Safaricom, a private telecom provider, has faced challenges entering the Ethiopian market due to the country's history of state-controlled sectors including telecoms and banking. However, Prime Minister Abiy Ahmed's efforts to liberalise the economy have created opportunities.
A consortium led by Safaricom, which is part-owned by the UK’s Vodafone, paid USD 850 million in 2021 for a telecoms licence and another USD 150 million in May 2023 for a mobile money licence to operate in Ethiopia. With the country's preference for cash transactions, low credit card penetration, and untapped rural markets, Safaricom sees great potential for success in mobile money services.
M-Pesa has more than 50 million customers across seven countries in Africa — including two with big populations, Egypt, and the Democratic Republic of Congo — making more than USD 314 billion in transactions per year.
But Ethiopia has 120 million people, making its telecoms market — a monopoly since 1894 — the key African one to break into. Safaricom’s officials remarked that mobile financial services are about numbers, it is about having a big population. There’s no other country that’s this large, has this potential, and it is virgin territory at the time of this announcement.
The presence of a hurdle in Ethiopia's progress toward financial liberalisation is tied to its foreign exchange system, overseen by the National Bank of Ethiopia. The IMF and World Bank advocate for its liberalisation. The country's high inflation and foreign exchange shortage have led foreign companies, including Safaricom, to face difficulties in repatriating profits.
Safaricom remains optimistic about the ongoing economic opening and financial liberalisation efforts led by the government. This transition is expected to benefit mobile money and banking sectors. The delay in dividend payments provides a favourable timeframe for these developments to unfold.
Safaricom owns 52% of the Ethiopian operation itself, with 25% owned by Sumitomo and the rest belonging to Vodafone’s South African subsidiary, Vodacom, the BII — the UK’s international development investment arm — and the IFC, a body of the World Bank.
Ethiopia’s central bank governor said the government was ‘committed to deepen economic reforms’, also allowing foreign banks to operate in Ethiopia in the coming months, and called M-Pesa the first international investor in the mobile money space.
Ethiopia had originally told bidders that foreign companies could not offer cashless transactions, largely because of central bank restrictions on foreign banks, which would have left Ethio Telecom as the sole provider. Finally, though, the government allowed new operators to offer mobile money services.
Safaricom’s officials said they were always clear to the government that they were building on the basis that telecom operators will be allowed to operate mobile financial services, stressing that 40% of Safaricom’s revenue in Kenya comes from services related to M-Pesa, which can be used from any type of mobile phone device.
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