The federal government, alongside private sector players, is embarking on an ambitious pilot project to construct 3,600 housing units.

The initiative, routed through Public-Private Partnerships (PPP), seeks to provide homes to employees of the state-owned broadcaster the federal housing corporation is heralding a novel approach to the country's housing development strategy. At the heart of this venture is a stringent requirement for interested companies, which must demonstrate assets of at least 45 million dollars to qualify for participation. The high threshold shows the authorities push for financially robust partners, capable of shouldering the substantial investment and long-term commitment the projects entail.

The Ministry of Finance, which floated the Request for Qualification (RFQ) bid over a month ago, has already seen interest from 23 real estate and construction companies, signalling the private sector's eagerness to engage in the housing sector reform. With the application window still open, the number of prospective bidders is expected to rise.

The initiative represents a critical juncture in the housing development policy, marking a departure from traditional public sector-led models to a joint venture approach that leverages the private sector's capital. Convening representatives of over 50 companies at the headquarters on King George VI St, officials of the Ministry of Finance clarified last week the critical aspects of the project, including risk-sharing guarantees, tax incentives, and assurances against potential price fluctuations and foreign currency issues.

According to a senior official of the Ministry, these were elements that had not been previously explored in the housing projects.

The project's governance structure comprises an 11-member board chaired by Finance Minister Ahmed Shide, featuring prominent officials such as Alemu Sime (PhD), minister of Transport & Logistics (MoTL); Mamo Mihretu, governor of the National Bank of Ethiopia (NBE); Habtamu Itefa (PhD), minister of Water & Energy; Chaltu Sani, minister of Urban & Infrastructure (MUTI); Fitsum Assefa (PhD), minister of Planning & Development (MoPD); and, Binalf Andualem, minister of Peace (MoP).

The multi-disciplinary board is evidence of the comprehensive approach adopted to address its housing challenges, aiming for a collaborative effort across different government sectors, according to Fikadu Wamisho, head of Procurement division at the PPP Project Office.

Given the projects ' long-term nature and associated risks, he stressed the importance of thorough self-assessment for potential developers. According to him, the management and maintenance of the housing units would fall under the developers' responsibility, adding another layer of commitment required from private sector participants.

The project has sparked discussions around the inclusivity and accessibility of such large-scale initiatives, with concerns raised by local companies over the high entry barriers.

Addis Habte, a significant shareholder of Capducia Real Estate Plc, voiced reservations about the potential exclusion of local firms due to the stringent overall requirements.

"It's unlikely anyone will participate in these conditions," he told Fortune

The sentiment reflects the broader challenges domestic investors face in participating in large-scale public infrastructure projects.

Abebe G. Hiwot, director of the Project Office, reassured developers, mentioning potential support mechanisms, including short-term windows for loans in foreign currency from the National Bank of Ethiopia (NBE) and possible tax incentives.

"These measures aim to mitigate the financial constraints and encourage domestic participation in the project," said Abebe. "Several strategies are being considered to prevent project failures."

The selection process for developers will lead to the issuance of Requests For Proposals (RFP), where technical and financial capabilities will be examined. Successful companies will be required to establish a Special Purpose Vehicle (SPV) within three months, demonstrating a significant equity-to-loan ratio, which indicates the company's commitment and financial stability.

The Ministry of Finance has identified an additional 15 plots of land for future PPP housing schemes, contingent on the pilot project's success.

The initiative comes on the heels of a comprehensive feasibility study by the Ministry of Urban & Infrastructure, aimed at exploring viable models for building a portion of its ambitious plan to construct 79,800 housing units through private sector partnerships. However, the progress has been slower than anticipated, with only 37,000 homes completed in the past three years against a decade-long target of 4.4 million units.

Interest in the pilot project spans various companies, including Purpose Black Ethiopia, an agricultural produce distributor that has recently ventured into the real estate sector with plans to construct a 115-story building near Mexico Square. CEO Fesseha Eshetu's participation at the meeting last week showed varied interest in the project and highlighted the potential for financing and development models within the PPP framework.