Promising but problematic privatization of telecommunications in Ethiopia

According to a banker with knowledge of the auction, when the new Ethiopian government decided two years ago to reverse its decades-old policy by opening the country’s telecommunications monopoly to foreign competition, it believed it was selling “the last bottle in the desert”. Coca Cola”.

After all, Ethiopia has a population of 114 million and its economy has been growing at close to double-digit rates for most of the past 20 years. This makes its telecommunications market-which has been in a monopoly since Emperor Menelik II laid the first line between Addis Ababa and the eastern city of Harar in 1894-as Myanmar opened its doors eight years ago. The most important liberalized market since industry competition.

However, when government officials publicly bid for two new spectrum licenses last month, they Disappointed by their findingsAccording to two people familiar with the process. Among more than a dozen companies that expressed interest, including Orange, Etisalat and Saudi Telecom, only two submitted quotations. One of them was a $600 million bid from South African operator MTN, which was rejected because it was too low. The license may be resubmitted within a few months.

“I think they think everyone will knock on the door to get in,” said a person who advises potential bidders.Therefore, he added that the government has failed to make the offer attractive enough, especially considering that people are increasingly worried The political landscape is turbulent.

For example, it prevents new operators from providing potentially profitable mobile money services that are common in Africa, or prevents third-party tower operators from building infrastructure, which is also a normal practice elsewhere.

Ethiopia did accept an offer: a consortium led by Safaricom offered US$850 million. The consortium is the largest operator in neighboring Kenya, which has one of the most advanced telecommunications industries in Africa and is a pioneer in mobile money.

Its M-Pesa service allows people to store and send money over the phone, and is believed to bring tens of millions of people without bank accounts into the financial system. In contrast, Ethiopia’s telecommunications construction is slow and costly, and is subject to political interference from frequent Internet shutdowns.

Abi AhmedThe Prime Minister of Ethiopia and the promoter of the privatization process bravely stated at the auction that this is the largest foreign direct investment in the country’s history. Officials said the new consortium will invest more than $8 billion in the network and help create up to 1.5 million jobs.

Analysts agree that despite a difficult start, Ethiopia has at least begun a process that will completely change its telecommunications products.

Safaricom CEO Peter Ndegwa said that Kenya has demonstrated the power of “digital transformation” to change lives. “We can achieve a similar transformation while achieving sustainable returns for our shareholders,” he said of the Ethiopian service, which he said may be launched next year.

Safaricom is owned 35% by the Kenyan government, and Vodafone and its South African subsidiary Vodacom own 40%. It will control the new consortium with a 55.7% interest.

Sumitomo is a Japanese trading company Telecommunications rights in Myanmar, Owns 27.2% of the shares and Vodacom owns 6.2% of the shares. The rest is held by the British CDC Development Agency, which invests in for-profit companies that have a positive social impact.

Safaricom M-Pesa mobile money service logo at retail kiosks in central Nairobi

Safaricom’s M-Pesa mobile money service improves the financial situation of millions of people © Patrick Meinhardt/Bloomberg

However, there are still many issues that need to be resolved before Ethiopia’s privatization can bring the promised benefits.

The first is the issue of mobile payment. Ethiopia initially told bidders that foreign companies could not provide cashless transactions, mainly because of central bank restrictions on foreign banks. This will enable the incumbent Ethiopian Telecom to launch its mobile money service TeleBirr this month and become the only provider.

Foreign companies complain that excluding them from providing similar services would greatly reduce the value of telecommunications licenses.

“Most of these companies are getting a lot of revenue from mobile money,” said Brook Taye, a senior adviser to the Ministry of Finance and member of the privatization team. “We are very frank with them:’give the government time to complete the overall reform of the economy, including the financial sector, and then it will gradually open up the sector further’,” he said.

After the auction, Abiy stated that the new operator could provide mobile money services after all—and it could be within a year. Safaricom’s Ndegwa described it as “good progress” but said he would like to see written confirmation.

Another factor of uncertainty is sanctions.The day after obtaining the permit, the United States announced measures against certain Ethiopian officials because they were worried about serious Human rights violation In Tigray, civil war broke out in November last year.

The US International Development Finance Corporation (equivalent to the UK’s CDC) has provided up to US$500 million in loan financing to a consortium led by Safaricom. This money is now doubtful, although it has been accompanied by a condition that the consortium does not purchase Chinese equipment, this provision may increase costs.

Motorists drive past the Ethiopian Telecom Network Tower in Addis Ababa

The Ethiopian Telecommunications Network Tower in Addis Ababa. The government plans to sell 45% of the state-owned operator this year © Tiksa Negeri/Reuters

More broadly, investors are nervous about Ethiopia’s continued instability and its potential for damage to the economy.

The third area of ??concern is the extent to which Ethio Telecom’s competitive environment will tilt, and 45% of the company’s shares will be sold to domestic and foreign investors later this year.

Excluding third-party tower operators may increase the reliance of new licensees on state-owned operators-if regulators delay in opening up mobile money services, it will have 46 million users and 47.7 billion birr (revenue last year was 1.1 billion US dollars) , Which may consolidate its leading position.

The new operator is also worried about obtaining foreign currency, which is a notorious problem in Ethiopia. In the launch phase, they will need U.S. dollars to import equipment and eventually pay dividends.

“We spent a considerable amount of time looking for opportunities in Ethiopia because this market is really great,” said an executive of one of the companies that exited the process. “But you don’t know enough about foreign exchange. You don’t know how you will invest and how to withdraw cash.”

Nonetheless, the privatization of telecommunications marks a decisive step against the state-led development model that promoted state control over banking, logistics and telecommunications in the past. One year later, Ethiopian Telecom should have a foreign partner and is ready to compete with two new foreign entrants. Analysts said that both Orange and MTN may consider new bids for the second license.

The global mobile industry trade organization GSMA predicts that by 2025, Ethiopia will have 16 million new mobile users. For the first time in more than a century, they will be able to choose which carrier to use.

Source link