Ethiopia Awards New Telecoms License to Vodafone Consortium

Ethiopia Awards New Telecoms License to Vodafone Consortium

(Bloomberg)—Ethiopia awarded a new telecommunication license to a consortium including the U.K.’s Vodafone Group Plc, paving the way for a long-awaited opening of the sector to outside investors.

The government also called off the sale of a second new permit, but will invite fresh bids from international wireless carriers after some policy adjustments, according to Brook Taye, a senior adviser at the Ministry of Finance.

The winners — Vodafone, Vodacom Group Ltd., in which the British carrier has a majority stake, and Nairobi-based Safaricom Ltd. — will invest $8.5 billion in their network during the coming 10 years, including the license fee, he said from the capital, Addis Ababa. Others include CDC Group Plc and Sumitomo Corp.

“With over $8 billion total investment, this will be the single largest foreign direct investment into Ethiopia to date,” Prime Minister Abiy Ahmed said on Twitter.

The government of the Horn of Africa country had received two offers. The consortium led by Safaricom submitted a bid of $850 million, according to the prime minister. The other from MTN Group Ltd., Vodacom’s Johannesburg rival, and partners including the Silk Road Fund, a Chinese state investment group, was for $600 million.

Opening Up

“The company will enter a commitment of creating 1.1 million jobs in 10 years and cover the country with a 4G service by 2023,” Taye said

The decision to open up the telecommunications industry was taken in mid-2018 and seen as central to Ethiopia’s plans to reform the economy. But the process has suffered numerous setbacks, including the coronavirus pandemic, delayed elections and the regulatory complexity that comes with organizing the sale.

The business case for phone companies was at first straightforward: Ethiopia has a population of more than 110 million, the second-largest in Africa, yet less than half its people have mobile-phone subscriptions. But certain conditions of the auction weakened the proposition, namely the requirement to use state-owned telecom towers and an initial block on issuing mobile-money licenses.

Some investors may also have been put off by a recent civil war in the northern Tigray region, which has raised humanitarian concerns in the U.S. and the European Union, among others.

Ethiopia awards landmark telco licence to Safaricom

What you need to know:
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.
Safaricom’s entry into Ethiopia was confirmed Saturday after the Ethiopian government awarded an operating license to the consortium it was leading.
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 $8 billion (KSh864 billion).
“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,” PM Abiy said through his Twitter handle on Saturday.
“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