Author’s Note: This is the second and final in a two-part series entitled Telecom, Terror and Digital Economy in Ethiopia. In this part, I provide my direct opinions on Ethiopia’s digital economy and suggest ways to move forward by following the lead of other African economies. In the first part, I highlighted what the proposed Proclamation on Telecom Fraud Offenses states.

Corrections and Corrections

The recent global media reports on an alleged plan to criminalize Voice Over Internet Protocol (VOIP) services such as Google Talk and Skype in Ethiopia are, as it turns out, false.

As reported by the Ministry of Foreign Affairs in what was a rather blunt statement, Parliament has no intention of criminalizing VOIP services and the draft law, formally A Proclamation on Telecom Fraud Offenses of 2012 is targeted at owners of Internet cafés and other establishments that allow usage of non-state telecom services and not individual users.

Either I misread the document or it is badly worded.

The media buzz came about early June through an article initially reported by Al Jazeera, and carried by the BBC and other global news outlets with a subsequent spillover to social media. The reports are apparently based on a misunderstanding of what Parliament has done thus far, which is tabling the draft for an initial reading to the relevant parliamentary committee.

The draft law identifies telecom fraud as a “serious threat to the national security” beyond the negative economic impacts (assumedly to Ethio Telecom). The proclamation mentions that the current legislations on telecom fraud are not sufficient enough to curb the issue.

The Subjective “Terrorist”

Every government in the world subjectively uses the word “terrorist.” Ethiopia is no exception.

There are those who actually harm the national security and territorial integrity of a state and there are those who the people perceive to be harmful based on the claims of a government. In many cases, these two sets of “terrorists” may indeed be harmful to state security. But in other cases, these two may strongly differ.

The Government of Ethiopia, for example, sees the Oromo Liberation Front as a terrorist organization but need I remind the ruling EPRDF party that the previous government had also deemed the EPRDF as terrorists? The point here is not whether the OLF, EPRDF or the next party is a terrorist organization but rather to underscore the subjectivity of the word “terrorist” itself.

Ethiopia has its fair share of truly legitimate national security threats. The Horn of Africa is not known for being a peaceful area, and Somalia’s continued anarchy contributes greatly to Ethiopia’s strong fear of terrorism and religious fundamentalism. As with this telecom draft law, and the anti-terrorism law passed in 2009, Ethiopia needs to ensure that it can protect its borders and defend its national security, but this must never come at the cost of individual liberty.

Ethiopia’s issue with balancing state security and liberty is an ongoing question worldwide especially as a participant in the War on Terror: does state security precede individual liberty?

Harnessing a Digital Economy

When people ask me about Ethiopia’s digital economy, the first question that comes to my mind is: “what digital economy?” The government, through Ethio Telecom, is the sole service provider, operator and regulator of Ethiopia’s digital economy, or whatever resemblance there is.

Ethio Telecom is the oldest telecom provider in Africa and has always been government-owned. With over 100 years of history, Ethio Telecom has held a monopoly on the digital economy. Considering the long history of telecom in Ethiopia, it is bewildering to think that Ethiopia falls behind the entire continent in Internet penetration.

Let’s be honest: African standards are already sub-standard in relation to the rest of the world, so for Ethiopia to be below African standards is not something to brag about.

Ethiopia has plans to join the World Trade Organization. In order to become a member, many of Ethiopia’s laws will be revised and the telecom sector, among others, will be open for private competitors. I suspect the government’s reluctance in privatizing is based on two major reasons;

Foremost, the EPRDF’s ideology of state-led capitalism encourages sole ownership of key sectors, including telecom and electricity. In the developmental state model, government prioritizes state development over privatization (and often over rights) and gradually privatizes only after establishing basic infrastructure. This model makes sense but contains flaws that if left unaddressed can create a recipe for economic decline and political instability. If done in tandem with the opening of economic and political systems, the developmental state model has the potential to yield serious dividends as exemplified in Southeast Asia.

Secondly, state-owned enterprises such as Ethio Telecom, Ethiopian Airlines and the Ethiopian Electric and Power Corporation generate badly needed revenue for the government. Losing these enterprises or quickly privatizing those key sectors appears counterintuitive for the government.

The problem with state-led capitalism and economic dominance is that it assumes government knows best and if there is one thing I can conclude with utmost certainty is that this assumption is dangerous. Governments operate on political will and have little incentive to improve services and infrastructure in comparison to the private sector, which must operate on competition and innovation. Consumer preferences dictate how far, quick and where private competitors will go whereas governments tend to be slow and relatively unresponsive.

Taking this into consideration, it is important for Ethiopia’s authorities to examine two potential ways to move forward with harnessing a robust digital economy.

My first suggestion is for Ethiopia to learn from the successes that African countries such as Kenya and Uganda have had in allowing private competitors further their digital economies. With populations much smaller than Ethiopia’s, these economies have thrived in the information and communication technology (ICT) sector because of privatization.

In Kenya, there is solid evidence that the ICT sector’s privatization continues to make direct contribution to ongoing economic growth. Thanks to regulatory reforms in 1998 and onwards, the Kenyan authorities have given way to private sector innovation. Primarily through mobile phones, Kenya’s digital economy has served as a strong trendsetter in Africa. Technology start-ups and innovation centers are popping up in Nairobi daily. Private sector innovators and the entrepreneurs who bring those ideas to life are the main source of ICT sector growth in Kenya.

Arguably one of the most dynamic digital economies in Africa, Uganda is the first country on the continent according to the International Telecommunications Union where the number of mobile phones has outpaced the number of landline phones. Multiple private telecom providers have contributed to strong sector growth and competition. With the ongoing growth of GSM data and microwave services, Uganda is an African trailblazer in Internet penetration.

The Governments of Kenya and Uganda have recognized the importance of the government’s role in harnessing private sector growth and innovation in the ICT sector. The reforms are paying dividends like none other on the continent.

And other governments are taking note. But is Ethiopia?

Allowing for private sector growth in ICT creates a large tax base and since private companies tend to be more efficient than state-owned ones, the government is poised to generate more revenue overtime from taxation than relying on the revenue of ill-equipped state companies.

My second suggestion is instead of full telecom privatization, Ethiopia should consider allowing the many talented and skilled diaspora professionals to invest their intellectual and financial capital in Ethio Telecom and actually manage the company. While France Telecom has made progress as the contracted manager of Ethio Telecom, I would argue that Ethiopian diaspora professionals are equally competent if not better, particularly since they understand and relate to cultural nuances.

It is overdue for the Government of Ethiopia to view the diaspora as a management base. Dr. Eleni Z. Gabre-Madhin and her diaspora executive team envisioned and built the Ethiopia Commodity Exchange (ECX) from scratch. This September, Eleni and her team are poised to transition the helm of leadership to a local executive team that they trained. This move was long designed from ECX’s beginnings. This model should be replicated at existing state companies that lack competent or outright corrupt leaders. The diaspora is being given a bigger role in Ethiopia, and while the government’s new diaspora policy reflects this trend, I believe more is needed.

Allowing the diaspora to invest in Ethio Telecom and participate in its leadership is in line with the goals articulated in the 2010-2015 Growth and Transformation Plan and construction of the Grand Renaissance Dam on the Nile River, which is being built in major part due to diaspora investments.

Ethiopia is twice the size of the U.S. State of Texas and is Africa’s second most populous country with 85 million people. Such a population provides major incentives for private service providers to further develop the ICT sector and sets the ground for continued innovation.

The drafting of the Proclamation on Telecom Fraud Offenses has further exposed the necessity of a conducive and robust digital economy that is led by the private sector. If the ruling party is serious about WTO membership, it must enable private sector competition today as opposed to tomorrow.

By  Samuel M. Gebru

The author is Chief Executive Officer of the Ethiopian Global Initiative. The thoughts articulated here are his own and not reflective of the Initiative.