The discussion revealed that PPOCCs are neither State Owned Enterprises (SOEs) nor regional development companies. They are operated by politicians who are affiliated to ruling cliques. PPOCCs are unique creatures that are often found in post conflict environments, where the victors transform their previous clandestine and illegal businesses into legal economic entities. The new economic entities by and large claim to be providing rehabilitation, welfare, development, and employment to war veterans and victims of conflicts. PPOCCs are however often associated with bad management, cronyism, distortion of the economy, corruption, crowding out the private sector, bank looting, non-payment of taxes, credit defaults, interfering in government tender system, and exacerbating inequality by their discriminatory employment practices. Hence, PPOCCs in general have high economic and political costs.
In the case of Ethiopia, PPOCCs emerged around 1995, and now they are major actors in the economy. The major PPOCCs are controlled by the Endowment Fund for the Rehabilitation of Tigrai (EFFORT). EFFORT’s website indicates that the “group” appears to have a regional development mission, but it operates in at least 10 sectors throughout Ethiopia. The “group” also aims to be a globally competitive company. In the construction sector, where there has been growth, EFFORT claims to have a market share of 30%. Notwithstanding these, its financial statements are not publicly available. There is no evidence of external audit. Cabinet ministers and party leaders dominate the boards of Ethiopia’s PPOCCs. In the worse case, the wife of the Prime Minister is the Deputy CEO of EFFORT. The Prime Minister in turn advances the so called “developmental State paradigm”, an ideology that argues for the dominance of one party, and the merger of the government and the economy. In short, the agency and ownership problems of Ethiopia’s PPOCCs are acute.
A number of interesting questions arise. The origin, seed capital, debt and its non-arms length relationship with the government of the day is one direction of research. In the discussion I focused on reform options. In this regard, it was also noted that neither the economic advisors of the government nor donors nor multilateral institutions like the World Bank and IMF have been too concerned about PPOCCS. Notwithstanding this, as Ethiopia enters its next election, PPOCCs are more than likely to be one of the passionately debated issues. In considering reform options, it is important to decouple the reform options of SOEs from the reform options of PPOCCs. That is, in the case of PPOCCs reform is more than likely to be frustrated by the beneficiaries of the current system. In the medium to long term period, the policy options however can include partial or full privatization with the issuance of restricted tradable shares to the citizens; converting the endowment companies into regional development companies with defined territories and line of business, and cleansing them from politicians; and lastly nationalization by regional and/or central government.
The attraction of each option is dependent on the financial strength of the companies and the degree to which the country is ready for change.
