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Ethiopian Privatisation Paradigm and Investment: An Empirical Analysis

This paper examines the relation between privatisation and investment. Many previous studies have proved that privatisation has had a direct and positive effect on investment, triggering the economic growth and development which has significantly been observed particularly in the economies of transition. Ethiopia - can also be considered an economy of transition - having spent a two decades of communism, has implemented privatisation programme as a means of attracting a sizable investment including the foreign direct investment. We used data over nine years, 1994/95-2002/03, and applied correlation and regression analysis to find out the effect of the Ethiopian privatisation programme on investment. Our study reveals that the effect of privatisation on investment is robustly negative, owing to the lack of in-depth insight not only into privatisation programme itself, but also into overall reform and structural adjustment programmes. Moreover, the economic and political instability coupled with a weak potential domestic investment are also equally contributing factors. We also affirm that the nation's inherent problems of bureaucracy, commercial framework, and property issues must be overcome to make privatisation programme more fruitful on the aspect of investment attraction. We also suggest that a better market conditions coupled with financial reforms is indispensable to prevent the Ethiopian economy from the further investment sabotage.