Ethiopia: Tensions aflame after first telecoms licence went to US-backed consortium over China

By Joël Té-Léssia Assoko, Quentin Velluet
Posted on Monday, 14 June 2021 15:37

Ethiopia’s prime minister Abiy Ahmed at the Watergate Hotel in Washington D.C., July 2018. EBS TV/Youtube/Screenshot

Ethiopia has selected a consortium backed by US investors. The move has given rise to numerous contradictory statements.

‘A new front’ or even ‘a war of proximity’ is taking place between Washington and Beijing, one that is creating ‘a new hitch’ in the ‘deal of the century’. From the pages of the Wall Street Journal to the columns of the French press, the Ethiopian telecoms sector’s liberalisation – one of the most divisive battles within the industry in Africa over the past decade – has turned into a surprising ideological and geopolitical battle, open to the most varied interpretations.

Has Addis Ababa become the new front in the China-US technological war within a span of a few weeks (from the end of April to the beginning of June)? US media and some telecom experts in Africa seem to think so. According to the latter, Ethiopia’s decision to grant its new telecoms licence to a consortium -comprised of UK’s Vodafone and its subsidiaries Vodacom (Africa) as well as Safaricom (Kenya) – rather than to South Africa’s MTN, is not simply for economic reasons.

An implicit rejection of Beijing?

The bone of contention is the conditions of a $500m loan that a US public institution – the International Development Finance Corporation (DFC) – granted to the Vodafone-Safaricom consortium. This concessionary loan enabled the consortium to bid $850m for the new licence, against a $600m offer from MTN – which was backed by the Chinese Silk Road Fund, that is financed by China Development Bank and EximBank of China, among others.

Some observers opined that Addis Ababa intentionally rejected China’s offer. The DFC, which was launched during the Trump administration, has positioned itself as a response to China’s breakthrough in the South. Furthermore, the DFC funding prohibits use of Chinese equipment manufacturers such as Huawei and ZTE, in favour of Western specialists such as Ericsson and Nokia or Korea’s Samsung Electronics.

Pursuing our strategic interests at the expense of the Ethiopian people runs counter to core American values and is not sustainable.

The breakthrough is all the more clear given that Huawei and ZTE are well established in Ethiopia, thanks to their long-standing partnership with the country’s national operator, Ethio Telecom. “In the 2010s, the government was already talking about liberalising the market, but with a Vietnamese model, where the new operators would have been controlled by the army or other government representatives,” says a European telecoms specialist. “At the time, there was no question of banning the use of Chinese suppliers,” he says.

“No favouritism between East and West”

This interpretation is far from unanimous. “I don’t believe that this was a diplomatic choice. You have to keep in mind that Ethiopians need money. Inflation is huge, the birr has fallen by 50% in a year and the GDP per capita is reported to be at $850. So they chose the offer that gave them the most money,” says a French teacher and researcher specialising in Ethiopia.

“Here, we have our own opinion on cheap Chinese infrastructure. It is a love affair that is not completely consummated and we are aware that they are making things at a low price for mediocre quality,” says the head of a consulting firm based in Addis Ababa, who is well acquainted with the Abiy Ahmed administration.

Therefore, choosing the Vodafone consortium would be a pragmatic way for the government to bring a better quality network to Ethiopians.

“Ethiopia is a big country. We don’t play favourites with East, West, North or South. We have strong partnerships with most countries in the world. This is how we maintain our independence,” says Brook Taye, a senior advisor at the finance ministry.

Moreover, according to Addis Ababa, the process of liberalising the telecoms sector is not yet over. The Ethiopian government is considering issuing a second tender – one in which MTN will be able to participate – for another telecoms operator licence. “The Chinese are accepting the deal with Vodafone-Safaricom because they know that they will be able to apply for the second licence. And even if they don’t get it, they know that they will gain market share in other sectors,” says our French lecturer.

“Regarding this licence, DFC is not investing directly in Ethiopia, but rather in the consortium,” says Taye. In fact, the US institution is involved in other projects within the East African country.

In October 2020, the agency – which was then headed by Adam S. Boehler, who has since been replaced by Dev Jagadesan on an interim basis since January – released a $1.5m loan for a geothermal power plant project on the Tulu Moye site. DFC is also part of a project for the construction of a Marriott hotel in Addis Ababa via a $50m loan over 15 years. Additionally, the US institution indirectly invested in past projects, ones that were inherited from the former Overseas Private Investment Corporation (OPIC), which was dissolved in 2019.

Exacerbating the conflict

Whatever the reasoning for the arbitration between Vodafone-Safaricom and MTN – whether it was a call to Washington, a simple pragmatic choice or a distrust of the quality of ‘Made in China’ telecom products – it has been blurred by the exacerbation of the conflict between the Ethiopian government and the Tigray People’s Liberation Front  (TPLF), as well as geopolitical developments that arose after the licence was awarded.

On 23 May, a day after the DFC-backed consortium won the licence, US Secretary of State Anthony Blinken restricted visas for Ahmed regime officials and ordered “broad restrictions on economic and security assistance to Ethiopia.” Two days earlier, the Foreign Policy magazine had leaked information that such sanctions would be introduced. However, the Ethiopian government assured us that this threat did not push them to choose Vodafone over MTN.

As early as 24 May, Bloomberg reported that the DFC had decided to suspend its investments in Ethiopia, citing confidential sources within the US agency. If confirmed to be true, this decision could be one of the pressure tactics that the Joe Biden administration put in place to get Ahmed’s government to open a humanitarian corridor and push for withdrawal of Eritrean troops from the Tigray region. In addition, Washington intends to exert pressure on the World Bank and the IMF so that these organisations reduce their funding to Ethiopia.

Faced with these developments, Chinese state-affiliated media China Plus News on 25 May criticised the actions of the Biden administration and accused Washington of “meddling in Ethiopia’s internal affairs under the pretext of humanitarianism”.

On 30 May, thousands of people – who were encouraged by the government, according to international news agencies – took to the streets of Addis Ababa. They held up posters denouncing ‘Western intervention’ as well as images of Vladimir Putin, Xi Jinping and Recep Tayyip Erdogan.

A pragmatic choice

Some observers feel that the current tensions should not cause one to lose sight of long-term goals or cause people to over-analyse the country’s investment decisions.

However, they also note that the DFC loan is just one of the many tools in the arsenal of the US authorities that can be used to ease the situation in Tigray. “The US has other [tools to] leverage besides the DFC. They will not cut off Vodafone to put pressure on Tigray because they have an economic interest in being present in the market, given its size,” says a French specialist.

On the other hand, if the $500m disbursement, which is not expected until 2022, does not materialise, the members of the winning consortium have the means to raise the necessary funds, even if it is on less convenient financial terms.

Vodafone is a European giant that made €45bn in revenue in 2020. Vodacom remains Africa’s number two telecoms company and made $6.45bn in revenue in 2019. Safaricom remains a remarkable cash machine, raking in $500-600m in profits per year. What’s more, despite a lack of US concessionary loans, MTN managed to place a bid of $600m. This is despite the fact that it often suffers from an unstable rand and cannot rely on a British parent company with access to the City.

Ultimately, privatisation of Ethiopia’s telecoms industry remains a major challenge for both the sector and the multinationals interested in this market of more than 110 million inhabitants. The Vodafone-Safaricom consortium is planning to invest more than $8bn in the sector over the 15 years of its licence.

Strategic objectives

There are many other areas of the economy that have long been closed to foreign private actors but that need to be explored. In early May, Geeta Pasi, US ambassador to Addis Ababa, participated in a virtual meeting with members of the US Chamber of Commerce in Ethiopia, assuring them that “facilitating business and investment by American companies in Ethiopia [is] a priority for the embassy.” This statement served as a reminder of the long-term ambitions of the US in the country.

However, US diplomatic pressure continues. US lawmakers – including Senate Committee Chairman Bob Menendez, who wrote an article for us – are insisting on demonstrating greater steadfastness towards the country. “Pursuing our strategic interests at the expense of the Ethiopian people runs counter to core American values and is not sustainable,” he said in late May.

All eyes now seem to be on the 21 June general elections. It is expected that Abiy Ahmed will be re-elected prime minister but the conditions under which the polls will be conducted, and subsequently, international reactions to the outcome, should shed light on the real weight of the conflict in Tigray as well as on prospects for cooperation and foreign investment in Ethiopia.

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