ADDIS ABABA (Reuters) - Ethiopia said on Tuesday it would open its state-run telecoms monopoly and state-owned Ethiopian Airlines to private domestic and foreign investment, a major policy shift that will loosen the state’s grip on the economy.

FILE PHOTO: Ethiopia's Prime Minister Abiy Ahmed arrives for a rally during his visit to Ambo in the Oromiya region, Ethiopia April 11, 2018. REUTERS/Tiksa Negeri/File Photo

The East African nation of 100 million people has one of the most closed and controlled economies in Africa. The ruling EPRDF coalition, in power since 1991, has long supported deep state involvement in the economy.

But the EPRDF said on Tuesday that Ethiopia needed economic reforms to sustain rapid growth and boost its exports.

“While majority stakes will be held by the state, shares in Ethio Telecom, Ethiopian Airlines, Ethiopian Power, and the Maritime Transport and Logistics Corporation will be sold to both domestic and foreign investors,” it said in a statement.

It was referring to the state monopolies in the electricity, telecoms and logistics sectors, as well as the highly profitable national flag carrier.

The announcement was the first clear signal that Prime Minister Abiy Ahmed, who came to power in April promising a “new political beginning”, would implement real economic reforms.

The 41-year-old former army officer was appointed by the EPRDF after his predecessor, Hailemariam Desalegn, resigned in February after three years of unrest in which hundreds of people were killed by security forces.

Observers say Abiy is under pressure to meet high public expectations. In the past two months he has traveled around Ethiopia, promising to address grievances and to strengthen a range of political and civil rights.

Earlier on Tuesday parliament approved the government’s decision to lift a six-month state of emergency two months earlier than planned. [L5N1T71ON]

UNEMPLOYMENT

One challenge is appealing to disaffected youth, which will require the creation of many more jobs. Anger over high unemployment fueled violence that led to Hailemariam’s resignation.

Around 40 percent of the population is under the age of 15, the United Nations says. Up to three million people enter the labor market every year but most do not find jobs, local economists say.

Massive state-led infrastructure projects that are expanding road and rail networks have driven economic growth of nearly 10 percent for the past decade.

But the heavy spending has drained capital from heavily regulated state banks and left little for local businesses and the few foreign investors allowed into a handful of sectors.

Local and foreign investors have long said that opening up new sectors could ease a shortage of foreign exchange.

Ethiopia’s foreign reserves amounted to only $3.2 billion by the end of the 2016-17 fiscal year - the equivalent of less than two months worth of imports.

The move to liberalize sectors of the economy which have always been off limits to foreign investors came as a surprise after the new premier had signaled to local businessmen that the government would remain involved in infrastructure, banking and telecoms.

The EPRDF statement did not mention banking sector changes.

The coalition said “corporations under government hands - railway, sugar, industry parks, hotels and various manufacturing firms” would also be either partially or fully privatized.

Ethiopia is one of few African countries to still have a state monopoly in telecoms.

Last month Ethio Telecom said it would allow some local firms to provide internet services through its infrastructure, which could spur competition and expand the data market.

PEACE WITH ERITREA

In another huge policy shift announced on Tuesday, the EPRDF said Ethiopia would “fully accept and implement” a peace agreement with Eritrea that was signed in 2000 and a subsequent international boundary ruling that handed a flashpoint border town to Asmara.

The Horn of Africa neighbors have remained at odds since a 1998-2000 war over a disputed town that a boundary commission subsequently handed to Eritrea but which Ethiopia rejected.

The EPRDF said it had taken the decision to accept and implement the peace deal with Eritrea “in order to benefit the peoples of both countries who are linked by blood”.

Eritrea’s Information Minister Yemane Gebremeskel told Reuters he had not seen the Ethiopian government’s statement so could not immediately comment.