Valuation of State-Owned Enterprises in the Process of Privatisation in Ethiopia: Procedures and Methods

Abstract

Real property valuation is a vital component in the privatization of state-owned enterprises (SOEs). In Ethiopia, real property valuation is a difficult task as there is a lack of skilled manpower in the field, no adequate real estate market, and legal gaps in valuation. In addition literatures are scant about how real property valuation is done. Therefore, this study examines real property valuation procedures and challenges in the process of privatization of state-owned enterprises (SOEs) in Ethiopia. To achieve the objective of the study, qualitative research approach is applied. The target populations of the study were appraisers who participated in the valuation of SOEs. A purposive sampling technique was used to select respondents. Primary data were collected from appraisers using key informant interview (KII). Document review from different secondary sources was employed to triangulate the KIIs. The data were analyzed using thematic grouping and narration. The study found that for profitable enterprises Depreciated Replacement Cost (DRC) and Discounted Cash Flow (DCF) methods have been applied while for loss-making enterprises the DRC method has been used. These methods are selected based on the preceding three years of data. Moreover, these valuation methods are not applied in a proper way and the basis of selecting these methods are unjustifiable. The valuation result of SOEs, do not reported in a standard valuation reports formats. Lack of skilled manpower, inappropriate use of the valuation approaches, inappropriate base for selecting techniques of valuation, and organizational inefficiency are the key problems faced during valuation. To improve the situation market principles should be applied in the valuation of SOEs for privatization purposes in Ethiopia. These can be achieved by introducing strong institutions responsible for valuation regulations at the central level.