The argument by the Organisation for Economic Cooperation and Development (OECD) that tightening South Africa’s wealth tax regime would rebalance ... generational inequality has a fundamental flaw: it targets a “flighty” base, says an expert from the African Tax Institute.
Opening up Ethiopia’s economy to private investment and competition has been a key part of Prime Minister Abiy Ahmed’s reform agenda. With a population of 110 million served by a single state provider, the country has had a largely untapped telecoms market.
In May 2021, Abiy’s government awarded the first ever private licence for telecoms services in the country to a consortium led by Safaricom, which paid $850m. The government had also put a second licence up for auction, but plans to sell it were shelved after the bids received were considered to be too low.
Plans to privatise 40% of Ethio Telecom have also stalled. In September 2021, companies were invited to submit proposals for the stake. However, in March 2022, the finance ministry said the privatisation process has been postponed amid the economic uncertainty stemming from the on-going civil war in the north. French company Orange is believed to have been among the companies involved.
Voice services were very slow, sometimes there was no connection, but things have improved a lot in the last three to four years.
It is not clear when the selloff will go ahead, even though the government says it “remains committed to finalising the privatisation process and looks forward to re-engaging in due course with existing and additional parties that have expressed interest [in Ethio Telecom]”.
Ethio Telecom was once renowned for its creaking infrastructure, patchy coverage and sluggish service, but in recent years, it has invested heavily in upgrading its network in partnership with Chinese firms Huawei and ZTI, even though some customers still report long waits to have broadband and phone lines installed. 4G services that were once confined to Addis Ababa are now available in several parts of the country.
“Voice services were very slow, sometimes there was no connection, but things have improved a lot in the last three to four years,” says Alexander Demissie of The Africa China Advisory, a consultancy firm. “They have expanded phone and mobile internet services into provincial cities and the countryside. This is completely new and has something to do with the fact other companies are coming into the market.”
As Ethio Telecom prepares to face competition for the first time, it has slashed mobile data tariffs by up to one third. In May 2021, the state-owned entity launched a mobile money service, Tele Birr, which has already bagged 13 million subscribers.
Even so, Ethiopia still lags far behind its neighbours when it comes to mobile phone penetration. This is due to lack of competitors in the market as well as the government’s legacy of stifling dissent.
In 2019, only 42% of Ethiopians had access to a mobile phone compared to 99% of Kenyans, according to research firm Analsys Mason. In another study conducted the same year, Ethiopia was ranked at 120 out of 121 countries with regards to internet bandwidth utilisation.
The original terms of Safaricom’s operating licence do not include mobile money, but Ethiopia’s national bank is expected to grant Kenya’s leading telco permission to launch its world-leading M-PESA service across Ethiopia in the next few months.
When Safaricom started in Kenya, the incumbent state provider couldn’t compete because it had no access to capital, and it was decimated…
Belcha Reba, head of the communications regulator, tells The Africa Report that the second operating licence will include a provision that will allow the winner to apply for permission to provide mobile money services once it is eventually awarded.
Industry experts believe that the government has deliberately given Ethio Telecom a head start by not including mobile money in the private operating licences. “What the government is currently doing is protecting Ethio Telecom,” says Demissie. “It is allowing them time to build up Tele Birr and become more efficient and competitive in the mobile money space before competitors launch their products.”
Demissie also says he is confident that Ethio Telecom will survive liberalisation. “It is a unique organisation,” he says. “There is pride in its position as Africa’s first telecom provider. It is a huge job creator in the country, and it is intertwined with other services. It is also a huge cash cow that the government has a distinct interest in keeping alive. “
Preparing for the competition
Meanwhile, Safaricom has been busy laying the ground for the launch of its operations. The company is building 7,000 mobile towers in partnership with Huawei and Nokia, but will have to share Ethio Telecom’s existing infrastructure until the new ones are ready. In total, Safaricom is expected to invest $8bn in Ethiopia over the next 10 years.
Brooke Taye, an advisor at Ethiopia’s finance ministry, says the partial privatisation of Ethio Telecom will help the company to compete with private companies entering the market. “The rationale is to generate capital so that Ethio Telecom can access new technology and new ways of doing business.”
“When Safaricom started in Kenya, the incumbent state provider couldn’t compete because it had no access to capital, and it was decimated… If you don’t enable the incumbent provider to access the necessary finance and improve its management, you will destroy your own asset,” says Taye.
Telecoms liberalisation is expected to benefit consumers by driving down prices, increasing phone and internet coverage, and spurring innovation. Brooke says he also expects it to give a much needed boost to Ethiopia’s nascent tech sector.
“This is something we’ve seen in many countries in Africa: the introduction of competition into the digital sphere forces providers to improve their services,” says Brooke. “Around 70% of our population is under the age of 30, and we can build a new sector that will churn out millions of new jobs that rely on telecoms.”
Effects of the war
However, the postponement of Ethio Telecom’s partial privatisation may hinder Ethio Telecom’s ability to compete with Safaricom. Some analysts are speculating that the national telco may suffer a similar fate to Kenya’s state-owned provider, especially following the economic fall-out from the 16 month-long conflict in the north.
The war has exacerbated a foreign currency crunch and has been characterised by government-imposed communication shutdowns, which have seen internet and phone lines severed in areas under TPLF control.
Last month, Ethio Telecom said the war had taken 3,473 of its base stations out of action and cost $71.5m in lost revenue. At the time Ethio Telecom CEO Frehiwot Tamiru said: “[I] would like to extend our sincere apologies to our customers who are suffering from service outage due to the security challenges.”
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