Ethiopia’s liberalised telecom sector offers opportunity, with glitches

The law, dubbed the Communication Regulatory Proclamation, repealed several pre-existing ones on which the country’s state-owned telecoms monopoly, Ethio Telecom, was built. It sets the legal framework for a new telecoms regulatory authority that will issue licences to private investors. The new law also says that ownership of telecoms companies “shall be open without limitation to private investors including both domestic investors and foreign investors”.

The minister for innovation and technology, Dr Getahun Mekuria, tweeted that it was a “huge step”:

BREAKING NEWS
Ethiopian Parliament in its convening of June 13/2019 approved in to Law the Ethiopian Communication Regulatory Proclamation. This is a huge step in reforming Telecom Sector as promised by PM Dr. Abiy Ahmed. #Ethiopia is going #Digital, @ITU @ITU_BDTDirector

— Dr.-Ing. Getahun Mekuria (@DrGetahun) June 14, 2019

The future for Ethio Telecom

Ethio Telecom, which briefly surpassed MTN Nigeria to become the continent’s largest telecom service provider by subscriber numbers in 2017, will most likely be split into two. The telco is one of Ethiopia’s “commanding heights”: state-owned enterprises that Prime Minister Abiy Ahmed is seeking to privatise either fully or partially.

• The government has previously made it clear that it would maintain a majority stake in Ethio Telecom and an effective control of the board. With the new law, the regulatory authority can also issue licences for new players to enter the market.
• Another likely route for Ethio Telecom, which the country has already tried before, is to sell part of the telco and pledge to maintain its monopoly for a period of time. Between 2016 and 2017, a Japanese tobacco conglomerate bought a controlling share in Ethiopia’s state-owned tobacco company for almost $1bn, an overvaluation justified by the inclusion of a 10-year monopoly.

Ethio Telecom had 41.1 million subscribers by February this year, of whom 19.49 million are data and internet users. The liberalising of the sector has been an attractive prospect for investors even before Abiy Ahmed came to power, as the East African nation was the last large closed telecommunications market on the continent.

The law is a major shift in policy by Abiy from his predecessors’ position on state-owned monopolies. In 2013, Prime Minister Hailemariam Desalegn told Reuters he would never consider selling the country’s telco because foreign investors see the sector as a “cash cow” requiring less effort to make profits than other key areas such as manufacturing.

Telcoms on the starting blocks

Although Ethiopia’s finance minister told a state-owned network that there was no specific timetable, insiders have told the media that the first licences will be issued by the end of the year. Several multinationals including South Africa’s MTN and Vodacom have already expressed interest in bidding for the first licences.

• Last year, MTN called Ethiopia “a natural fit” for its pan-African footprint and said the country “presents many exciting telecommunication opportunities”. MTN CEO Rob Shuter told Bloomberg earlier this year: “There are a few large markets that are under-penetrated and where there is scope for a No. 1 or No. 2 operator, like Ethiopia. That’s obviously one where we would be really excited to participate, in some way.”
• Vodacom also expressed interest, but said that its entry would be “dependent on what might become available and if fits within our investment parameters”. The South African giant has maintained an office in Addis Ababa since 2013 and, like MTN, also has a licence to offer value-added services.
• Vodacom’s Kenyan subsidiary, Safaricom, has also been setting the groundwork for an entry to Ethiopia, which would be its first venture outside Kenya. In 2017, the telco acquired a 260km stretch of fibre cable on the Kenyan side of the border with Ethiopia from a tech firm.
• Vietnam’s state-owned Viettel, which has a presence in more than four African countries, also wants in. An official told Reuters: “If Ethiopian government offers the clear and sensitive option for selling of Ethio Telecom’s shares, Viettel will still thoroughly consider this option if it is suitable with Viettel’s investment strategies.”

Other potential entrants include Orange, Etisalat and Zain. Orange has also worked in Ethiopia, where its subsidiary Sofrecom had a two-year contract to manage the state monopoly in 2011.

No control over blackouts

While the 100m-strong market is attractive, investors will face several significant challenges. The most prominent one is that the Ethiopian government has repeatedly switched off telecommunications services to curb protests and for other reasons. While the new law was passing, the internet, and at times SMS services, were off for several days. Although the government and Ethio Telecom did not issue any statement on the blackout, it has been speculated that it was meant to curb cheating in national exams.

• Other nations such as Algeria, India and Iraq have also previously switched off communications services to curb cheating, but the efficacy of the move is still in question, especially in light of the massive losses to the economies.
• This is the fourth such blackout since Abiy took power, but the first to affect the entire nation.

The new law gives the regulatory authority sweeping powers, and in a section titled “National Security and Enforcement” says operators must allow “duly authorised agents” of the government “to carry out lawful surveillance” in the course of criminal and national security investigations. Addis Ababa’s favoured ownership model, where an investor takes a minority stake while the government retains executive control, also means that investors will be powerless to stop such blackouts and state surveillance.

Confirmed: Internet has been totally cut across #Ethiopia as an apparent measure intended to prevent cheating during national exams; incident ongoing #KeepItOn ?https://t.co/AZASjIdHLe pic.twitter.com/OT74L63I4J

— NetBlocks.org (@netblocks) June 11, 2019

Mobile money on hold

There are other challenges, such as the fact that Ethiopia’s laws do not allow telecoms companies to offer financial services. Safaricom, Kenya’s biggest telecoms operator, is reported to be planning a roll-out of its M-Pesa services in Ethiopia by the end of 2019. The Vodacom subsidiary has also been working with its parent company to lay the groundwork for expansion of the money services platform, beginning with the transfer of servers back to Kenya in 2015 and the purchase of the platform’s intellectual property rights from Vodafone.

• The first mobile-money service in the country, M-Birr, is owned by six microfinance institutions. Other platforms include CBE Birr, which is owned by the Commercial Bank of Ethiopia, and Hello Cash, owned by the Cooperative Bank of Oromia. One of the most recent entrants, a digital payments platform called Amole, is owned by Dashen Bank.

Another challenge is Ethiopia’s lack of a stock exchange, although it has repeatedly said it plans to have one by next year.

Bottom line:

For investors intending to get into the Ethiopian market, the new law marks the beginning of a long process that will see several commanding heights opened up for private investment. For Prime Minister Abiy Ahmed’s foreign currency-strapped government, the heightened interest is a good thing but it still needs to work to boost confidence in Ethiopia’s new political and economic direction. Switching off the internet for a week may work with a state-owned enterprise, but it would not sit well with private or institutional investors.