Ethiopia’s Ethio Telecom Privatisation – Capitalism And Getting The Money Now

The Prime Minister of Ethiopia has been known to say that the governing system in that country is now capitalism. Leaving aside that that’s a description of economic organisation, not governance, that’s good news. Those places which have been even roughly capitalist and market oriented for a decade or three are rich or getting there. Those places which have not been are poor and remaining so. Thus, to the extent that we’d like to see Ethiopia getting rich capitalism is the way to go.

A part of this is the privatisation of Ethio Telecom. A useful way of describing this being well, why not get the money now?

The capitalism part:

[perfectpullquote align=”full” bordertop=”false” cite=”” link=”” color=”” class=”” size=””]’My model is capitalism’: Ethiopia’s prime minister plans telecoms privatisation.[/perfectpullquote]

It’s important to understand this. Sure, there are variants of capitalism and markets. From Hong Kong’s near laissez faire through to the tax and redistribution heavy Nordics. But there’s nowhere that has managed to create a much better than subsistence economy without using these two. No form of socialism, central planning, has managed it in the absence of vast natural resource revenues. There really is only this one recipe, however many different flavours there might be of it, to that goal of substantial and sustained increases in the living standards of the average citizen.

At which point the telecoms company:

[perfectpullquote align=”full” bordertop=”false” cite=”” link=”” color=”” class=”” size=””] Ethiopia is planning to finalize privatization of the giant state-owned telecommunication corporation, EthioTelecom, by the end of the year, The Financial Times reported on Sunday citing Prime Minister Abiy Ahmed. The government expects to raise multi-billion dollar funds out of selling the country’s telecommunication, which was introduced to the country as early as 1894 under emperor Menelik II. Prime Minister Abiy Ahmed, who had an interview with The Financial Times, said, “My economic model is capitalism,” which clearly represents a break from state controlled economy for the past 28 years, and even before that under colonel Mengistu Hailemariam administration. [/perfectpullquote]

Mengistu, we should recall, is the fool who thought he could achieve what even Marx said was impossible, the transition to communism direct from feudalism. Sorry, blood thirsty fool.

But we know what will be said about this privatisation. If the company is making money then why sell it? Why let the capitalists gain those profits, why not keep them for the State? The answer being that it’s being sold, not given away. The price it’s to be sold at being the net present value of those future profits. That’s how share prices are determined after all.

Further, given how poor Ethiopia is money now is worth more than money at that some point in the future. It’s worth it to sell the current rights to that future income stream to have the capital to deploy again.

This is before we even begin to think about whether the capitalists are going to run the company better or not. As with the old bird in the hand being worth two in the bush, gaining that capital now from Ethio Telecom is going to be worth more to the government than having to wait 20 years for it. After all, if the current growth rate of 10% or so carries on – and there’s no reason at all why it shouldn’t – then in two decades the place will be 8 times richer.