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Ethiopia: MTN pullout shows financial-opening prospects receding

By David Whitehouse
Posted on Friday, 13 August 2021 16:07

A woman walks past an Ethio Telecom office in Ethiopia's capital, Addis Ababa. REUTERS/Tiksa Negeri

Plans by Ethiopia to add mobile financial services as a sweetener in the sale of its second telecom operator licence reportedly weren’t enough to persuade the first round’s only unsuccessful bidder, South Africa's MTN, to have another try.

MTN, whose offer in the first round was rejected as being too low, had said it is ready to bid more if mobile financial services would be included. On August 12, CEO Ralph Mupita said being the third or fourth licensee makes it hard to compete in any market and that MTN will not take part. This month, Ethiopia will reopen bidding for the licence.

There is now “a huge risk that there won’t be any takers for the Ethiopian license,” says Ayobami Omole, African telecoms analyst at Tellimer in Lagos.

The absence of tower companies and the increasing competitiveness of state-owned telecoms operator Ethio Telecom are deterrents to entry, she says. “A third player will have a very tough time playing in the Ethiopian market, even with a mobile-money permit.”

Excitement around the opening of Ethiopia’s financial services sector, which was stoked in 2019 when Ethio Lease became the first foreign-owned company to get a license, has been tampered by Covid-19 and civil war. Fighting has spread across the north of the country, including the Afar and Amhara regions.

A consortium led by Kenya’s Safaricom secured the first licence in May, with a bid of $850m, in a tender that attracted only two offers. That was after about 12 multinationals expressed interest.

  • Safaricom is paying a heavy price: in its bid, it committed to investing about $8.5bn over the next decade.
  • Ethiopia’s initial plan to exclude mobile financial services from telecoms licenses was to allow the Telebirr business run by Ethiotel to build up its subscriber base, Omole says.
  • Telebirr, set up in May, is targeting 21 million subscribers by the end of its first year.
  • The increased competition “takes away the first-mover advantage” for new entrants, says Lisa Kimathi, senior research associate at Standard Investment Bank in Kenya.
  • “Any bidder for the second licence will have to reweigh the unfolding risks and rewards,” including the high benchmark cost and projected expenditure, Kimathi says.

The absence of tower companies in Ethiopia will also constrain new bids, says Omole at Tellimer. Mobile-money companies will be “largely reliant on the local financial sector infrastructure,” she says. “The inclusion of mobile financial services in the telcos licences will not necessarily hasten the process of financial sector liberalisation.”

Slow burner

Ethiopia’s growth story has taken a beating, argues Irmgard Erasmus, senior financial economist at NKC African Economics in Cape Town. Progress on telecoms reform has been counter-weighed by “increasing distrust between regional states and rising support for ethno-nationalist parties,” she says.

The current fiscal year which started on July 8 is likely to see growth of 6%, with the figure propped by a favourable base effect, she says.

Any bidders for the second license will be “quite considered in their offers, owing to factors [such as] the anticipated high cost of investment to build their networks and service offerings in the market,” as well as the current political and economic uncertainties, says Chiti Mbizule, principal telecoms analyst at Fitch Solutions in South Africa.

  • Further liberalisation of financial services will take place “gradually” in order to protect domestic stakeholders, Mbizule says.
  • There remains “the possibility of strong opposition from vested interests, which could slow the overall process.’
  • An actual launch of Ethiopia’s planned stock market, the type of firms listed, and rules on participation would provide some insight into the state’s plans for financial-services liberalisation, she adds.
  • The liberalisation of banking and insurance remains a “purely long-term prospect,” says Sarah Wanga, head of research at AIB Capital in Nairobi. Existing vested interests are likely to be able to delay the process, she adds.

Bottom Line

The government will find it hard to persuade investors that mobile money in Ethiopia is not already loaded in favour of state-owned Telebirr.

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