MEANING OF PUBLIC ENTERPRISES: DEFINITIONAL TESTS Lecture Two MEANING OF PUBLIC ENTERPRISES: DEFINITIONAL TESTS

Definition Synonymous terms with public enterprises: public undertaking, public corporation, national enterprise, state-owned enterprise, governmental enterprise.

The Enterprise dimension of PE Engaged in production of goods and services Goods and services are marketed at a price The revenues so earned are adequate to cover the costs The activity is based on the entrepreneurial idea of investment and return Keeping of books and accounts Each of these elements are indispensable.

The public dimension of PE There must be public ownership The goal is the public/public purpose Public controlled/state-controlled Public accountability Public management/optional

A governmental entity must meet the above two relatively broader requirements to be called a public enterprise.

Administrative Agencies Public Enterprises Obtain money from the government every year in the form of budget Entrusted to regulatory functions Operated by strict, delayed rules and regulations record and keep balance sheets, that shows its assets and liabilities at a given time of the budgetary year Financial performance is evaluated by exterior body at the national level Do not pay tax Fund is expended as an initial capital for its establishment. Or given money as a subsidy to save from failure Do profit-making activities Ruled by flexible rules that enables to be competent Has to keep balance sheet, profit and loss account that shows their financial status financial status is evaluated at an individual enterprise level As profit makers, they have to pay taxes

Public enterprises Private enterprises Established by statute Apart from profit, they have multi-dimensional objectives, including “social responsibility” Accountable to the public, greater in scope and degree There is an external management control mechanism (the state or its regulatory institutions) Monopolistic (when private sector refuses to engage in) Established by contract Profit makers. Recently a duty of “corporate social responsibility” is introduced. Accountable to their members. Lower degree and scope of liability Decisions are made at an enterprise level by an organ constituted at that very level Not monopolistic

Public enterprises Private enterprises Immune from bankruptcy Shares are not transferable Sometimes exempted from taxes; lower operational cost (e.g. building rent) Can be declared bankrupt Shares are transferable (save as the requirements for transfer of shares) No exemption of taxes (except exemption allowed under the investment law for certain activities and certain period of time)

THE PLACE AND FORM OF PUBLIC ENTERPRISES IN ETHIOPIA A historical review; early enterprises Bank of Ethiopia Ethio-Djibouti Railway Enterprise Imperial regime Domestic private capital was almost absent Thus, PE were established by the state or jointly with foreigners There was no comprehensive law except few legislations governing few enterprises Dergue regime Adopted state ownership of means of production, nationalized private capital which have been developed earlier The present regime State actively participated in the economic activities. In addition, it invites the private sector to participate in the economy

The 1995 FDRE Constitution It recognizes the right to property (Art. 40) and the right to take part in an economic activity a person is interested in (Art. 41). It imposes a duty on the government to formulate and implement the country’s policies in respect of overall economic social and development matters (Art 51 (2)). This duty is carried out, in part, by establishing public enterprises.

Proclamations Public Enterprises Proclamation No. 25/1992 It regulates public enterprises It intends to regulate state enterprises that did not undergo ownership change and that have to stay under government control

2. Privatization and Public Enterprises Supervising Authority Establishment Proclamation No.412/2004 3. Privatization Proclamation No. 146/1998 4. The Civil Code and the Commercial Code 5. Regulations

Types of PE in Ethiopia Functionally, public enterprise may be broadly classified as financial institutions (insurance, banking), promotional and development undertakings, and commercial & industrial undertakings. Different laws have tried to provide for types of PE in Ethiopia. However, the basic types of PE are wholly state owned enterprises.

Question How do you categorize enterprises which are established jointly by the government and a private person? www.hulawcourses.wordpress.com