Ethiopia Wednesday made a U-turn and allowed foreign telecommunications companies to launch mobile phone-based financial services, setting the stage for Safaricom to introduce its popular M-Pesa in the market of 110 million people.
Ethiopian Prime Minister Abiy Ahmed said the mobile financial services in the country will be opened to competition from next May, with foreign firms free to battle with State-run Ethio Telecom.
This marks a departure from last year’s directive that only allowed locally-owned non-financial institutions to offer mobile money service, dimming the hopes of foreign firms like Safaricom that are seeking a presence in Kenya’s neighbouring country.
Prime Minister Abiy Ahmed said at a launch ceremony for telebirr that the government had foregone $500 million (about Sh53 billion) by denying bidders for two licences, including Safaricom, the right to roll out mobile financial services.
"We expect Ethio Telecom to strive in a way to compensate this," he said.
The prime minister said, however, that mobile financial services would be opened up to competition after a year of telebirr operations.
The move would offer Safaricom a path to roll out M-Pesa in Ethiopia’s nascent telecoms sector considered one of the most lucrative in the economy as the once inward-looking country opens up to foreign investment for the first time.
Safaricom had earlier launched talks with the Ethiopian government to launch the mobile money service in the country to boost growth by offering cashless transactions.
The Kenyan telco and South Africa’s MTN are battling for new telecoms operating licences, the latest step in the Horn of Africa nation’s efforts to liberalise its economy.
Safaricom is part of a consortium that includes Vodafone, Vodacom, the United Kingdom’s CDC Group and Japan’s Sumitomo Corp.
Ethiopia has one of the world’s closed telecoms markets.
Mobile financial services have become a significant part of African telecoms operators’ businesses since Kenya’s Safaricom pioneered them with M-Pesa in 2007, giving people an alternative to banks.
If successful, the Safaricom consortium looks set to launch M-Pesa on the back of the new licence.
The barring of foreign firms meant that for firms like Safaricom to offer the service in Ethiopia, they would need a partnership with Ethio Telecom, which is in line to be privatised through the sale of a minority stake.
The Ethiopia government is preparing to sell a 45 percent stake in Ethio Telecom, part of a broader liberalisation including the auctioning of two new full service telecoms licences.
Ethio Telecom had revenues of $604 million (Sh64.3 billion) in the six months to end of December 2020. Safaricom half-year sales to September stood at Sh118.4 billion.
A telecoms monopoly, Ethio Telecom is seen as the biggest prize due to its huge protected market. Its subscriber base of 50.7 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 110 million people means the country offers a penetration rate of 46 percent. By contrast, Kenya’s 52.2 million mobile phone subscribers gives it a penetration of 118 percent.
Mobile money services like M-Pesa have 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 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.
However, 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.
Shares in sugar factories are also being sold and tentative steps towards opening up the financial sector have been taken.
Ethiopia’s mobile phone services aims to attract 21 million users for the service in its first year of operations, rising to 33 million in five years. M-Pesa had 19.3 million users in December and generated Sh35.89 billion sales in the six months to September.