‎For much of the past two decades, Ethiopia’s economic growth model was more dominantly defined by public sector financing. State-led investments broadly laid out in the EPRDF regime’s first and second Growth and Transformation plans built expressways, dams, and industrial parks.

However, that approach left the economy with ballooning debt, skyrocketing inflation rates, and massive foreign exchange shortages.

‎These distortions then seemingly led policymakers to turn to the Public-Private Partnership (PPP) framework in a bid to bridge the country’s infrastructure needs and the recurring financing gaps.

‎After the political upheaval of 2018, the government introduced Proclamation No. 1076/2018 as a means of achieving its ambitious vision for development.

The Ministry of Finance, which introduced the legislation, explained its intent as a legal framework “to facilitate PPP, recognizing that the private sector is essential to support the country’s economic growth and improve the quality of public services, particularly in infrastructure.”

‎A PPP Board chaired by the Minister of Finance and a PPP Directorate-General were established to guide the new model. Projects ranging from solar farms to expressways were earmarked for tendering under the structures.

‎Seven years on, however, the record is thin and critics say the grand PPP agenda remains unable to take off. Analysts and economists contend the model is stumbling owing to institutional and capacity gaps, and an inability to incorporate the domestic private sector. 

Crafting PPP deals requires financial modelling, risk allocation, and long-term projections on inflation, exchange rates, and consumer demand. Ethiopia’s PPP unit is still learning the craft, and private investors often walk away unconvinced.

‎Economists have long argued the model was imported too quickly and that the government has used the scheme to usher in foreign investment, pushing out the domestic private sector. Some critics argue the scheme is better described as ‘public-foreign-private-partnership’ rather than genuine PPP.

‎”PPP, as we call it, is a very complex transaction. It is regulated by law. It is only within that legal framework that such projects can be carried out,” said Mehrteab Leul, an experienced corporate lawyer. “Sometimes, however, outside of those legal frameworks, you hear ministries or offices referring to ‘PPP.’ That is not in line with the law. There is a legal framework, and it is within that legal framework that it must be done”.

The PPP Proclamation lists which government entities in Ethiopia are authorized to implement PPPs under their mandate. Mehrteab observes the law gives priority to how value for money is guaranteed.

‎”When one birr of government money is spent, what value does it bring? That is why the private sector and government are supposed to work together, isn’t it? ‎So, if one Birr of public money is spent, the private partner must bring in something equivalent and worthwhile,” he said.

The attorney notes that the question then becomes: how can this be verified?

The law introduces a number of safeguards; including requirements for public tendering.

Mehrteab uses a hypothetical power plant project as an example.

“If a PPP project is for building a power plant, there are usually many parties involved. But the main one is the private party. The private party forms a project company, preparing to develop the power plant. Then there is what is called the off-taker, the one who purchases the power that is generated,” he said.

‎In the Ethiopian context, electricity is the only form of power that can be purchased, and by law, it can only be bought by a single entity: Ethiopian Electric Power (EEP). The state-owned enterprise has exclusive legal authority over electricity purchases, making it the off-taker in this scenario.

The critical question, according to Mehrteab, then becomes: at what tariff—at what price per kilowatt-hour—will EEP buy the electricity?

‎”That is public money being spent, because EEP is paying out of public funds. To ensure the price is fair and correct, a competitive tender must be conducted. ‎Under the revised proclamation, direct procurement of PPP projects is also allowed. Beyond that, the law spells out, in detail, the specific procedures that must be followed,” he said.

Others highlight that Ethiopia’s domestic private sector lacks the scale to invest billions in power plants or toll roads, often pushing the emergence of such partnerships to be concluded between the government and foreign companies.

‎On the other hand, even the definition of PPP in Ethiopia remains contested.

‎Getahun Moges, an energy sector expert and retired regulator, was cited in a UNECA 2023 paper as saying that, in Ethiopia’s case, the pace of development and engaging the private sector has been slow and sometimes results in unnecessary delays.

“Also, there is a big challenge of understanding the regulatory frameworks for PPPs, feasibility, and procurement regimes in the country,” reads the paper.

‎Some analysts argue that projects like the Addis-Adama Expressway, built by China Communications Construction Company, Ltd. with financing from China’s Exim Bank fall under the umbrella of PPP.

Researchers hail it as “Ethiopia’s first accomplishment in road projects via PPP arrangements,” albeit one that pre-dated the 2018 proclamation. ‎Others insist that no “proper” PPP project has yet been executed under the legal framework, arguing that projects such as the expressway were not officially designated as PPP projects.

‎The same ambiguity surrounds the Hidasie Telecom distribution project, often cited as a PPP in structure, though never formally labeled as such.

A pipeline document published by the Finance Ministry’s PPP Directorate-General indicated that by March 2021, the PPP board had approved a total of 23 projects across the energy, transport, housing, and petroleum infrastructure sectors.

Energy dominated the portfolio, with eight solar projects, six hydropower schemes, and five wind farms on the books, according to the document.

Beyond power, the pipeline also features three expressway projects, a single large-scale affordable housing development in Addis Ababa, and a petroleum storage depot in Dukem, 40 kilometers southeast of Addis Ababa.

‎The most advanced projects are in solar power, the document indicates. Two projects—Gad and Dicheto, each with a planned 125 MW capacity—have already been awarded to ACWA Power, with power purchase and implementation agreements signed.

‎The remaining six solar ventures, located in the Tigray, Amhara, Oromia, Afar, and Somali regions, are moving through the request for proposal (RFP) and bidding stages, with alternative sites and environmental studies still under review in some cases.

‎On the other hand, some other sectors still remain largely at the feasibility stage. All six hydropower projects, including the Genale Dawa-5 and -6 plants, Chemoga Yeda I and II, Dabus, and Halele Werabersa I and II, are still in the process of consultant recruitment and study preparation.

‎The three road projects—Adama–Awash, Awash–Mieso, and Mieso–Dire Dawa expressways—are also under feasibility assessment, with private participation anticipated in the later construction phase.

‎Similarly, all five wind power projects, from Aysha III in Somali to Debre Berhan in Amhara, remain at the study or pre-tender stage.

‎Beyond green energy and roads, Ethiopia’s PPP pipeline includes a USD 2.4 billion affordable housing scheme in the capital, expected to benefit nearly 80,000 households, and a petroleum storage depot designed to reduce the country’s vulnerability to supply disruptions. Both are still in the feasibility study stage.

‎This staging reflects a pattern across the PPP pipeline: while two solar plants have reached contractual closure, the vast majority of projects remain in preparatory phases, pending studies and tendering before construction and operation can commence.

A recent Ministry performance report document obtained by The Reporter indicated that PPP agreements that cover the construction of 4,175 housing units, 48 shops, and two market centers at an overall cost of 50.1 billion Birr were signed on July 3, 2025.

‎“PPP projects are essentially financed by the private sector,” Mehrtetab told The Reporter. “The private sector builds the project and then delivers it either to the government entity or directly to the public.”

‎He pointed to earlier experiences with toll roads.

“If another toll road such as Addis Ababa-Adama were built under PPP, the government would not pay the private sector directly. Instead, vehicles using the road would cover the cost over time,” explained the attorney.

‎Mehrteab stressed that the rationale behind PPPs is to address gaps the state cannot fill on its own.

“It is the government’s responsibility to provide services like electricity generation and distribution, but there is an infrastructure gap,” he explained. “Since the government cannot build infrastructure at the scale required, the private sector steps in to fill that gap.”

‎Still, he admitted Ethiopia lacks a proven track record in the area.

“So far, we do not have a robust record of successful PPP implementation. Apart from a few projects in the pipeline, we cannot say PPP has succeeded at a large scale.”

Part of the complexity, he added, lies in how risks are shared.

“A risk matrix must be prepared when designing the project. The principle is that risks should be allocated to the party best able to manage them,” said Mehrteab.

According to the expert, one of the biggest setbacks for PPPs in Ethiopia has for long been the issue of foreign exchange.

‎“In the past, PPPs were frustrated mainly by convertibility guarantee problems,” he said. “If a foreign company invested in a power plant, it would be paid in Birr, but it wanted dollar revenue. Ensuring that its Birr revenues could be converted and repatriated was a huge issue.”

The government, he noted, had been unwilling to shoulder that risk and as a result, many projects stalled.

However, Mehrteab observes that new directives from the central bank could signal a big change.

“Now, for PPPs and other strategically important projects, the government is offering convertibility guarantees,” he said. “This has reassured companies that their funds can be converted, which is a positive development.”

‎He added that the regulatory stance on offshore accounts had also shifted.

“PPPs are usually highly leveraged and mostly financed through loans. Lenders want absolute certainty that repayments will be made on the exact date. To ensure this, a cascade of offshore accounts must be opened,” he explained. “In the past, offshore accounts were seen negatively, as if they were a way of siphoning money out.”

The central bank recently permitted the use of offshore accounts for PPPs and strategic sectors.

‎With these policy shifts, Meheretab sees cautious optimism.

“Going forward, these reforms are expected to create the conditions for Ethiopia to finally build a successful track record in PPPs,” said the attorney.

Forex shortages and repatriation guarantees aside, PPPs remain fraught with risks emanating from low tariffs, capacity constraints, and political and domestic hurdles that often discourage both domestic and foreign investors.

Experts who spoke to The Reporter highlighted low government-set electricity tariffs as an example.

“Many potential private partners refrained from participating in the power sector PPP, stating the power tariff is low,” said one analyst.

‎Even insiders at the Ministry acknowledge that drafting PPP contracts requires skills in economic forecasting and inflation modelling—capacity Ethiopia is still building.

‎One of the starkest examples of Ethiopia’s PPP struggles comes from its solar program.

The Gad (125 MW) and Dicheto (125 MW) solar projects were among the first PPP power plants put on paper. But the foreign partner withdrew from the project before financial close, reportedly over FX and tariff concerns.

‎Both projects remain stuck in Ethiopia’s official “pipeline,” years after being announced. No new tariff arrangements have been made public, though industry observers say the government is currently making positive moves towards improving power purchase agreements it hopes will attract private capital.

‎Meanwhile, the United Nations Development Program (UNDP) has urged the government to deepen PPP reforms.

“It is key to strengthen PPP efforts to support the renewables sector and raise capital for investment,” noted a 2025 policy paper.

‎On paper, PPPs remain one of Ethiopia’s most promising solutions to the financing gap in infrastructure. The country’s legal framework exists, institutions are in place, and projects are in the pipeline.

‎But capacity, credibility, and confidence remain missing ingredients. Until investors are assured of repatriation guarantees, bankable tariffs, and technically robust contracts, progress will remain slow, analysts caution.

“PPP is still a work in progress for Ethiopia. We know the challenges. But we also know the alternative—more public borrowing—is no longer sustainable,” said an investment expert speaking with The Reporter anonymously. ByNardos Yoseph, The Reporter