Ethiopia closes door on M-Pesa

Ethiopia has shut the door for foreign mobile phone companies like Safaricom, which had hoped to introduce its popular M-Pesa mobile money transfer platform in the market of 100 million people, saying only local companies would be allowed to do offer such services.

Safaricom had launched talks with the Ethiopian government to launch the mobile money service in the country but Thursday, the Ethiopia’s central bank said it would only allow locally-owned non-financial institutions to offer mobile money services as it seeks to boost non-cash payments.

The new directive means that only companies like Ethio Telecom, which is a government-owned monopoly, have the greenlight to move into mobile money services. It also means foreign companies have effectively been locked out. As such, for a company like Safaricom to offer the service in Ethiopia, it will need to go into partnership with Ethio Telecom, which is in line to be privatised through the sale of a minority stake.

Safaricom, in partnership with its parent company Vodacom, and a number of other global telecom firms such as MTN, Orange, Etisalat and Airtel, have all expressed interest in gaining access to Ethiopia’s fast-growing mobile phone services market.

Without further changes to the regulations, Safaricom will remain unable to offer mobile financial services business in the customer-rich market, analysts said.

“This directive effectively excludes foreign fintech and telecom companies from reaping the business benefits,” Bahakal Abate, a corporate lawyer in Addis Ababa, told Reuters.

Besides telecommunications, the Ethiopian government last year announced plans to open up the aviation sector, the State logistics firm and electricity monopoly to private investment. The telecommunications monopoly, Ethio Telecom, is seen as the biggest prize due to its huge protected market. Ethio Telecom’s subscriber base of 44 million makes it the biggest single-country customer base of any operator in Africa.

Players like Safaricom are attracted by the growth potential in that market, whose 100 million population means the country a penetration rate of 44 percent. By contrast, Kenya’s 52.2 million mobile phone subscribers gives it a penetration of 109.2 percent.

M-Pesa has the potential to transform Ethiopia’s economy, as it has done in Kenya, by allowing people to sidestep a rickety and inefficient banking system and send each other money or make payments at the touch of a phone button. The ability to access digital banking services is likely to be a game-changer for Ethiopians whose banking sector has no way of transferring funds from one bank to another.

Safaricom is one of several Kenyan firms that have been eyeing the Ethiopian market for years due to the country’s huge population. Ethiopia has kept foreign involvement in the economy at a bare minimum.

The country has consistently registered robust economic growth, averaging 10 percent in the past five years, and its ongoing economic reforms look set to strengthen investor sentiment. Its population, which is the second largest in Africa after Nigeria, also offers immense opportunities for business.