Ethiopia telecoms privatisation can unlock advertising, mobile money

By David Whitehouse
Posted on Monday, 21 October 2019 15:38, updated on Tuesday, 22 October 2019 13:00

Customers receive assistance at an Ethio Telecom branch in Addis Ababa. REUTERS/Maggie Sick

Ethiopia’s plan to privatise the world’s largest telecoms monopoly and allow new competitors has the potential to kick start industries that have so far remained dormant.

The country has appointed KPMG as adviser in the privatisation of state-run Ethio Telecom, and is seeking another for licensing.

At least two new telecoms licences are to be awarded at the same time. Winning bidders for the sale and the licences are due to be announced in March.

The country has historically under-invested in telecoms, meaning that the market has “significant potential” for growth and to adopt more complex products, says Russell Southwood, CEO of Balancing Act, a London-based African telecoms consultancy.

The mobile money market, he notes, barely exists.

  • The three competitors will all need to spend money on advertising, meaning that the country’s satellite TV market will experience knock-on growth, he says.
  • “Privatisation drives advertising, which in turn drives media growth.”

Candidates for the sale and the licences could include MTN, Vodacom and Orange, as well as Vietnam’s state-owned telecom company Viettel, which has opened a representative office in Ethiopia.

  • Ethiopia, Southwood says, “seems to have acknowledged that they need to sell a majority. They are finally letting go.”
  • The process is likely to help Ethiopia’s public finances, he says. “It’s very rare that such a large sub-Saharan market is opened.”

Regulatory capacity

Research ICT Africa argued in January that the privatisation also has the potential to reduce Ethiopia’s over-dependence on equipment suppliers from China. But evidence from mature and developing economies shows that sequencing is a critical in telecoms privatisation, they argue.

  • The best long-term results are achieved through creating an effective regulatory authority that promotes competition and protects consumers, Research ICT Africa argues.
  • Ethiopia passed a law to create a telecoms regulator in June. But over the past three decades, the country has developed neither a telecoms policy nor regulatory capability.
  • Regulatory capacity can only be acquired through years of experience and there is no quick and easy fix, ICT Africa says.
  • That raises the danger that the privatisation could lead to limited investment, increased charges and the continued poor quality of service, according to the research.

An economy that has remained state-controlled has to start somewhere. Southwood agrees that there will likely be problems in a “post hoc” regulatory environment.

A bigger issue, he says, is that there is no clear way for smaller operations to enter the Ethiopian telecoms market. This, he says, is “a cause for concern.”

Still, privatisation-driven economic growth in Ethiopia looks set to exceed that of most African countries. Sales of state-owned enterprises will improve transparency, attract investment and reduce pressure on the government’s fiscal position through one-off cash injections, Fitch Solutions argued in July.

  • Fitch Solutions sees real average real GDP growth of 7.3% annually between 2019 and 2028 in Ethiopia, compared with 4.0% for sub-Saharan Africa as a whole.

Bottom line:

Credible regulation and further opening to smaller players will dictate how quickly Ethiopia can reap the knock-on benefits of telecoms privatisation.

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