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Safaricom consortium wins Ethiopia licence bid on Sh91.8bn offer

Safaricom CEO Peter Ndegwa during the telco’s 20-year anniversary celebration at the Serena Hotel in Nairobi on October 27, 2020.

Safaricom has been awarded a telecommunications licence to operate in Ethiopia, one of the world’s last major closed telecoms markets, the Ethiopian government announced. The telco beat other consortia in the last stretch of a year-long race for access to one of the world’s last telecoms frontiers.

Ethiopian Prime Minister Abiy Ahmed said the Safaricom-led consortium, that includes its parent firms Vodafone and Vodacom, British development finance agency CDC Group and Japan’s Sumitomo Corporation won the award after submitting a financial bid of $850 million (Sh91.8 billion).

The consortium bid $850 million for the licence, senior finance ministry adviser Brook Taye told AFP. It is set to create up to 1.5 million new jobs and bring $8.5 billion in investment over 10 years, Brook said. He added that it will provide 4G and 5G internet services, and by 2023 a low-orbit satellite will be put in place to provide nationwide 4G coverage.

Through his Twitter handle on Saturday, PM Abiy said: “The Council of Ministers has unanimously made a historic decision today, allowing Ethiopian Communications Authority to grant a new nationwide telecom licence to the Global Partnership for Ethiopia, which offered the highest licensing fee and a very solid investment case.” “With over $8 billion [in the] total investment, this will be the single largest FDI [foreign direct investment] into Ethiopia to date.”

The Prime Minister noted that the process was competitive and above board. “Our desire to take Ethiopia fully digital is on track. I would like to thank all who have taken part in this for pulling off a very transparent and effective process,” he said.

Welcoming foreign investment

Last November, the Ethiopian Communications Authority listed 12 firms, including Safaricom, as among those that had expressed interest in entering the country’s telecommunications market.

Ethiopia’s nascent telecommunications sector is considered one of the most lucrative as the once inward-looking country opens up to foreign investment for the first time.

Players like Safaricom are attracted by the growth potential in the Ethiopian market, whose population of over 110 million offers a penetration rate of 44 per cent.

The Safaricom consortium will likely rely on funding from deep-pocketed foreign investors such as the US International Development Finance Corporation (DFC) and CDC Group, given the size and international nature of the Ethiopia investment.

South Africa’s Vodacom and United Kingdom’s Vodafone own a combined 40 per cent stake in Safaricom.

Earlier this month, Ethiopia made a U-turn and allowed foreign telecommunications companies to launch mobile phone-based financial services, setting the stage for Safaricom to introduce its popular M-Pesa to the market.

PM Abiy said then that mobile financial services in the country would be opened to competition from next May, with foreign firms free to battle it out with State-run Ethio Telecom.

M-Pesa’s value

Mobile money services like M-Pesa have the potential to transform Ethiopia’s economy, as it has done in Kenya, by allowing people to sidestep a rickety and inefficient banking system and send money or make payments at the touch of a phone button.

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

Safaricom is one of several Kenyan firms that have been eyeing the Ethiopian market for years due to the country’s huge population but Ethiopia has kept foreign involvement in the economy at a bare minimum.

However, the country has consistently registered robust economic growth, averaging 10 per cent in the past five years, and its ongoing economic reforms look set to strengthen investor sentiment.

Its population, which is the second largest in Africa after Nigeria, also offers immense opportunities for business. Shares in sugar factories are also being sold and tentative steps towards opening up the financial sector have been taken.

Ethiopia’s mobile phone services aims to attract 21 million users for the service in its first year of operations, rising to 33 million in five years. M-Pesa had 19.3 million users in December and generated KSh35.89 billion ($335.3 million) in sales in the six months to September. – nation.co.ke