African markets

Safaricom: Ethiopia clears hurdle to M-Pesa expansion

Ethiopia paved the way for Safaricom (NSE: SCOM) to introduce its popular M-Pesa to the market of 110 million people after deciding to include mobile-based financial services in the telecom operator’s license offered in May.

Ethiopian authorities told the Business Daily on Thursday that Safaricom’s license will be upgraded to include mobile financial service when it completes the bidding for its second telecom operator license.

Auctions will open this month.

A Safaricom-led consortium secured the first license, which does not permit mobile financial services like M-Pesa, in May.

The consortium will begin operations next year when the Ethiopian authorities announce that the telecommunications company will have the right to operate mobile financial services.

It marks a break with last year’s directive that only allowed locally owned non-financial institutions to offer mobile money services, dampening the hopes of foreign companies like Safaricom seeking a presence in the neighboring country of Kenya.

“The second licensing process which includes mobile money services will not disadvantage the previous winner (Safaricom),” the chief executive of the Ethiopian Communications Authority (ECA) told Business Daily yesterday.

“What will be authorized for the second licensee will be authorized for the first licensee. One thing we can be sure of is that the first and second licensee will have the option to start providing mobile financial services at the same time. »

The Horn of Africa nation sold just one of two full-service licenses offered in May, citing a lower-than-expected price for the second, which it now wants to offer again.

The government expects potential bidders to include companies that had expressed interest in the previous attempt to sell the license but whose bids were found to be insufficient.

Ethiopia had one of the closed telecommunications markets in the world.

Mobile financial services have become a big part of the business of African telecom operators since Safaricom launched them with M-Pesa in 2007, giving people an alternative to banks.

State monopoly Ethio Telecom, which launched a new mobile financial service called Telebirr in May, attracted four million users within weeks, showing market potential.

The ban on foreign companies meant that for operators like Safaricom to offer the service in Ethiopia, they would need a partnership with Ethio Telecom, which is set to be privatized through the sale of a minority stake.

The biggest prize

The Ethiopian government is also preparing to sell a 45% stake in Ethio Telecom, as part of a wider liberalization that includes the auctioning of two new full-service telecommunications licenses.

Monopoly, Ethio Telecom is considered the biggest winner due to its huge protected market.

Its subscriber base of 50.7 million makes it the largest single country customer base of any operator in Africa.

Players like Safaricom are attracted by the growth potential of this market whose 110 million inhabitants mean that the country offers a penetration rate of 46%.

In contrast, Kenya’s 52.2 million mobile phone subscribers give it a penetration rate of 118%.

Mobile money services like M-Pesa have the potential to transform the Ethiopian economy, as it did in Kenya, by allowing people to bypass a rickety and inefficient banking system and send money or to make payments by simply pressing a button on the phone.

The ability to access digital banking services will likely be a game-changer for Ethiopians whose banking sector has no way to transfer funds from one bank to another.

Safaricom is one of many Kenyan companies that have been eyeing the Ethiopian market for years due to the country’s huge population. Ethiopia has kept foreign participation in the economy to a bare minimum.

However, the country has consistently recorded robust economic growth, averaging 10% over the past five years, and its ongoing economic reforms should boost investor confidence.

Its population, the second in Africa after Nigeria, also offers immense business opportunities.