
Upon taking the role of chief executive at Ethiopian Investment Holdings (EIH) in August, Brook Taye embraced one of Ethiopia’s most crucial tasks: reforming the country’s state-owned enterprises (SOEs).
Founded in 2021, EIH serves as the Ethiopian government’s strategic investment arm, managing a portfolio of 40 companies valued at tens of billions of dollars. This portfolio includes the national airline, the state-run telecom provider, and the nation’s leading bank, alongside enterprises in electricity, manufacturing, construction, trading, chemicals, hospitality, and insurance.
Brook remarks, “We consider ourselves an entrepreneurial state,” adding that he is also involved in the committee steering Ethiopia’s economic policies. “We believe that substantial developmental progress can be driven through our state-owned enterprises.”
The creation of EIH embodies Prime Minister Abiy Ahmed’s vision, who chairs its board. His initial six years in power were characterized by political turmoil, marked by a devastating war in the north and ongoing uprisings in various regions.
Presently, the government is working to revitalize its economic strategy after initiating an IMF program in July. It has liberalized the birr and permitted foreign competition in sectors like banking. However, Brook emphasizes that this does not signify an imminent shift toward privatization.
“Market liberalization does not mean we are liquidating state assets,” he explains. “The government does not have a privatization strategy; instead, we focus on reforming state-owned enterprises.”
Commanding Heights
The Ethiopian state has maintained a dominant role in the economy for decades. Ethiopian Airlines was established during Emperor Haile Selassie’s reign. After his overthrow in 1974, a military regime aligned with the Soviet Union nationalized land and businesses.
The Ethiopian People’s Revolutionary Democratic Front (EPRDF) governed from 1991, initially inspired by Marxist philosophies but later pivoting to build capitalism under a “developmental state” framework. During its first two decades, over 300 state-owned enterprises were privatized, although the state persisted as a significant economic player, with remaining firms shielded from competition and granted preferential financial access.
“The government regarded these enterprises merely as policy tools, neglecting their commercial viability,” Brook notes, drawing insight from his background as a regulatory analyst, private equity fund manager, and ministerial advisor. “This oversight led to a significant debt burden that we needed to address.”
Brook elaborates that EIH’s philosophy dictates that it “must act, think, and communicate as an owner” of its assets, rather than just as a regulator. He is prioritizing the firms’ commercial viability, focusing on metrics such as return on assets. Moreover, the fund aims to co-invest in new partnerships with private entities, like a recent collaboration with a Japanese company to manufacture passports.
Although EIH has not disclosed financial specifics for its portfolio, it reported that its companies generated $18.5 billion in revenue during the 2022/23 financial year. In the first quarter of this year, from July to September, it contributed a dividend of 5.8 billion birr ($46 million) to the government.
While some of its companies, such as Ethiopian Airlines, are quite profitable, others face hurdles. The IMF has categorized the debt levels of state-owned enterprises as an “acute” fiscal risk, spotlighting loss-making sectors such as railways, electricity, and sugar, all managed by EIH.
A segment of debt equivalent to 9% of GDP was shifted from state companies to a newly formed corporation in 2021, where it is now regarded as government debt; however, this “was not accompanied by operational improvements,” as pointed out by the IMF this year.
“We have a very limited number of struggling companies,” states Brook. “Their challenges arise either from historical issues, like those affecting sugar companies, or from cyclical business changes. The rest are thriving.”
Despite the government defaulting on foreign bondholders and the IMF advocating for a quicker reform pace, pressure remains to liquidate state assets for immediate revenue. However, Brook is convinced that Ethiopia has gleaned valuable insights from the experiences of other African nations and Eastern European countries where rushed privatizations led to disastrous results.
“They divested when companies were weak,” he asserts. “No prudent owner would do that. You wouldn’t sell your house in a down market. You would improve its appeal to get a better price.”
Telco Troubles
In its attempts to partially privatize companies, EIH has sometimes struggled to find buyers. Efforts to sell a 45% stake in Ethio Telecom, the country’s leading telecom provider, have yet to succeed. Brook attributes the delay to a “plethora” of difficulties, including the global economic situation, the Covid-19 pandemic, and the conflict in northern Ethiopia.
“The offer for 45% still stands,” he confirms. Following failed attempts to draw interest from a telecom operator, the government is considering investments from financial sector corporations.
Meanwhile, the government is selling a 10% stake in Ethio Telecom to domestic investors, and Brook notes that this process is progressing “very well.” He adds that this sale does not interfere with the 45% offer, as the government “has no plans to retain a majority [stake]” in the long term.
The sale of Ethio Telecom shares is part of the preparations for the launch of the Ethiopian Securities Exchange (ESX) in January. As the largest country without a stock exchange, Brook—who previously served as director-general of the Capital Markets Authority—considers this development long overdue.
“The market has the potential to mobilize significant financial resources for development,” he states. “It would create a proper yield curve for treasury bonds and notes and attract funding from local markets while also benefiting foreign institutional investors.”
Brook indicates that EIH plans to list firms involved in shipping, printing, insurance, and duty-free operations as well.
Taking Wing
Realizing Ethiopia’s economic goals presents significant challenges amidst ongoing political, social, and security crises. Investors might be wary of committing to a country where traveling beyond the capital carries the risk of kidnapping on the roads.
Nonetheless, Brook remains optimistic about the long-term prospects for Africa’s second most populous nation. When asked which models he looks up to, he cites “Ethiopia—specifically Ethiopian Airlines.” The national carrier has endured 79 years of tumultuous regime changes. “What has ensured its survival? One common factor: it was managed commercially without interference.”
Critics argue that the Ethiopian state has been notably slow in reducing its economic dominance. Others warn against prematurely selling off critical assets like Ethio Telecom before fully realizing their economic potential.
Brook appears to envision a balanced strategy in which the government maintains control over major enterprises while enabling them to compete more vigorously, including against foreign rivals—much like how Ethiopian Airlines has contended with other African carriers.
“We must liberalize because Ethiopia doesn’t win gold medals for 10,000 meters [in Addis Ababa],” he states. “We compete in Paris and win gold because of competition.”