Banks in many African countries still favour lending to governments and large companies, resulting in less finance for small and medium-sized enterprises (SMEs), according to Banking in Africa, published by the European Investment Bank on February 27.
Telecoms: Ethiotel strives for better signal
Ethiopia's state-run telecoms firm, lambasted by consumers for poor performance, hopes to shake up that reputation with new infrastructure and expansion plans.
Standing in the heart of Addis Ababa, the rough-edged Ethiopian capital, is the Tiglachin ‘Red Star’ Monument: a recently refurbished war memorial gifted in 1984 by North Korea to the Derg, the communist regime that ruled the country with an iron fist between 1974 and 1991. The statue is a rare relic from Ethiopia’s communist past, but it is not the only one. Across the road in a drab, Soviet-style tower block is Ethio Telecom, Africa’s largest telecoms monopoly and perhaps Ethiopia’s most controversial state-owned enterprise.
The company, known as the Ethiopian Telecommunications Corporation (ETC) until a substantial overhaul in 2010, has long been the target of stinging criticism from Ethiopians and foreigners alike. A Facebook group called “ETC sucks” is replete with complaints from customers who for years have joked that the company’s slogan should be “disconnecting Ethiopia from the future”.
But today, more than a decade after its first major expansion project, the company is positively bullish about its future. Its leaders boast that Ethio Telecom is Africa’s largest single-country telecoms company based on subscriber numbers while talking up the pace of its expansion. “We’re not afraid of any of the African telecoms operators. We are the giant of Africa,” Ethio Telecom’s chief executive officer Andualem Admassie Abate tells The Africa Report.
Esayas Dagnew, the company’s chief operating officer, adds: “Since 2006, Ethio Telecom has been the fastest-growing telecoms company in the world – in all aspects.” It now plans to invest abroad, with operations in South Sudan and Somalia expected to be rolled out over the next few years.
It also has big plans at home. By 2020, the company hopes to have achieved up to 80% mobile penetration in Ethiopia’s rural areas. It plans to have 90% of the country covered by 3G, with 4G in all major cities. Today, this is found only in Addis Ababa. Chief executive Andualem says he is fighting for Ethio Telecom to take the lead in developing mobile money in Ethiopia. And he wants to overcome Ethiopia’s landlocked isolation by entering into a consortium with neighbouring countries in order to purchase a submarine communications cable and a landing station. But analysts are sceptical about such vaulting ambitions.
“Given its monopoly position, it would be frankly surprising if its growth wasn’t meteoric,” says Russell Southwood, chief executive officer of Balancing Act, an Africa-focused telecoms consultancy. “What would it look like if it had any competitors?”
In some respects, Andualem and Esayas have good reason to be confident: their company’s transformation over the past decade has been nothing short of spectacular. In 2006, the company operated in only a handful of cities, and the countryside was entirely unconnected, giving ETC a subscriber base of less than two million in a country of more than 80 million. At that time, a SIM card cost around $10, making it “the most expensive in Africa”, according to Danson Njue of Ovum, an industry research firm.
Since then, the company has pumped $3.1bn into infrastructure upgrades and expansion projects. This investment seems to have paid off: Ethio Telecom’s expected turnover of more than $1.3bn this year represents a more than tenfold increase from the $120m recorded a decade ago. For the 2016/2017 financial year, the company posted a $783m profit.
Today, Ethio Telecom has 57 million wireless customers, in part because prices are now comparable to more-developed markets in the region. In the year to September 2017, the company added 7.5 million new subscribers, more than any other African telecoms operator over the same period. The African operator with the next largest figure was Vodacom South Africa, which attracted around 4.3 million new customers.
Richard Faber of TeleGeography, another research firm, says: “Such growth has cemented [Ethio Telecom’s] place as Africa’s largest [single-country] mobile company by subscribers […] We’re not aware of any other African telecom provider that grew revenues by so much in absolute terms.”
The quality of the service has undoubtedly improved. “If you’d come to this country four years ago, you’d go mad,” says Alemayehu Geda, an economist at Addis Ababa University. “Calls would just drop, and internet was unthinkable.”
Two years under the management of France Telecom between 2010 and 2012 made Ethio Telecom more efficient. One veteran technician, who requested anonymity because he is not authorised to speak to the press, recalls that before France Telecom helped manage the company, it had been entirely paper-based. Employees were often expected to take on a roster of sprawling and unrelated responsibilities. “You weren’t just a technician. You were customer service too,” he says. “But now, even if the service may not be up to everyone’s expectations, at least you know who to ask if you have a complaint.”
Despite the gains that Ethio Telecom made over the past decade, the company still faces an uphill battle to get its lofty plans off the ground. Ethiopia’s wireless penetration rate of 61% is still below that of neighbouring Somalia. In 2017, the International Telecommunication Union ranked Ethiopia 170th out of 176 countries in its information and communications technology development index. The Pew Research Centre, meanwhile, found in 2016 that just 8% of Ethiopians reported using the internet, compared with 40% of Kenyans and 39% of Nigerians.
Two Chinese firms, ZTE and Huawei, were hired to carry out previous expansion projects – and both are slated to win bids for the next stage, not least because they have come with plenty of financing in the past. The contracting process has also been problematic, with Ethio Telecom having cancelled deals with ZTE and Swedish company Ericsson over their performance.
But many worry that the deals with Huawei and ZTE have left Ethio Telecom excessively dependent on China and on Chinese technology. “The system is not ours – it’s Chinese,” says the technician. “All the nitty-gritty: they know it, we don’t. So we always need their support.”
This was confirmed by Alemayehu Geda, the Addis Ababa University economist, when he studied Chinese involvement in the telecoms sector back in 2010. “What we found was there was literally no technological or knowledge transfer,” he says.
This makes expansion abroad a difficult, possibly fanciful, proposition. Across Africa the telecoms industry has been experiencing slowing revenue growth since the start of the decade, leading to a degree of market consolidation. In such a fiercely competitive environment, it is unclear how Ethio Telecom could prosper. “I can’t think of one African incumbent telecom – let alone a monopoly telecom – that has successfully invested abroad,” says Balancing Act’s Southwood, noting in particular a series of recent failures in West Africa by Sudatel, Sudan’s majority government-owned provider. “They just don’t have the skill sets.”
TeleGeography’s Faber adds: “Despite the fact that the likes of South Sudan boast enticingly low levels of penetration – less than 16% in 2017 – I’d question the viability of such plans given the higher degree of competition Ethio Telecom could face in some of these markets […] Add to this that there are three mobile operators already present in the country – two of which are backed by sizeable international groups, MTN and Zain. I’d wonder where Ethio Telecom feels it might fit into the mix.”
Like most companies in Ethiopia, Ethio Telecom also suffers from a severe hard-currency shortage, making it hard to pay its debts, buy equipment from abroad and undertake its latest expansion projects. It has had to curb or delay capital expenditure. Despite Ethio Telecom enjoying priority on the Commercial Bank of Ethiopia’s foreign exchange waiting list, chief executive Andualem still has to wait at least ten months to receive his share, making it especially hard to plan ahead.
But the problems that Ethio Telecom faces go deeper. Addis Ababa University’s Alemayehu notes that with such large profits, there should be plenty of financial room for cheaper internet: “It’s nothing to do with cost. They could afford to run a deficit.” In fact, security concerns colour the government’s attitude to the telecommunications sector. “We generally tried to benchmark our prices to other countries,” recalls Meried Bekele, chief executive of IE Network Solutions and a former consultant to Ethio Telecom. But “there was resistance” when it came to the idea of cheap internet. “They were scared and didn’t understand it.”
In the past, the Addis government justified maintaining state ownership and monopoly on all telecoms services on the grounds that only it could guarantee access to the entire population. It argued that private companies would neglect them for urban areas.
Today, as Ethio Telecom approaches the goal of universal access, this argument looks less and less convincing. It is evident that security – and a deep-seated fear that a better-connected citizenry means more political instability – is instead the overriding concern. The government enjoys virtually unlimited access to the call records of all phone users and to logs of internet traffic. As political unrest has swept across the country in recent months, the government has blocked 3G internet in all areas outside of Addis Ababa.
Such concerns impede the kind of structural reforms the company needs if it is to continue expanding. Unlike Ethiopian Airlines, a state-owned behemoth that also happens to be Africa’s most profitable airline, Ethio Telecom lacks real independence. “Every decision is politicised,” says the technician who requested anonymity. “We don’t work as an independent company. We work as a political institution.”
There has been talk in recent months – denied by chief executive Andualem – of the government selling a stake in the company, perhaps to Kenya’s Safaricom or another foreign firm. This is unlikely for now, though if Ethiopia’s government becomes more cash-strapped in the future, it could be a tempting prospect.
Minyahel Desta, a researcher at the Ethiopian Development Research Institute, suggests the government establish another state-owned company that could share the infrastructure or take on a portion of the responsibilities, such as internet or fixed-line networks. “Then there would be a benchmark for evaluating the performance of the company itself. This could serve as a way for Ethio Telecom to test itself,” Minyahel argues.
Meried of IE Network Solutions agrees, suggesting that Ethiopia follow China and break the monopoly up into at least partially state-owned enterprises. “So then, even if they are state companies, there is at least some competition,” he says.
In the short term, radical change looks unlikely. The government is still grappling with political instability after the shock resignation of Prime Minister Hailemariam Desalegn on 15 February. Protests began in 2016 about the heavy-handedness of the ruling Ethiopian People’s Revolutionary Democratic Front government, which tightly controls the country’s political sphere.
Andualem says Ethio Telecom has hired a consultancy to look closely at the company’s difficulties and propose solutions, though he suggests full privatisation or liberalisation remains far off. For now, the most significant change may be the recent decision to outsource some of its own internet distribution to private Ethiopian firms which can act as virtual internet service providers. Beyond that, the road ahead is paved with obstacles. “If there was any stability in the Ethiopian government, you might see some kind of sensible process,” says Southwood. “But it’s stuck, like Ethiopian politics has got stuck.”