Industry

Ethiopia changes law for M-Pesa expansion

Safaricom data centre

The $100 million China-assembled Safaricom data centre in Addis Ababa, Ethiopia. PHOTO | TESFA-ALEM TEKLE | NMG

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Summary

  • Ethiopia has started changing its national payments law to clear the way for Safaricom to introduce its popular M-Pesa in the market of 110 million people.
  • A consortium led by Safaricom last year secured the first private mobile telephony licence, which does not have a permit for mobile financial services such as M-Pesa.
  • The National Bank of Ethiopia (NBE) now seeks to remove the remaining legal hurdle for Safaricom through the Bill that was made public last week.

Ethiopia has started changing its national payments law to clear the way for Safaricom #ticker:SCOM to introduce its popular M-Pesa in the market of 110 million people.

Ethiopia’s central bank has drafted a Bill that will allow foreign investors to offer mobile money services, boosting firms such as Safaricom that are seeking to start operations in the country this year.

A consortium led by Safaricom last year secured the first private mobile telephony licence, which does not have a permit for mobile financial services such as M-Pesa.

The National Bank of Ethiopia (NBE) now seeks to remove the remaining legal hurdle for Safaricom through the Bill that was made public last week.

“So far, there is no law that enables foreign operators like M-Pesa to acquire a licence in Ethiopia. If the new amendment is approved, it will allow M-Pesa to get a licence in Ethiopia,” Marta Hailemariam, the head of payment settlement at NBE, told the Ethiopian press.

Ethiopia is liberalising its telecoms sector in a bid to pivot to a modern, digital economy in line with reforms unveiled by Prime Minister Abiy Ahmed in 2018.

State monopoly Ethio Telecom, which launched a new mobile financial service called Telebirr in May last year, attracted four million users within weeks, showing the potential of the market.

The State-backed Bill states: “Foreign nationals may be allowed to invest in a payment instrument issuer or a payment system operator business; or establish a subsidiary which shall be licensed as a payment instrument issuer or payment system operator.”

Safaricom is part of a consortium that includes Vodafone, Vodacom, the United Kingdom’s CDC Group and Japan’s Sumitomo Corp, which secured the licence with a h$850 million (Sh97.9 billion) bid.

Ethiopia has one of the world’s most closed telecoms markets.

Mobile financial services have become a significant part of African telecoms operators’ businesses since Safaricom pioneered them with M-Pesa in 2007, giving people an alternative to banks.

If the proposed law is approved, the Safaricom consortium looks set to launch M-Pesa on the back of the new licence.

The barring of foreign firms meant that for telecoms operators such as 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.

A telecoms monopoly, Ethio Telecom is seen as the biggest prize due to its huge protected market. Its subscriber base of 58.7 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 114.1 million people means the country offers a penetration rate of 51.4 percent.

By contrast, Kenya’s 65.08 million mobile phone subscribers give it penetration of 133.6 percent.

Mobile money services have the potential to transform Ethiopia’s economy, as M-Pesa 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.

Safaricom will access the giant network of Ethio Telecom, allowing the telco to roll out its services across the vast Horn of Africa nation.

This follows an Ethiopian government-backed deal that paves the way for Safaricom to start commercial operations in the market, Safaricom officials said recently.

“The deal is very important and critical for our commercial viability and launch. Hopefully (we will launch) soon but we don’t have a date yet,” Safaricom chairman Michael Joseph told the Business Daily.

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