Land Reclamation Pressures Push EIH To Request Parliamentary Intervention

Sugar privatization efforts crumble owing to investor reluctance, again

Ethiopia’s overarching sovereign wealth fund faces obstacles as regional and city administrations move to appropriate land that has been kept idle for extended periods of time by state-owned enterprises under Ethiopian Investment Holdings (EIH).

EIH executives called on lawmakers to intervene in what they describe as growing pressure from city and regional administrations while presenting a first-quarter performance report to Parliament earlier this week.

“Our SOEs have several plots of land across the country. Regional states and cities administrations are reclaiming these properties on the basis that SOEs are not developing the land,” said Asma Redi, chief portfolio officer at EIH. “EIH cannot invest in all the landholdings at once. Therefore, we request Parliament to intervene.”

Asma told MPs that pressure from regional administrations is growing, but noted the Addis Ababa City Administration has been “more cooperative.”

Habtamu Hailemicael, deputy CEO, also stressed the need for parliamentary intervention.

“There are strategic resource development areas that are important for national interest but could not be developed by the private sector or SOEs. EIH is discussing such strategic areas. There are several land holdings under SOEs that are strategically important, but regional administrations and municipalities are taking away these holdings,” he said.

Lawmakers observed that EIH and its subsidiary SOEs have minimal presence in regional states and towns, leading to a failure to properly manage their landholdings. EIH execs argued that investing in all the properties at once would tie up SOE capital.

The performance review also touched on the major obstacles facing EIH and its subsidiaries.

Of the 41 SOEs being overseen by the wealth fund, nine are receiving close financial, technical, and strategic support. Further, four SOEs are in a critical situation. These include the Ethiopian Railway Corporation, Ethio Engineering Group (EEG – former MetEC), Sugar Industry Group, and the Ethiopian Industrial Inputs Development Enterprise.

Many of these SOEs have substantial audit backlogs stretching back several years, which EIH executives say they have been working on clearing since the fund was established in late 2021.

Some of the SOEs under its wing were not audited at all during the previous regime, were not paying taxes, and had lacked transparent management, according to the executives.

“EIH and SOEs boards cannot make decisions without having clear figures and information about the firms. Hence, we prioritized clearing the backlog audits,” said Asma.

Among the most pressing issues facing SOEs is failure to collect receivables from the government and other SOEs, according to EIH executives.

The performance review also touched on the Ethiopian Agricultural Business Corporation (EABC) and its financial struggles. EIH representatives explained to lawmakers that EABC’s profitability has been eroded by new fertilizer distribution mechanisms and a drop in export performance owing to instability and security issues in parts of the country.

EABC used to be the sole importer and distributor of fertilizers but in recent years, newly formed regional states and farmers under the Agricultural Cluster Commercialisation (ACC) have begun sourcing fertilizer directly from cooperatives and unions through the Ministry of Agriculture.

As a result, large stocks of fertilizer remain idled in warehouses, leading MPs to warn about potential shortages.

EABC’s venture into the import and sale of agricultural machinery has also failed as farmers are unable to afford the equipment, which has seen prices shoot up following last year’s exchange rate reforms, according to EIH executives.

The Corporation’s export of agricultural commodities, particularly frankincense, has suffered as a result of security challenges in some regional states, according to them.

The Corporation is not the only worrisome enterprise in the EIH portfolio.

Efforts to privatize eight sugar estates under the Sugar Industry Group have halted after a number of tenders failed to attract sound offers from bidders, even under direct negotiations, revealed Meleket Sahlu, deputy CEO of EIH.

Controversy also persists around EEG, the former Metals and Engineering Corporation (MetEC).

EEG was placed under EIH as a newly formed SOE, and its managers have prepared financial reports on the basis that it is a newly formed company, according to Rediet Getachew, CFO at EIH.

However, the state-run Audit Service Corporation refuses to accept EEG as a new enterprise. The dispute made its way to the Ministry of Finance, which wrote a letter confirming EEG is a new company, but the Audit Corporation refuses to budge, according to Rediet.

“Now, this case is at a deadlock. There are also other similar cases. We need Parliament’s support on this,” he said.

MPs responded by saying that such issues must be solved legally.

“If there are issues EEG inherited from previous situations, then EIH must own these issues. EEG is EIH’s company, so it owns all the responsibility. Do not avoid responsibility. If the case needs legal re-interpretation, Parliament can help in that aspect, including by looking into the EIH proclamation,” said Melesse Mena, chair of the parliamentary standing committee overseeing SOEs.

EIH executives targeted paying 13 billion Birr to the government during the first quarter, but only managed 10 billion Birr or 77 percent.

MPs enquired why they were unable to meet the target, citing the government needs the dividends to bridge budget deficits.

EIH reps responded by saying that since EIH is commercialising the SOEs, it is also mandated to reinvest.