and actual impact and orientation of public enterprises.
32
Ibid; Identification of the owner is not that easy. It is inquired whether the owner
is the legislature, the executive, workers, consumers or capital providers. See
Tansu Ciller(1981),, “Classification and Taxonomy of Public Enterprise-An
Explanatory Perspective” in Praxy Femandes and Pavle Sicherl(ed.), Seeking
Personality of Public Enterprises(International Center for Public Enterprises in
Developing Countries), p. 186.
33
A glance at Ethiopia Commodity Exchange Proclamation No. 550/2007 (Federal
Negarit Gazeta, 13th Year No. 61) reveals that this is subject to an exception. The
Ethiopia Commodity Exchange is established as a wholly state owned market
institution having its own legal personality to which a supervising authority is
designated. But it is not a public enterprise if we apply the definition of Pro. No.
344 MIZAN LAW REVIEW, Vol. 8, No.2 December 2014

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.35
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.36
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 percent37 which appears to be the logical way

25/1992 as it is not stated in the establishing proclamation (ignoring the fact that
it is not established by a regulation as required under proc. No. 25/1992) that it is
governed by the same. But it becomes a public enterprise pursuant to the
definitions adopted lately since partial investment by the state suffices to treat an
entity as a public enterprise.
34
Leroy P. Jones(1981),, “Definition and Taxonomy of Public Enterprise” in Praxy
Femandes and Pavle Sicherl (ed.), Seeking Personality of Public
Enterprises(International Center for Public Enterprises in Developing Countries),
p. 124.
35
Supra note 7, p. 24.
36
Supra note 7, p. 19.
37
Supra note 3, p. 125. In India in a public enterprise holding of the government is
more than 50%. See P.K. Jain, Seema Gupta, Surendra S.Yadav (1914), Public
The Concept and Characteristics of Public Enterprises in Ethiopia: An Overview 345

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 sate 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.39
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.40

Sector Enterprises in India: The Impact of Disinvestment and Self Obligation on

Financial Performance( Springer India), p. 7.
38
Proc. No. 412/2004, Article 2(3).
39
Supra note 25, pp. 79-80.
40
Supra note 25, p. 81.
346 MIZAN LAW REVIEW, Vol. 8, No.2 December 2014

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 Ethio-
Telecom 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.”41 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.42 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

41
Ethio-Telecom Establishment Council of Ministers Regulations No. 197/2010,
(Federal Negarit Gazeta, 17th Year, No. 11), Article 5(3).
42
Ethiopian Grain Trade Enterprise Re-establishment Council of Ministers
Regulations No. 58/1999, Art. 5(2). At a parliamentary hearing, the enterprise
maintained that it have no duty to stabilize the market in response to the criticism
that t it has no grain in its store to be used for stabilizing the market. See
Reporter Amharic 17 November 2013, <http://www.ethiopianreporter.com/>; In
developing countries where social expectations are often are articulated through
national economic development plans, the operative assumption is that a state
enterprise should promote the strategies and priorities contained in national
economic development plans. Where there is a conflict between the plan and
corporate self-interest, a state corporation must compromise its self-interest in
order to foster development. A state enterprise should not object to this, even if
its earnings are reduced, since it is under a duty to benefit its public shareholder.
See Robert Fabrikant (1976), Developing Country State Enterprises: Performance
and Control, Colum. J. Transnat'l L. Vol. 15, p. 49.
The Concept and Characteristics of Public Enterprises in Ethiopia: An Overview 347

undertaken unless the government guarantees to make up for the imminent

loss43 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.44 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.45
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 authority46 which
protects and promotes the interest of the public in the enterprise. The
designated 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.47 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.48 It is through
these tools that public authorities control public enterprises.

2.2 Private Dimension

The dual nature of a public enterprise gives it the features of a business
enterprise, as well. The entity preserves its public features without at the
same time undermining its enterprising dimension. The reason why a
government opts to set up the entities in this form is to enable them operate
as business entities. They operate in the same manner as private enterprises
engaged in commercial activities. Thus, they have the following attributes.
a) Commercial Nature
Public enterprises are formed to undertake manufacturing, distribution,
service rendering or other economic and related activities with a view to
selling goods and services. These activities are undertaken for gain with a

43
News item which appeared in the Reporter Amharic, 17 November 2013
44
Supra note 34, p. 127.
45
Ibid.
46
Proc . No. 25/92, Article 6(9).
47
Proc 25/92 Article 11(1).
48
Proc 25/92 Article 11(6), 9, 10.
348 MIZAN LAW REVIEW, Vol. 8, No.2 December 2014

view to ensuring that there is return on investment. This confers on them

“commercial nature” making them subject to the rules of the market. Their
commercial character is manifested in different forms. First, a business
enterprise cannot engage in trade activities without registration in the
commercial register.49 Accordingly, a public enterprise is required to register
in the commercial register of the Federal government or a regional state as
the case may be.50 It also needs to have business license to carry out the
commercial activities stated in the establishing regulation.51
Second, persons “bring together contributions for the purpose of carrying
out activities of an economic nature and participate in the profit and losses
arising from the commercial activity”.52 On the other hand, the government
puts resources at the disposal of the enterprise it establishes, after which the
enterprise is expected to sustain and develop itself through its profit. After
its establishment, a public enterprise obtains its income from its economic
activities and through the charges paid by users. This distinguishes public
enterprises from administrative authorities which receive annual budget
allocations from the State. A public enterprise must be viable so that it can
remain in the market. That is why the law makes it a ground for dissolution
if a public enterprise loses 75 % of its capital53. It is also to be noted that a
public enterprise may encounter bankruptcy if it suspends payment.54 Its
survival thus depends on economic viability at least to the threshold of
maintaining its capital.
The third manifestation of a public enterprise’s private dimension relates
to its competitiveness in the market. Any business entity markets its output
whereas a public service institution provides these outputs free of charge.55
Even though public enterprises address social purposes, they cannot survive
unless there are schemes that make up for the loss sustained while
undertaking unprofitable activities. These enterprises should thus either set
the price of goods or services based on the market, or losses must be

49
Commercial Registration and Business Licensing Proclamation No. 686/2010,
(Federal Negarit Gazeta, 16th Year, No. 42), Art. 6(1).
50
Ibid, Art. 7(10),(11), Article 14.
51
Ibid, Art. 32(1), (6).
52
Commercial Code of Ethiopia Proclamation No. 166 of 1960, (Negarit Gazeta,
Gazette Extraordinary, 19th Year, No. 3, Addis Ababa, 5the May, 1960), Art.
211.
53
Proc. 25/1992, Art. 39(4).
54
Proc 25/1992, Art. 40.
55
Supra note 7, p. 21.
The Concept and Characteristics of Public Enterprises in Ethiopia: An Overview 349

shouldered by the State. The mere fact that they are organized as public
enterprises demands that they set price based on the market unless the
government decides to subsidize the enterprise as in the case of certain
public utilities.
b) The accounting concept
Public enterprises and other government institutions are subject to different
accounting systems. The establishment of a public enterprise is contingent
upon its capital which is indispensable for its existence.56 Moreover, its
capital serves as security for its creditors because of its limited liability.57
Owing to its commercial nature, the law requires it to maintain two books of
account, i.e., a balance sheet and a profit and loss account. It should also
follow generally accepted accounting principles in maintaining financial
records and preparing financial documents.58
A public enterprise is required to close its accounts at least once a year.
The annual closing of accounts shall be completed within three months
following the end of the financial year.59 Unlike other public entities which
utilize their annual budget, an enterprise shall pay to the Government
dividend within seven months following the end of the financial year.60 The
relevant laws concerning taxes and duties are applicable to enterprises61
sometimes raising the issue whether the government should tax itself. The
accounts of each enterprise shall be audited by external auditors appointed
by the supervising authority.62 All these duties are incidental to the
commercial aspect of public enterprises which are not imposed on other
government institutions.

3. Forms of Public Economic Enterprises

In this section, we use the term ‘public economic enterprises’ in reference to
all enterprises set up by the state or public authorities to carry out business
activities thereby avoiding the confusion arising from a particular definition
of the term ‘public enterprise’. As highlighted above, the scope of the term
‘public enterprise’ can extend to all public economic enterprises or it can be

56
Proc . 25/1992Art. 19(1).
57
Proc . 25/1992, Art 6(6).
58
Proc . 25/1992, Art. 27.
59
Proc . 25/1992, Art. 28.
60
Proc . 25/1992, Art. 31.
61
Proc . 25/1992, Art. 30.
62
Proc . 25/1992, Art. 32.
350 MIZAN LAW REVIEW, Vol. 8, No.2 December 2014

limited to public enterprises ‘proper’ depending on the law one relies on.
Apart from such legal conundrum, no clear-cut universal legal theory of the
public economic enterprise has emerged so far.63 Moreover, the classification
of public economic enterprises does not pursue a consistent pattern. In the
Ethiopian context, current public economic enterprises are formed as
enterprises, corporations or share companies.
The difference in the legal form (or designation) in which a public
enterprise is established is expected to have impact on the autonomy of its
management from the intervention of the government or other agencies.64
But this envisages express articulation of such variation in the features and
autonomy of various forms of public enterprises. Currently, public economic
enterprises are established as enterprise (Ethiopian Airlines Enterprise), a
share company (Construction and Business Bank S.C) or a corporation
(Ethiopian Sugar Corporation). However, there are no clear elements of
demarcation that explain the selection of a specific form, and it is also
difficult to identify the basic distinction between these different forms.
Essentially, the entities are subject to the same legal regime despite their
variation in designation. In the absence of a policy or legal parameter in
Ethiopia, we can resort to the experience of other countries. A study
conducted on ten enterprises from different countries sheds doubt whether
the choice of form results from any distinctive consideration,65 and the
situation is not any different in Ethiopia.

3.1 Departmental undertakings

Historically, the expansion of activities of the government to economic
activities was achieved through departmental undertakings. Through this
model, a business activity was carried out as an integral part of the
government itself. They were not established as independent legal entities;
rather they were established by an executive decision as part of an existing
state organ or an independent unit. Departmental undertakings did not have
legal personality and their activities were not distinct from the regular
function of the state. Thus, both administrative and business activities were
carried out by a single entity as part of the state structure.

63
Wolfgang Friedmann, “Governmental (Public) Enterprises”, in Alfred Conard
(ed.) International Encyclopedia of Comparative Law, Vol. XIII, p. 71.
64
V.V. Ramanadham (1986), Public Enterprise Studies in Organizational
Structure, (Franc Cass & Co. Ltd.), p. 13.
65
Ibid, p. 263.
The Concept and Characteristics of Public Enterprises in Ethiopia: An Overview 351

As a result of inclusion in the state structure, departmental undertakings

shared many features with government organs. They were under a ministry
which ultimately assumed the responsibility to manage them. Their
employees were civil servants and their budget was part of the national
budget.66 They were rather public enterprises run as a department of the
government, organized, financed and controlled like any administrative
agency.67 They were subject to the accounting and audit systems applicable
to other government departments.
For example, before the Ethiopian Electric Power Corporation was
established as a corporation under Regulation No. 18/1997, it was organized
as Ethiopian Electric Light and Power Authority in 1956. The corporation is
engaged in the production, transmission, distribution and sale of electric
energy to the public and undertakes any other lawful business incidental or
appropriate thereto. 68 It is indeed challenging to run business activity under
the auspices an administrative organ which is incompatible with business
operations. The first challenge relates to lack of autonomy because a
departmental undertaking does not have the freedom required in efficient
business operations. Second, a governmental department is exposed to
unrestricted political influence emanating from its structure. It thus lacks
flexibility due to bureaucratic delay in decision making. Such delays are,
inter alia, attributable to undue intervention from civil servants and
inadequate autonomy of professional management. In general, the structure
and workings of a departmental undertaking is incompatible with the
financial, logistics, production, operational and marketing requirements of a
competitive business enterprise.69

3.2 Corporations
In US literature, the word ‘corporation’ merely represents a legal entity
separate and distinct from its stockholders. The word mainly distinguishes
the entity from partnerships. In the Ethiopian context, however, various
public enterprises use the word ‘corporation’. In the earlier years, there
were countries where the designation of a public enterprise as a ‘corporation’
usually meant being “clothed with the power of government, but possessed

66
Supra note 26, p. 103.
67
Manikrant Kumar, Different Form of Public Enterprise.
<http://www.scribd.com/doc/32031522/> (last accessed on 28/11/2014).
68
<http://www.eepco.gov.et/corporationhistory.php> (accessed on 29/4/2014 ).
69
Supra note 67.
352 MIZAN LAW REVIEW, Vol. 8, No.2 December 2014

with the flexibility and initiative of private enterprise.”70 The choice of this
form is basically driven by the need to cloak the entity with autonomy so as
to reduce interference in its operation. It can operate basically as a private
entity but at the same time it has support of the government. But this virtue
of the corporation form is said to have become a fiction as the organizational
autonomy of corporations have been severely diluted in many countries.71
One cannot easily figure out why an enterprise owned by the state is
formed as a corporation. The term ‘corporation’ refers to a specific legal
form of organization of persons and material resources, chartered by the
state, for the purpose of conducting business.72 It is submitted that a
corporation has four essential features, namely corporate body established
by parliament, separate legal entity, government ownership and financial
independence.73 Others add to this that employees are not civil servants.74
Under Ethiopian law, the essential features of corporations are shared by
other public enterprises. They are established by regulation and are governed
by Proclamation No. 25/1992 in the same manner as other public
enterprises. It is, thus, imperative to inquire into their peculiarity which
warrants their designation as corporations. Comparing the establishing
regulations of corporations and other public enterprises, one can understand
that they are crafted in line with Article 6 of Proclamation No. 25/1992.
In most establishment regulations, the corporation is empowered to issue
bonds and borrow money from international financial sources.75 Even if it is
a power consistently conferred on corporations, it cannot be concluded that
all corporations or only those which are designated as such do have the

70
Supra note 64, p. 14.
71
Ibid, pp. 14-15.
72
Encyclopedia Britannica,
<http://www.britannica.com/EBchecked/topic/138409/corporation> (accessed on
18/6/2014).
73
Dnyanesh Kumar, What are the different forms of public sector enterprises?
<http://www.preservearticles.com/2011092714116/what-are-the-different-forms-
of-public-sector-enterprises.html> (Accessed: 18/6/2014); See also Supra note
67.
74
H. Hanson (1955), Public Enterprise: A study of its Organization and
Management in Various Countries (International Institute of Administrative
Sciences), p. 20.
75
See Art. 5(10) of Sugar Corporation Establishment Regulation No. 192/2010; Art.
5(7) of Ethiopian Electric Power Corporation Establishment Regulation No.
170/2009; See Art. 5(8) of Metals and Engineering corporation Establishment
Regulation No. 183/2010.
The Concept and Characteristics of Public Enterprises in Ethiopia: An Overview 353

power to issue debt instruments. One can find enterprises which are not
designated as corporations even if they have this power76 while there are
corporations which are not empowered to do so.77
The usage of the word ‘corporation’ in relation with entities that hardly
fall under public enterprises creates further ambiguities regarding their
salient features. For example, the Ethiopian Broadcasting Corporation
(EBC) is established under Proclamation No. 858/2014 to broadcast main
and current issues happening in the country and abroad as well as
educational and entertainment events on the radio, television and website.
This is a commercial activity under Article 5(14) of the Commercial Code.
However, it is not organized as a business entity but as “an autonomous
government institution having legal personality and rendering public
service.78 Although the public dimension of its function is explicit, the
corporation does not have the characteristics which justify the classification
of its activities as business undertakings. First, EBC does not operate based
on its capital, and it rather has budget from public revenue, supportive
budget and other sources.79 It is not necessarily expected to make profit as it
benefits from annual budget allocation. Its employees are governed neither
by the civil service law nor the labour law of the country. The House of
peoples’ Representatives is empowered to issue regulations for the
administration of employees of the corporation.80
However, Ethiopian Broadcasting Corporation is subject to the same
financial and procurement system as public enterprises.81 Its books of
accounts and financial documents are audited annually by the auditor
general.82 As it is not a public enterprise, its establishment proclamation
makes selective reference to certain rules applicable to public enterprises.
Hence, an entity which is not a public enterprise may, as in the case of EBC,
be referred to as a corporation thereby causing more uncertainty regarding
the use of the term.

76
Art. 5(6) of Ethio-Telecom Establishment Regulation No. 197/2010.
77
Ethiopian Railway Corporation' Establishment Council of Ministers Regulation
No. 141/2007.
78
Ethiopian Broadcasting Corporation Establishment Proclamation No. 858/2014,
Federal Negarit Gazette, 20th Year, No. 49, November 2014, Art. 3(1)
79
Ibid, Art. 14.
80
Ibid, Art. 17.
81
Ibid, Art. 15.
82
Ibid, Art. 16(2).
354 MIZAN LAW REVIEW, Vol. 8, No.2 December 2014

Under Ethiopian law, the term public corporation does not represent a
distinct legal form with its own attributes. Notionally, however, corporations
are a response to the need for a distinct type of “industrial and commercial
enterprises of a major and complex character conducted under the auspices
and the financial responsibility of the state, or of other public authorities”
which led to the development of a distinct type of public enterprise known
as public corporation.83 It is with this understanding that the corporation
form is opted. For instance, the transformation of the Ethiopian Electric
Light and Power Authority to the Ethiopian Electric Power Corporation in
1997 was justified by the need to commercialize and decentralize the
entity.84 But it remains to be examined whether the establishment of a public
enterprise as a corporation has any legal import. Given that they are subject
to the same governing law as other public enterprises and that one finds
entities which are not purely commercial designated as a corporation, it can
be concluded that those enterprises designated as corporation do not
constitute a distinctive legal form or category.

3.3 Share companies

The law recognizes that the government has the option to set up a business
firm in the form of a business organization which will be governed by the
legal regime applicable to private enterprises.85 Hence, the government can
establish a public enterprise and convert it to a business organization under
the Commercial Code. It is maintained that public enterprises are companies
established by law which must be subject to the same legal regime (under
the Commercial Code) applicable to share companies.86 The basis of this
view is the reference made to the Commercial Code under Proclamation No.
25/1992.87 In line with this contention, public enterprises are companies
except that they are established by law. However, the entities are distinct not
only because they are subject to separate legal regimes but also because they
have their own peculiarities. Even if the law provides for the establishment
of a public enterprise as a business organization, it is not specific about the
form of business organization chosen out of the forms recognized under the
Commercial Code.

83
Supra note 64, p. 18.
84
<http://www.eepco.gov.et/corporationhistory.php> accessed on 29/4/2014
85
Proclamation no 25/1992, Art. 47(2)(a).
86
Getahun Seifu, , Supra note 17, pp. 103 & 109
87
Ibid, p. 110.
The Concept and Characteristics of Public Enterprises in Ethiopia: An Overview 355

The question becomes palpable when we, for example, consider a

decision of the Government to establish a share company it wholly owns. It
is to be noted that Proclamation No. 146/1998 extends the scope of the term
‘public enterprises’ to entities which are deemed to be enterprises for the
purpose of privatization. As discussed above, the purpose of stretching the
meaning of the term ‘public enterprise’ (in spite of the definition set forth in
Proclamation No. 25/1992) to accommodate organizations which are not
strictly public enterprises was to streamline the privatization process.
Accordingly, the law facilitates the conversion of public enterprises to share
companies (as recognized under the Commercial Code).
These companies are vehicles of privatization which are employed to
facilitate transfer of ownership to the private sector. It can be observed,
however, that we have several such companies which remained in
government ownership for a long time. At any rate, in the absence of a
clearly declared intention, they cannot be considered as public enterprises in
the strict sense of the term. This scheme was not meant to utilize the
organizational form as a means of undertaking commercial activities by the
state. Hence, the law merely came up with a temporary solution88 to address
the anomaly created by the conversion.
The required quantum of holding in the capital of such company is not
explicit so that it can be considered as a government owned or public
company. It is maintained that in such companies the government owns at
least 51% of the total shares.89 Although the Commercial Code governs a
share company wholly owned by the Government, the enterprise is not
subject to requirements which are incompatible with its nature such as
minimum number of shareholders,90 valuation of contribution in kind,
share,91 general meeting of shareholders92, appointment of directors,93 and
qualification shares94.

88
As can be clearly understood from article 3(4), they are applicable until the
agency (now authority) starts transferring shares of the company.
89
Supra note 74.
90
Art. 307(1) and 311 Com. C. According to article 5(4) (b) of Proc. No. 25/1992
directors are to be appointed by the supervising authority.
91
Com . C, Art. 315.
92
The authorities given to the general meeting of shareholders is to be exercised by
the Supervising Authority. But as there will be no meeting, the provisions
governing shareholders meetings are not applicable. article 5(4)(a) of Proc. No.
25/1992.
93
Com . C, Art. 347.
94
Com . C, Art. 349; See article 5(4)(c) of Proc. No. 25/1992.
356 MIZAN LAW REVIEW, Vol. 8, No.2 December 2014

4. The Raison d’être of Public Enterprises and

Comparative Experience
The share of public enterprises in the GDP of high income, middle-income
and Least Developed countries is respectively 8%, 9% and 14% while their
share in investment constitutes 13%, 17%, and 28% respectively.95 The
presence of public enterprises transcends all economic settings, and it can be
observed that they have more significance in economies of developing
countries.
It is crucial to examine the reason why states establish public economic
enterprises irrespective of variation in political ideology and economic
realities. For some scholars, public enterprises continue to be an enduring
phenomenon in a society for two reasons: that the economic activity of a
government is a function of its greatly increased responsibilities for the life
and welfare of their citizens, and that the complexities of the industrial and
commercial activities undertaken by the government demand some
permanent legal and administrative structure.96
There are other reasons that may justify the decision to establish public
enterprises. One of the reasons can be the need to correct market failure such
as inadequate private supply of goods and services and improving
competition. The second reason is altering the structure of pay-offs of the
economy by redistributing the benefits received by particular individuals or
groups. The other reason is facilitating long–term economic planning by
which enterprises will have a developmental role. Finally, departure from
capitalist economic policies based on certain versions of socialism can put
important industries into government hands as public enterprises.97 The
raison d'être for public enterprises thus varies depending upon the country,
sector, epoch or other factor98 under consideration.
Numerous public enterprises were created in various countries
particularly after World War II, to address market deficits and capital
shortfall, promote economic development, reduce mass unemployment
and/or ensure national control over the overall direction of the economy. In

95
M. Adil Kahn, (2005), “Reinventing Public Enterprises ” in Public Enterprises:
Unresolved Challenges and New Opportunities, United Nations. p.4.
96
Supra note 1, p. v-vi.
97
Supra note 3, p. 2.
98
See Reginald Herbold Green, “Public Directly Productive Units/Sectors in Africa
and Political Economy”, in Yash Ghai(ed.), Law in the Political Economy of
Public Enterprises: African Perspective, (1977), p.139.
The Concept and Characteristics of Public Enterprises in Ethiopia: An Overview 357

the course of their operations, however, rising corruption, management

inefficiencies, overstaffing, inflation and rising current account deficits
indicated the downsides of public enterprises as key players in economic
development. Consequently, large-scale privatization of public enterprises
was undertaken in the 1980s and 1990s, with the vital support of multilateral
financial institutions.99
This trend has again been revisited since 2000, because it was realized
that the state can pursue policies that can address the downsides of public
enterprises (without necessarily privatizing them) and, in effect, prudently
play its critical role in investment and development. Hence, the philosophy
of public enterprises has changed by relieving public enterprise policy from
political ideology and blending it with effectiveness and efficiency toward
meeting national needs and the satisfaction of the people's wellbeing.100
The debate whether public enterprises are vehicles of development or
impede development is still underway.101 The recent global economic crisis
has weakened the arguments against public enterprises and the pursuits of
reducing the role of governments in the economy. It is contended that “when
governments in the United States, the United Kingdom and others had to
rescue gigantic mortgage corporations, huge banks and complex insurance
firms regardless of the financial impact on the budget and the debt, it would
seem a waste of time to explain why the State is sometimes forced to
intervene in the market to save it from its own excesses”.102

99
Supra note at 95, p. 3.
100
Peter Harrold (2010) “Role of Public Sector Enterprises in Country
Development”, in (2010) Public Enterprise, Vol. 17, Nos. 1-4, p.12 Harrold
insists that there is now no more market fundamentalism, not even in the United
States which has found the necessity to become the effective owner of the two of
the largest private institutions in the country, in insurance and in automobile
manufacture. Molaba stresses that the recent financial crisis has once again
demonstrated that markets are not holy cows. See Talent Molaba “The Role of
Public Enterprises in a Country’s Economic Development: The Case of South
Africa’s SOSs,” in Public Enterprise, Vol. 17, Nos. 1-4, p. 23.
101
Peter Harrold (2010) “Role of Public Sector Enterprises in Country
Development”, in (2010) Public Enterprise, Vol. 17, Nos. 1-4, p. 16.
102
Rubens Ricupero (2010), “The Role of Public Sector Enterprise in National
Development”, in (2010) Public Enterprise, Vol. 17, Nos. 1-4, p.6 He further
argued that the near to three trillion dollar losses caused by the financial
meltdown [since 2008], not to mention the anonymous suffering of millions of
honest people who lost their jobs or homes or both, dwarf by far the total sum of
all the debt piled up by public enterprises over decades in developing countries.
358 MIZAN LAW REVIEW, Vol. 8, No.2 December 2014

Even if the economic crisis seems to have redeemed public enterprises,

recent data indicate that “the performance of public enterprises has been
shockingly bad”.103 Yet, it is maintained that in the face of inefficiency,
government control and lack of professionalism, the continued existence of
public enterprises is justified by higher objectives of development of capital
intensive sectors, balanced regional development, increasing employment
opportunities, preventing concentration of economic power and research and
development.104
Extremist political and economic theories which promoted absolute
abstention of the state105 from economic interventions or the ones that
supported excessive state control have been found to be imprudent. Current
discourse on public enterprises rather focuses on the dominance (and not the
overall exclusion) of one or the other sector and on the factors that
determine how the balance can be struck. It is in the context of these issues
that the role and scope of public intervention remains unsettled. The
intervention can be in the form of policy-making, implementation and/or
direct participation in production of goods and services through state-owned
enterprises. With regard to the last alternative, the degree of government
intervention constitutes the crux of the policy debate on public enterprises.
One of the factors to be taken into account in making the choice is the
efficiency of a given enterprise form in the allocation and management of
resources toward optimal productivity and competitiveness. In the absence
of conclusive empirical evidence, the perception is that inefficiency is a
general feature of public enterprises.106 This contention is buttressed by the
absence (or inadequacy) of profit motive, financial incentive, lack of

103
State Capitalism in the Dock: The performance of state-owned enterprises has
been shockingly bad, The Economist, Nov 22nd 2014.
104
Ibid., p. 9-12; P.K. Jain, Seema Gupta, Surendra S.Yadav (1914) Public Sector
Enterprises in India: The Impact of Disinvestment and Self Obligation on
Financial Performance (Springer India), p. 8.
105
William J. Baulom, (1983) Toward A Theory of Public Enterprises, Atlantic
Economic Conference, p.13 available at:
<pages.stern.nyu.edu/~wbaumol/TowardATheoryOfPublicEnterprise.pdf >.
106
The commonly held view is that private enterprises perform better than public
enterprises. Most empirical studies support that this view. Several factors
contribute for the inefficiency including multiplicity of objectives, lack of
clearly defined targets, the structure of the market, lack of incentive and form of
ownership. See for instance Loannis S. Vavourace, (1988) The Theory of Public
Enterprises Restated, Annals of Public and Cooperative Economics, Vol, 59.
Issue 3, p. 331.
The Concept and Characteristics of Public Enterprises in Ethiopia: An Overview 359

pressure to optimize returns, and immunity from competition and takeover

which are considered to be hallmark of public enterprises.107
Privatization is deeply embedded in the ideological perception which
considers the private sector as inherently superior to the public sector.108
When public ownership is viewed as inefficient, unresponsive, or as
misallocation of public resources, privatization may be expected to provide
corrections to these problems.109 Some even propose that privtization has a
potentially high impact on poverty alleviation110 and argue that developing
countries will benefit from the reduced role of public enterprises. Motivated
by the evidence on the failures of state-owned enterprises, governments in
more than 100 countries have undertaken privatization programs since the
mid-1980s111 and many of them adopted the programmes as a solution to
inefficiency of the enterprises.112
The arguments forwarded in favour of the superiority of private
enterprises is that goods and services can be efficiently supplied by the
private sector and the role of the state should be reduced and be limited to
inherently public sector activities. On the other hand, however, even those
who accept the substantive nature of performance reform do not always

107
Baulom, supra note 105.
108
Iram Khan,(2006) Public vs. Private Sector – An Examination of Neo-Liberal
Ideology, P.1 available at ,<http://mpra.ub.uni-muenchen.de/13443/>; See also
Mohammed Fatty Mahmoud (1992) Privatization: A Solution to Problems of
Public Enterprises J. KAU: Econ. & Adm., Vol. 5, p. 33 http://mpra.ub.uni-
muenchen.de/13443/
109
Berhanu Mengistu & Elizabeth Vogel (2009): Public Perceptions of Privatization
in Ethiopia: A Case for Public Good or Private Gain?, International Journal of
Public Administration, Vol. 32, p. 681.
<http://www.tandfonline.com/loi/lpad20> (last accessed on 8/13/2011)
110
Fudzai Pamacheche and Baboucarr Koma, (2007) Privatization in Sub-Saharan
Africa - An Essential Route to Poverty Alleviation, African Integration Review
Volume 1, No. 2, p. 1 , Available at
<https://waleolusi.files.wordpress.com/2013/05/privatization-in-sub-saharan-
africa-an-essential.pdf>.
111
Alberto Chong and Florencio López-de-Silanes, (2005) The truth about
Privatization in Latin America in Alberto Chong and Florencio López-de-
Silanes (ed.) Privatization in Latin America Myths and reality (Stanford
University press and The World Bank), pp. 2-3.
112
Mohammed Fatty Mahmoud (1992) Privatization: A Solution to Problems of
Public Enterprises J. KAU: Econ. & Adm., Vol. 5, P. 4 Availabale at
<http://www.kau.edu.sa/files/320/researches/51536_21671.pdf>.
360 MIZAN LAW REVIEW, Vol. 8, No.2 December 2014

suggest large scale privatization as a pragmatic and far-sighted choice.113 As

a substitute solution to the inefficiency of public enterprises, some countries
have embarked on corporatization and commercialization of public
enterprises instead of privatizing them.
The appraoch in China to such enterprises is unique as its economy was
transformed from central planing to China’s version of state capitalism
(labeled as socialism with Chinese characteristics). When the reform was
initiated in 1978, public enterprises controlled the economy114 and communes
dominated rural agriculture. Since the early 1990s, the role of the
government has changed from mandatory planning of the economy to
guideline plan setting or macro level regulation.115 The reform of state-
owned enterprises is intended to liberate the companies from bureaucratic
control that hinders their management rather than transferring them to
private hands.116
Nigeria carried out a hybrid programme of privatization and
commercialization of public enterprises because they are viewed as an
important strategic tool for fostering rapid economic growth and
development.117 For South Africa, public enterprises are powerful
instruments for achieving developmental goals because they are commercial

113
Yacob Halemariam and Berhanu Mengistu (1988), Public Enterprises and the
Privatisation Thesis in the Third World, Third World Quarterly, Vol. 10, No. 4,
p. 1585.
114
David Harvey, (2005) A Brief History of Neoliberalism, (OxfordUniversity
Press), p. 125.
115
Seung-Wook Baek, (2005) Does China Follow "the East Asian Development
Model"? Journal of Contemporary Asia, Vol. 35, No.4, p. 488.
116
Jonathan G. S. Koppell, (2007) Political Control for China’s State-Owned
Enterprises: Lessons from America’s Experience with Hybrid Organizations,
Policy Studies Organization, p. 255Available at:
<http://works.bepress.com/jonathan_koppell/3>; There those who question the
success of the reform to improve performance of public enterprises of China
using western laws without the withdrawal of the state from the economy or
significant reduction of the ownership in public enterprises is doomed to fail.
Guanghua Yu (2004), Using Western Law to Improve China's State-Owned
Enterprises: Of Takeovers and Securities Fraud, 39 Valparaiso University Law
Review, Vol. 39, No. 2, p. 339.
117
Afeikhena Jerome (2003), Public Enterprise Reform in Nigeria: Evidence from
the Telecommunications Industry, African Economic Research Consortium, p.1-
2.
The Concept and Characteristics of Public Enterprises in Ethiopia: An Overview 361

entities with the task of achieving strategic national economic objectives.118

Public enterprises in India have been the most important strategic
components of the economy. Over the years, they have facilitated balanced
regional investment in addition to generating large surpluses and enabling
the state to finance large developmental programmes.119 Various enterprises
in Europe started as public enterprises to mainly reduce market failure.120 In
developing countries, however, their emergence coincided with the initial
stage of industrialization and economic development. The enterprises
emerged as a necessary condition for development pursuits and as an
economic tool.121

5. Ethiopia’s Laws on Public Enterprises: Role and

Significance
Generally, a public enterprise comes into being either through nationalization
or through creation by government of an enterprise de novo or through
government investment in a joint venture.122 In Ethiopia as well, the
emergence of public sector enterprises coincided with the modernization of

118
Talent Molaba (2010) “The Role of Public Enterprises in a Country’s Economic
Development: The Case of South Africa’s SOSs,” in Public Enterprise, Vol. 17,
Nos. 1-4, P. 21 In third world countries privatization was prescribed as a
panacea for improving performance of public enterprises. See Supra note 112, p.
1565.
119
There are many regions in India where the private sector requires a very high
level of incentives and other “concessions” in order to be induced to operate.
The public sector has taken up these challenges and has taken the lead in
bringing about balanced regional growth and development of industry in
different parts of country. See Anil Chandy Ittyerah, (2010) “The Role of the
public Sector Enterprise in the Indian Economy” in Public Enterprise, Vol. 17,
Nos. 1-4, p. 29.
120
Nevenka Hrovatin (2010) “ The Evolution and Role of Public Enterprises in the
EU and Slovenia,” in Public Enterprise, Vol. 17, Nos. 1-4, P. 24 Successful
businesses in developed countries began as public enterprises. In France, for
instance, Renault, Alcatel, EdF, Thomson, and Elf were state owned enterprises
for a long time, as were Rolls-Royce and British Aerospace in the UK See
P.K._Jain, Seema Gupta, Surendra S.Yadav (1914) Public Sector Enterprises in
India: The Impact of Disinvestment and Self Obligation on Financial
Performance( Springer India), p.8,
121
Supra note 5, p. 77.
122
Id., p. 87.
362 MIZAN LAW REVIEW, Vol. 8, No.2 December 2014

the state, measures of nationalization and arguably joint investment which

can be challenged whether that gives rise to a public enterprise.
A close examination of the evolution of public enterprises in Ethiopia
shows that a great number of the reasons discussed above have been invoked
upon the establishment of public enterprises. The role of these enterprises in
the country’s economy is contingent upon the policy adopted by the
government in a specific period of time. Their significance and mission vary
with the policy of a particular government or even with the alteration of
policy of a government.
During the imperial time, trade and industry had insignificant role in the
national economy123 in addition to the fact that the social and economic
situation could not justify government intervention. Even in the few cases
where the government opted to have a role,124 conceptual distinction was not
made between public enterprises and departmental undertakings. In fact, the
concept and policy of public sector enterprise was non-existent. Of the few
public enterprises during this era, Ethiopian National Corporation can be
mentioned as the first parastatal entity which was set up in 1941.125
After the 1974 revolution, public enterprises were methods of promoting
the socialist ideology and they were products of what is referred to as
ideological commitment.126 The Dergue vowed to eradicate what it called
“idolatry of personal gain” letting the private sector to engage in activities
which were not harmful to the interest of the society so as to give
preeminence to the interest of the community.127 Thus, economic activities
were transferred to exclusive government ownership if the activities were
exclusively reserved to the Government; or majority shares were transferred
if they were to be carried out jointly by the government and a foreign
investor.128 Consequently, at the end of the 1970s, two hundred large public

123
Trade constituted 7% of the gross domestic product and industry’s share was
much less than that. See Bahru Zewde, A History of Modern Ethiopia (1855-
1991)(2nd Ed) (2002), p. 196.
124
The Awash Valley Authority was established in 1961 under which agricultural,
agro-industrial, hydroelectric enterprises were operating. See Id, p. 194.
125
Supra note 123, p. 197.
126
See the discussion in John Nellis, Back to the Future for African Infrastructure?
Why State-Ownership Is No More Promising the Second Time Around Center
for Global Development, Working Paper Number 84 February 2006, p. 6,
<http://www.cgdev.org/files/6352_file_WP_84.pdf> (accessed on 8/8/2014).
127
Preamble, Government Ownership and Control of the Means of Production
Proclamation No. 26/1975, (Negarit Gazeta 34th , year, No. 22, March 11, 1975).
128
Id., Arts. 3 and 6.
The Concept and Characteristics of Public Enterprises in Ethiopia: An Overview 363

enterprises were operational which accounted for 20% of the country’s

economy.129
The principle that means of production and distribution should remain in
the hands of the government was realized through public enterprises
significantly diminishing the role of the private sector. Public enterprises
were organized in accordance with Public Enterprises Proclamation No.
20/1975.130 The proclamation was enacted to bring all matters relating to the
coordination and operation of public enterprises under the overall direction
of a responsible Minister.131 The Ministry of Natural Resources
Development was empowered to establish and confer legal personality on
public enterprises to engage in agricultural, industrial, commercial, public
service, hotel, tourist service and mining activities.132 It remained the main
form of carrying out economic activities in the country until 1990. Public

129
Forbes Global Magazine, <http://www.winne.com/ethiopia/to07.html> (accessed
on 07/08/2014).
130
At an earlier stage the following public enterprises were legally formed: National
Textile, Ethiopian Printing, Ethiopian Food, National Metal, Ethiopian Liqueurs,
Leather and Shoe, Fiber Works, Ethiopian Salts, National Soap, Ethiopian
Building Materials, Rift Valley Agricultural Development, Harerge Agricultural
Development, National Transport etc. In the meantime when the ministries were
reformulated by a new proclamation, the Ministry of National Resources
Development phased out and the public enterprises under it were transferred to
the concerned ministries. According to the new proclamation, public enterprises
were reorganized under Industry, Agriculture and Resettlement and Transport
and Communication Ministries. The second Proclamation No.142/1978
established State Farms Development Authority under the Ministry of
Agriculture and Resettlement. The Authority was established with the intent of
management of the state farms in a centralized organization. As it is stated
above, the structural set up of public enterprises was undergoing various
changes and new companies were established in the process. See Aweke Tenaw,
(2011) The Performance of Privatized Public Enterprises in Ethiopia: The Case
of Hotel Enterprises, unpublished, Addis Ababa University School of Graduate
Studies, pp. 12-13.
131
Preamble Public Enterprises Proclamation No. 19/1975, (Negarit Gazeta 34th
year, No. 15 February 4, 1975).
132
Proc. No 20/1975 Article 3; Prior to the economic reform, public enterprises
were organized in accordance with public enterprises proclamation N0.20/1975,
N0.131/1978 and Public Enterprises Regulation No.5/1975, Agricultural
Development Corporations Regulations N0.60/1978 and the regulation and
coordination of Public Financial Operations Proclamation No. 163/1979.
364 MIZAN LAW REVIEW, Vol. 8, No.2 December 2014

Enterprises Proclamation No. 20/1975 governed public enterprises until it

was repealed by Proclamation No. 25/1992.133
With the change of policy following the demise of the Derg, public
enterprise reform was launched requiring these enterprises to operate on a
competitive basis in a free market setting competing with private firms. This
policy shift reduced the part played by public enterprises134 in the economy
and eliminated the special privilege accorded to them. The reform
introduced privatization of enterprises except those which remained under
the government ownership. As a tool of implimenting this policy, a new
public enterprises law was enacted which provided for supervising authority
and management board of the enterprises that has full autonomy.135
Ethiopia’s post-1991 policy on public enterprises can be characterized as
kaleidoscopic as there is shift of policies ranging from restructuring and
privatization to the mushrooming of public enterprises. Almost all relevant
laws declare that public enterprises should operate in a competitive
environment. More specifically, the pledge in the laws, for example,
expresses the necessity to change the role and participation of the state in the

133
Proc No 25/1992 article 3(1)(a), The legal regime applied during this period
encompasses Proclamation No.131/1978 and Public Enterprises Regulation
No.5/1975, Agricultural Development Corporations regulations No.60/1978 and
the regulation and coordination of public Financial Operations Proclamation No.
163/1979.
134
In fact, it is submitted that the demise or rather the decline in the dominance of
the public enterprise in the economy in most African countries started with the
introduction of Structural Adjustment Programs (SAPs) in the 1980s. Kauzya
John-Mary, The Question of the Public Enterprise and Africa’s Development
Challenge: a Governance and Leadership Perspective, p. 3, Paper presented
during the Ad hoc Expert Group Meeting on “Re-inventing Public Enterprises”
held in New York from 27 to 28 October 2005, available at
< http://unpan1.un.org/intradoc/groups/public/documents/un/unpan021612.pdf>,
(accessed on 07/08/2014).
135
In the course implementing the new policy, in addition to preparing the ground
work for restructuring and privatization, it is stated that several actions were
taken to address problematic enterprises such as liquidation of Ethiopian
Building Construction Authority, amalgamation of Ethiopian Domestic
Distribution Corporation, Ethiopian Import Export Corporation, issuance of
regulations to restructure and establish public enterprises. Mekonnen
Manyazewal, “The Macroeconomic Policy Environment and Public Enterprise
Reform in Ethiopia” in Abudulhamid Bedri Kello (ed.), Privatization and Public
Enterprise Reform in Ethiopia (1993), pp. 101-105.
The Concept and Characteristics of Public Enterprises in Ethiopia: An Overview 365

economy and the need to encourage the expansion of the private sector.136
On the other hand, the policy documents issued by the ruling party
underscore that one of the two reasons which validate a developmental state
policy in Ethiopia is the rectification of market imperfections by effectively
intervening in selected sectors.137 According to the policy, this can be
achieved through a big government138 which justifies the size of government
and dominance of the public sector.
Even though the laws in force express their objectives toward reducing
the participation of the government in the economy, we can witness the
establishment of mega public enterprises whose place in the economy can be
easily felt. This appears to be a mirror image of the dilemma the World
Bank has, at different times, encountered in this respect:
World Bank and its approach to public enterprises swung as much as any
perhaps. We were strong supporters in the sixties and seventies of their
creation and of heavy investment programs both in infrastructure and
also, of course, in industry. From the mid eighties to the end of the
nineties we were among the great advocates for privatization, but more
than that; in the case of infrastructure, there was a belief that the all state
needed to do was to get the policy right, and private investment would

136
Preamble, Proc No. 412/2004.
137
የተሐድሶው መስመርና የIትዩጵያ ህዳሴ፣ኅዳር 2003.ገጽ 66 A developmental state is
interventionist. But it is submitted that it does not suffice to state that a
developmental state is an interventionist state for it intervenes as a capitalist
state and not as a socialist state. The reasons for such interventions are the ones
that determine whether a state is either developmental or not. A developmental
state is distinguished from other types of states because of the nexus between its
ideological and structural components. Accordingly, it has a mission of ensuring
economic development and building capacity to implement economic policies. It
is a state which is able to set developmental goals, create and sustain a policy
climate and an institutional structure that promotes development. See
Development and Transformation: The Place of State –Owned Enterprises in A
Developmental State, available at
<http://www.thepresidency.gov.za/electronicreport/volume_4.html>, (accessed on
24/11/2014); On the other hand it is contended that even though it is necessary
that the government must intervene in areas markets ‘fail’, the countless cases of
unsuccessful intervention suggest the need for caution. Markets fail, but so do
governments. To justify intervention it is not enough to know that the market is
failing; it is also necessary to be confident that the government can do better.
See World Development Report of 1991, available at:
<www.rrojasdatabank.info/wdr1991toc.htm >, ( accessed on 24/11/2014).
138
ልማት ዴሞክራሲ Eና Aብዩታዊ ዴሞክራሲ፣ጥቅምት 1999 ዓ.ም፣ ገጽ 77.
366 MIZAN LAW REVIEW, Vol. 8, No.2 December 2014

follow to meet all needs. Since 2000, the realization that this was naive
has grown and that the correctly played role of the state is beyond
getting the policy right, and that the role of the state in investment and
development was critical.139
Ethiopia’s economic policies during the past twenty years indicate change of
role and significance of public enterprises. The ambivalence of the state
regarding its role in the economy can be inferred from the privatization
effort, on the one hand and retaining the big enterprises and the burgeoning
of new ones, on the other. The policy alluded to in the various laws
expresses the desire of the government to pull out of the economic sector so
long as the market is viable. For example, Proclamation No. 25/1992
envisions broader private sector with reduced number of public enterprises
which compete with the private sector. With a view to ensuring the
increasing share of the private sector in the economy, several laws were
enacted in order to address the need to change the role and participation of
the state in the economy and to encourage the expansion of the private
sector.140
On the other hand, starting from the adoption of developmental state
economic model, several public enterprises have been formed and are being
formed side by side with tiptoeing privatization. The Government’s
developmental state policy confers an activist role on the state in addressing
market failures by filling gaps in areas where adequate private sector supply
response and capacity is lacking.141 Consequently, mammoth enterprises are
set up by the state, in almost every sector of the economy, from trade to
engineering.
The significance of investment in public enterprises can be explained by
the contribution required of public enterprises toward the realization of the
Growth and Transformation Plan (GTP).142 Assessment of Ethiopia’s

139
Supra note 100, p. 12.
140
Proclamation No. 146/1998 and 412/2004, Preamble.
141
African Development Bank Group, Federal Democratic Republic of Ethiopia
Country Strategy Paper (2011-2015), p. 5.
<http://www.afdb.org/fileadmin/uploads/afdb/Documents/Project-and-
Operations/Ethiopia-2011-2015%20CSP%20ENG1.pdf > (last accessed on
28/11/2014).
142
Currently Ethiopia has gone a long way in implementing the five year Growth
and Transformation Plan (GTP) which is ambitious. The total investment
required for GTP is estimated at ETB 1.26 trillion (US$77 billion) 45.1% of
which will be contributed by state enterprises. See African Development Bank
The Concept and Characteristics of Public Enterprises in Ethiopia: An Overview 367

economy shows that the public sector is expanding. The growing activities
of state enterprises is best “captured by the five-fold rise in their borrowing
from the banking system, which is up from Birr 8 billion about five years
ago to an estimated Birr 42 billion in 2010/11 fiscal year, and roughly two-
thirds of all banking system credit is now directed to the public sector”.143
Of the nearly 45 billion Birr credit extended in the year beginning June
2012, 83% went to finance state enterprises.144

Group, Federal Democratic Republic of Ethiopia Country Strategy Paper 2011-

2015 (April 2011) Page 9-10,See also IMF Country Report No. 12/287,October
2012, International Monetary Fund, pp. 6-9.
143
Ethiopia: Macroeconomic Handbook 2011/2012, Access Capital, 2011, page 59-
66. Ethiopia currently has an incredibly vast asset base of over one hundred
state-owned enterprises and companies built up over a period of several decades.
This asset base was largely built up in prior governments, either through
nationalization of previously private properties or as green-field projects
established in the context of a socialist-oriented economic regime. The asset
base of companies under the public sector includes a world renown airline, a
commercial bank with 300-plus branches, an insurance company, a large
shipping company, a telecom company, chemical industries, mining factories,
cement factories, metal works factories, pharmaceutical factories, coffee
plantations, wineries, flour factories, shoe factories, hotels, and (until recently)
even several beer factories and a spa. Based on 2009/10 data, access capital, p.
64.
144
Fortune Addis, Vol. 14 , NO 706, November 12, 2013,
<http://addisfortune.net/articles/imf-calls-govt-to-phase-out-nbe-bill-on-private-
banks/> (accessed on November 12, 2013); IMF Country Report No. 12/287,
October 2012, International Monetary Fund, p. 4. Presently the private sector is
complaining that it is overcrowded and some are recommending to carefully
consider the balance between public and private sectors in the economy. See S.
Kal Wajid, the head of the IMF mission said it would be important to foster
competition in areas where public enterprises enjoy monopolies, and gradually
withdrawing from sectors where they crowd out the private sector,
<http://www.africareview.com/Business---Finance/Open-up-IMF-urges-
Ethiopia/-/979184/1906092/-/of9r8p/-/index.html>(accessed on 01/11/2013) The
share of public sector enterprises is so immense that, some concerns are aired
whether it is sustainble. IMF Staff Mission observed that:
Ethiopia’s public sector led development strategy has delivered robust
growth and rising living standards but is now at cross roads. To sustain
growth and employment creation, there is a need to carefully consider the
balance between public and private sectors in the economy. A vibrant private
sector is essential to attain middle income status. Therefore, it would be
important to foster competition in areas where public enterprises enjoy
368 MIZAN LAW REVIEW, Vol. 8, No.2 December 2014

In line with the current trend which enhances the role of public
enterprises in the political system, the following observations were made (in
the context of another country) regarding the potential impact of economic
dominance by public enterprises:
These agencies [government economic enterprises] increasingly
monopolize and allocate public resources, provide critical services and
control access to them, create a large sector of wage-employment,
regulate prices, and otherwise make decisions affecting economic
development, the quality of generally and the interests of individuals.
They may constitute a large new branch of government (and source of
power), which have not been adequately examined by political, social,
and legal theory and which operates within inadequate legal
frameworks.145
In spite of caveats against excessive state involvement in economic
activities, the sustained significance of public enterprises can be witnessed.
This is so, despite the contention on the extent to which investment should
be made by the public sector in general or through public enterprises in
particular.146 The facts on the ground indicate that the sector is and remains
to be vital for the country.147

monopolies, and gradually withdrawing from sectors where they crowd out
the private sector.
See statement by an IMF Staff Mission on the 2013 Article IV Consultation
with Ethiopia, Press Release No. 13/247, July 4, 201,
<http://www.imf.org/external/np/sec/pr/2013/pr13247.htm>.
145
Supra note 1, p. vi.
146
Some argue that even though the economic crisis in the west improved the place
of public enterprises in the economy, the danger now is not so much from
market fundamentalism but from State fundamentalism. In the wreckage of so
many grievous mistakes of the pre-crisis era – the belief on the alleged self-
regulatory capacity of markets, of the infallible superiority of private firms over
public companies in all cases and under every imaginable situation – we run the
opposite risk of turning back the clock to the idealization of the public sector
and to the idolatry of the State. Rubens Ricupero “The Role of Public Enterprise
in National Development” in Štefan Bogdan Šalej (ed.), Public Enterprise, 2010,
Vol. 17, Nos. 1-4, p. 7.
147
In fact one of the considerations that governments must take into their
development plans is the optimum mix of public sector, private sector and mixed
sector. Supra note 1, p.18; In response to the ever increasing dominance of
public enterprises, voices are heard agianst the expansion of public sector
entrprises one of which goes as “breeding public enterprises cannot help to
realise the envisioned growth, as the state has its own limitations. Besides,
The Concept and Characteristics of Public Enterprises in Ethiopia: An Overview 369

Conclusion
State or public ownership is a very important factor in determining state
ownership even though there is no consensus on the quantum of investment
which renders an enterprise public. Recent Ethiopian laws include those
enterprises in which the government invests partially thereby deviating from
the earlier approach which required total ownership by the state. Partial
investment can range from 99% to 1% and it is not certain whether it can be
said that the public has stake in enterprises where the share of the
government or public authorities is nominal. It is, therefore necessary to
rectify the piecemeal approach to the definition of public enterprises by
undertaking a holistic approach to the issue and by coherently stipulating the
core attributes of a public enterprise in Ethiopia.
As highlighted in the preceding sections, the application of some laws
depends on the determination of the scope of the term, ‘public enterprise’.
This is more so in criminal laws which may render officers of such
enterprises criminally liable (under specific laws as in the case of
corruption) contingent upon the classification of an entity into a public
enterprise. In those laws it is simply stated that partial investment is enough
to make an enterprise public. Another challenge that needs to be addressed
relates to gaps in the law. A case in point in this regard is the federal system
which has resulted in the establishment of enterprises by the regional states.
These enterprises are not accommodated in the existing legal framework and
questions pertaining regional state enterprises are not answered because of
the legal lacuna.148
With regard to form, we find entities which are organized in the form of a
share company and governed under the Commercial Code while they are
also considered as public enterprises. It follows that strictly speaking, the
organizational form of the entity does not necessarily determine the type of
enterprise. One of the elements unique to public enterprises is that they are
subject to a special legal regime because of the peculiarity of the enterprise.
But, some of these laws, as observed in the preceding sections, include
entities which are not governed by the special law under consideration.

public ownership of profitable enterprises entails so much inefficiency and

hence sets the economy to settle for lower productivity levels”. Addis Fortune,
September 7, 2014 [ Vol 15 ,No 749] <http://addisfortune.net/columns/breeding-
public-enterprises-no-fix-for-market-failures/>.
148
For example, are regional state enterprises subject to the bankruptcy regime
under the Commercial Code?
370 MIZAN LAW REVIEW, Vol. 8, No.2 December 2014

Considering the importance of public enterprises and their role in the

economy, conceptual clarity is indeed necessary. There are various practical
implications that can emanate from the ambiguities and inconsistencies in
the concept and characteristic of public enterprise. Such implications include
the ambiguities that would be created in relation with the scope of power of
some government organs such as the Auditor General or Parliament because
some functions of these public entities in relation to the enterprises is
contingent upon the definition of ‘public enterprise’. When preference is
accorded to the enterprises (or their officers) or when they are made subject
to or exempted from regulatory measures, it is imperative to determine
which enterprises fall under the classification. The proactive development
and revision of policies, strategies and plans that relate to economic entities
inevitably presuppose clear taxonomic categories. It is, thus, crucial to come
up with a refined, clear and holistic conception of ‘public enterprise’ in
order to address the legal and practical concerns in delimiting the boundary
of the term and the organizational form of the entity. ■