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<\/p>\nEthiopia is preparing to test a fundamental assumption that has long underpinned its state-led economic model. What happens when state-owned enterprises (SOEs) are forced to stand on their own?<\/p>\n
A directive under preparation could fundamentally reshape how 37 state-owned enterprises under Ethiopian Investment Holdings (EIH) operate, grow, and finance themselves. These enterprises may soon lose the ability to request capital injections from the state. Instead, they will be required to rely on internally generated resources, financing expansion through retained earnings rather than external support.<\/p>\n
Under the proposed framework, each enterprise will be governed by a clear rule determining \u201chow much of its annual net profit can be allocated for capital growth.\u201d Officials argue that the reform will strengthen financial capacity and reduce bureaucratic delays. Yet beneath this technical framing lies a deeper transformation: a shift away from state-backed expansion toward self-financed commercial discipline.<\/p>\n
At the same time, EIH is preparing a parallel directive to determine how boards of directors across its subsidiaries are appointed, an equally consequential move that reshapes governance alongside financing.<\/p>\n
Taken together, the two reforms aim to redefine how Ethiopia\u2019s most strategic enterprises are governed and sustained. But the discussions and internal documents surrounding these changes come as company reports and financial documents point towards a system still grappling with deep structural gaps, persistent audit weaknesses, and unresolved accountability challenges.<\/p>\n
The push toward self-financing comes at a moment when many SOEs are already constrained by limited capital.<\/p>\n
During parliamentary discussions held in November 2025 on the performance of enterprises under EIH, lawmakers raised a series of concerns about sectoral bottlenecks and structural inefficiencies. These constraints, as it turns out, are not incidental. Rather, they are embedded within the fiscal framework governing SOEs.<\/p>\n
Existing rules dictate how profits are distributed; sixty percent to the government and forty percent to the Industrial Development Fund.<\/p>\n
The legal basis for this structure is Council of Ministers Regulation No. 107\/1996. Enacted over two decades ago, the regulation prioritizes the extraction and redistribution of enterprise profits over reinvestment and recapitalization. While it clearly outlines profit reporting and allocation mechanisms, it notably omits any formal provisions for addressing evolving capital needs as enterprises expand or face shifting economic conditions.<\/p>\n
Under this 22-year-old mandate, the financial maneuverability of SOEs is strictly limited. Once legal reserves are set aside, the remaining net profit is split between the state and the Industrial Development Fund managed by the Ministry of Finance. Even this 40 percent allocation is precarious as the law dictates that the government\u2019s dividend must be satisfied first.<\/p>\n
Furthermore, while the Council of Ministers retains the power to modify these ratios, the default settings of the regulation prioritize immediate fiscal inflows for the state over the long-term capital health of the organizations under EIH.<\/p>\n
This leaves enterprises with little room to retain earnings for reinvestment.<\/p>\n
During an EIH quarterly performance review last November, members of Parliament highlighted structural and financial constraints, and put the spotlight on unrequited tension between financial expectations and operational realities.<\/p>\n
A senior EIH executive explained, \u201cwe would like to provide capital support to all\u2026 but resources are limited,\u201d underscoring the fiscal constraints within which Ethiopian Investment Holdings operates. Instead, support is selectively deployed, with authorities noting that firms that \u201cface existential risk\u201d without support are prioritized.<\/p>\n
This approach, while pragmatic, has raised concerns about whether stronger enterprises are being constrained while weaker ones are sustained out of necessity rather than strategic value.<\/p>\n
Parliamentarians also questioned whether the current structure is producing balanced outcomes across the EIH portfolio.<\/p>\n
While headline figures suggest strong performance, MP Zewdu Tadesse (PhD) cautioned that \u201cthis achievement appears to have been driven by the high performance of a few SOEs,\u201d pointing to uneven capacity and export output across subsidiaries. He put forth his concern regarding a structural imbalance where a small number of high-performing SOEs are effectively carrying the broader system, while many others struggle to meet even baseline expectations.<\/p>\n
\u201cIn the first quarter of the 2018 fiscal year, EIH foreign currency earnings were planned at USD 3.9 billion, and USD 3.64 billion was achieved. However, on the other hand, this achievement appears to have been driven by the high performance of a few institutions. In this regard, what is being done to resolve the bottlenecks preventing most enterprises from generating foreign currency as planned?\u201d asked Zewdu.<\/p>\n
Addressing concerns about uneven export performance, Asma Redi, chief portfolio officer at EIH, acknowledged that foreign currency earnings remain concentrated within a small subset of enterprises.<\/p>\n
According to her, while the overall figures may appear robust, the reliance on a few high performers highlights a systemic vulnerability and to mitigate this, EIH has shifted its focus toward diversifying the export base by providing “extensive support” to subsidiaries, specifically aimed at improving both market reach and product quality to meet international standards.<\/p>\n
Asma maintains that this shift is already yielding measurable results in specific sectors.<\/p>\n
\u201cFor instance, the National Alcohol and Liquor Factory successfully expanded its export footprint from two to four international destinations following targeted interventions. Beyond immediate gains, EIH is laying the groundwork for long-term resilience through a newly developed Export Strategy. This roadmap identifies potential enterprises within the current holdings that are not yet exporting but possess the structural capacity to enter global markets in the future, provided the current capital and quality bottlenecks are resolved,\u201d she told MPs.<\/p>\n
However, the transition from potential to performance remains tethered to the broader macroeconomic environment.<\/p>\n
The classification of enterprises into performance tiers further underscored these disparities. The report presented to lawmakers categorized the enterprises under EIH into 19 high performers and three low performers, with 15 somewhere in the middle.<\/p>\n
MPs pressed for clarity on proposals to improve the bottom 18 performers, and inquired about incentives for enterprises that meet their targets. The questions point to a gap not only in performance, but in the policy tools available to address shortcomings.<\/p>\n
Operational under-performance in key enterprises added urgency to the discussion. MPs highlighted specific cases where revenues declined significantly, including data that indicate compared to the same period last year, the Metehara Sugar Factory saw a staggering 37 percent drop in revenue, while the Ethiopian Agricultural Businesses Corporation suffered a 21 percent dip.<\/p>\n
Even established entities like the Ethiopian Engineering Corporation and Hilton Addis experienced declines of four percent and one percent, respectively.<\/p>\n
\u201cWhat direction has been set to help these enterprises recover and achieve their planned revenues?\u201d asked one MP.<\/p>\n
Asma stated that the Agricultural Businesses Corporation, which is itself embroiled in a corruption scandal involving fertilizer and several of its top executives, faced challenges stemming from conflict and policy changes.<\/p>\n
\u201cFor the Agricultural Businesses Corporation, policy changes shifted fertilizer distribution under the Ministry of Agriculture and allowed commercial farms to purchase from unions, resulting in unsold stock,\u201d she explained. \u201cAdditionally, foreign exchange constraints limit its ability to purchase machinery.\u201d<\/p>\n
She also outlined the factors behind declines in other enterprises, noting that Metehara Sugar Factory\u2019s revenue decline was due to delays in sugarcane production, and assuring lawmakers that \u201ccorrective measures have been taken.\u201d<\/p>\n
Unsatisfactory audit findings have also emerged as one of the most persistent concerns surrounding SOEs. Lawmakers noted that some enterprises struggle with adverse audit reports, while others continue to claim that their audits are in progress.<\/p>\n
Frustration with delays was explicit, with MPs asking, \u201chow long will the repeated statement \u2018audit work is in progress\u2019 continue in annual reports?\u201d<\/p>\n
Financial management weaknesses were also brought into focus, particularly around receivables. The parliamentary committee overseeing public enterprises questioned why it has not been possible to collect these overdue receivables on time, highlighting ongoing inefficiencies in cash flow management.<\/p>\n
Governance and planning deficiencies were another area of concern. MPs pointed to the absence of systematic safeguards, and asked why malpractice and misgovernance remain largely unaddressed. They also noted that the \u201ccorrective measures\u201d often cited by SOE executives are regularly missing from reports, suggesting a disconnect between operational realities and formal accountability mechanisms.<\/p>\n
Additional questions raised by MP Addis Alemayehu highlighted structural constraints facing enterprises. Subsidiaries have requested support to remain competitive, leading to calls for \u201cstudy-based capital restructuring in line with current market conditions.\u201d At the same time, outdated infrastructure continues to hinder performance, with concerns that many subsidiaries are facing outdated production equipment and technology.<\/p>\n
Revenue mobilization challenges were also evident. Despite plans to collect 13.2 billion Birr in dividends, only 77 percent was achieved, prompting questions about \u201cwhat is being done to meet planned dividend targets.\u201d<\/p>\n
<\/p>\n
In response, EIH officials acknowledged many of the challenges while emphasizing ongoing efforts to address them.<\/p>\n
Rediet Getachew, EIH chief financial officer, noted the scale of inherited audit problems, stating that some SOEs saw delays lasting up to a decade, but argued that progress has been made through targeted interventions.<\/p>\n
\u201cSignificant work has been done\u2026 including assigning professionals\u2026 and building their capacity,\u201d he said, adding that most enterprises have now updated their audit reports.<\/p>\n
On dividends, officials pointed to structural constraints, explaining that tax payments and other liabilities sometimes affect the ability to pay dividends, and highlighting efforts to improve liquidity management, and aligning investment plans and operational expenses with dividend obligations.<\/p>\n
At the same time, officials sought to reassure lawmakers on financial management issues, claiming a steady decrease in outstanding receivables, though they acknowledged that resolution requires sustained effort, including \u201cnegotiations and legal measures where necessary.\u201d<\/p>\n
Despite the reform narrative, performance across Ethiopian Investment Holdings\u2019 portfolio presents a mixed and often uneven picture.<\/p>\n
Under the mandate of Council of Ministers Regulation No. 487\/2022, EIH is tasked with ensuring “modern management practices [and] corporate governance standards” across its portfolio. However, the reality within the Ethiopian Construction Works Corporation (ECWC) suggests a significant gap between these standards and operational execution.<\/p>\n
In a move to address these persistent issues, EIH in December 2025 overhauled the Ethiopian Construction Works Corporation board, removing high-level government ministers in favor of independent experts. At the time, EIH executives said they were aiming to ensure that “one-third of the board represents independent bodies… to enhance the institution’s corporate governance and decision-making transparency”.<\/p>\n
This EIH intervention came after years long repeated public grievances regarding the Corporation\u2019s performance and in the face of an attempt to transition from passive holding to active oversight in the face of mounting project failures.<\/p>\n
According to documents obtained by The <\/em>Reporter, the<\/em> human and financial cost of ECWC\u2019s “extremely weak” performance is most visible in its failed healthcare infrastructure projects.<\/p>\n A February 2024 report from the Addis Ababa Design and Construction Works Bureau revealed the termination of contracts for the Nifas Silk Lafto and Kolfe Keranio General Hospitals due to chronic delays.<\/p>\n The bureau noted that despite repeated efforts to improve momentum, the projects could not be completed on time, leading to the conclusion that “continuing the projects in the current manner would not provide a proper response to the public’s demands.\u201d<\/p>\n Technical and contractual incompetence at ECWC has also led to unprecedented legal and safety disputes. The Ethiopian Roads Administration (ERA) has previously issued a stern demand for clarification following a performance audit that claimed ECWC faced penalties exceeding 39 trillion Birr for failing to meet service levels on the Adama-Awash Road project. ERA officials expressed “complete shock” at the Corporation’s public claims that the contract was “not practical” and “destructive,” asserting instead that the failure was “mostly due to [ECWC’s] own failure” to remedy recorded defects despite sufficient alerts.<\/p>\n Beyond financial disputes, the Ministry of Defense has also raised alarms regarding the structural integrity of ECWC\u2019s work. In a July 2024 letter concerning the Commando and Airborne Forces Headquarters project, the Ministry reported “major cracking” in prefabricated slab elements. The Ministry warned that the “risk these cracks bring to the blocks in the future is high,” and strictly ordered that “all slabs previously installed with similar problems be removed” before further work could proceed.<\/p>\n Still, ECWC\u2019s troubled past has not excluded it from new opportunities. The Corporation has been tapped as a partner in the multi-billion birr Chaka Housing Development Project in Addis Ababa, where it joins private developers under a public-private partnership to deliver more than 4,100 housing units at an estimated cost of 67\u202fbillion Birr.<\/p>\n Despite previous delays and safety concerns, officials justified ECWC\u2019s inclusion citing its experience in completing residential buildings and its capacity to collaborate with private firms on large-scale developments.<\/p>\n It was after these inconsistent performances that in December 2025, ECWC saw its leadership and board structure overhauled by EIH, with the reshuffle marking the latest in a series of corporate reforms across government-owned firms.<\/p>\n The decision includes the replacement of the corporation\u2019s Chief Executive Officer and all board members; a move that officials say follows a comprehensive review of the company\u2019s governance and financial standing.<\/p>\n Whether it will make an impact on ECWC\u2019s unsatisfactory performance remains to be seen.<\/p>\n At a structural level, SOEs remain central to the economy. An IMF report from June 2025 notes that on average 39 percent of public investment in Ethiopia was undertaken by SOEs, and that they account for 37 percent of the stock of public sector capital. It warns that the scale magnifies risks when performance falls short or remains inconsistent.<\/p>\n EIH itself has positioned performance improvement as a core mandate, emphasizing a shift in philosophy toward commercial viability.<\/p>\n CEO Brook Taye\u2019s (PhD) justifications for changes in EIH\u2019s core mandate were cited in the 2025 Sovereign Impact report authored by the Center for the Governance of Change at IE University,<\/p>\n \u201cThese assets need to be managed commercially. They\u2019re not a policy instrument,\u201d he said, describing a departure from the traditional role of SOEs as vehicles for state-led development and signaling a stronger focus on profitability, efficiency, and measurable returns.<\/p>\n According to the IMF document, there are clear signs of progress in selected areas of EIH, the largest sovereign wealth fund in Africa, with over USD 150 billion in assets under management and additional dividend income inflow.<\/p>\n It indicates that some enterprises have demonstrated strong revenue growth and operational gains. For instance, one major construction enterprise \u201creported 8.9 billion Birr in revenue\u2026 exceeding its annual target by 17 percent and the previous year\u2019s figure by 81 percent.\u201d Such results are often highlighted as evidence that reform efforts can yield tangible improvements when governance and management structures are strengthened.<\/p>\n However, these successes are not representative of the entire portfolio. Even in cases of rising revenue, profitability remains under pressure. Audit findings reveal that while enterprises such as Ethiopost saw income surge to 2.88 billion Birr from 1.46 billion Birr, their financial health weakened, with profit before tax declining significantly and total income falling further.<\/p>\n A similar pattern is observed in the Chemical Industry Corporation, suggesting that revenue growth alone is not translating into sustainable profitability.<\/p>\n At the sector level, performance challenges are compounded by broader structural and operational constraints. The IMF report highlights that \u201cconstraints on the availability of foreign exchange\u2026 has compounded these challenges,\u201d affecting the ability of enterprises to deliver infrastructure projects and maintain operational efficiency.<\/p>\n The reports indicate that performance monitoring systems themselves remain a work in progress. While efforts are underway to improve oversight, a lack of standardization limits the ability to accurately assess performance across enterprises and reduces transparency in evaluating outcomes.<\/p>\n As Ethiopian Investment Holdings begin paving its way to push its portfolio toward self-financing and stronger governance, the central question becomes whether these enterprises truly thrive without the safety net of state capital.<\/p>\n The reforms signal a decisive shift from SOEs as instruments of policy to SOEs as commercial entities responsible for their own growth. Yet the structural constraints that have long limited their flexibility remain in place. Limited capital reserves, uneven performance across subsidiaries, and persistent audit and governance gaps mean that success is far from guaranteed.<\/p>\n As discussions regarding the new directives take shape, their effectiveness will likely depend on how well they align financial discipline with the practical realities facing enterprises on the ground.<\/p>\n","protected":false},"excerpt":{"rendered":" Ethiopia is preparing to test a fundamental assumption that has long underpinned its state-led economic model. What happens when state-owned enterprises (SOEs) are forced to stand on their own? A directive under preparation could fundamentally reshape how 37 state-owned enterprises under Ethiopian Investment Holdings (EIH) operate, grow, and finance themselves. These enterprises may soon lose […]<\/p>\n","protected":false},"author":68,"featured_media":49942,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"editor_plus_copied_stylings":"{}","ngg_post_thumbnail":0,"footnotes":""},"categories":[1957],"tags":[],"class_list":{"0":"post-49940","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-in-depth"},"acf":[],"_links":{"self":[{"href":"https:\/\/www.thereporterethiopia.com\/wp-json\/wp\/v2\/posts\/49940","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.thereporterethiopia.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.thereporterethiopia.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.thereporterethiopia.com\/wp-json\/wp\/v2\/users\/68"}],"replies":[{"embeddable":true,"href":"https:\/\/www.thereporterethiopia.com\/wp-json\/wp\/v2\/comments?post=49940"}],"version-history":[{"count":0,"href":"https:\/\/www.thereporterethiopia.com\/wp-json\/wp\/v2\/posts\/49940\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.thereporterethiopia.com\/wp-json\/wp\/v2\/media\/49942"}],"wp:attachment":[{"href":"https:\/\/www.thereporterethiopia.com\/wp-json\/wp\/v2\/media?parent=49940"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.thereporterethiopia.com\/wp-json\/wp\/v2\/categories?post=49940"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.thereporterethiopia.com\/wp-json\/wp\/v2\/tags?post=49940"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}