Business

Safaricom makes formal move to get Ethiopia M-Pesa license

Safaricom makes formal move to get Ethiopia M-Pesa license

Safaricom has formally made inquiries about the possibility of launching M-Pesa services in Ethiopia and the additional licence fee that will be required.

The telco’s chief executive has informed investors that he has written to Ethiopia’s telecommunications regulator for clarity on the conditions Safaricom will be required to fulfill to be cleared for mobile money services.

“The letter has gone in. We are currently awaiting response from the Ethiopian authorities,” said Peter Ndegwa during an investor call-in session following the release of Safaricom half-year results last week. “Our understanding is we will be allowed to operate mobile money, but there are certain conditions that the government will be confirming to us including potentially some additional fee.”

Safaricom sees the Horn of Africa country, with about 50 million phone subscribers, as having great potential for M-Pesa services.

Adding mobile money to the already awarded telecommunication licence would enhance the opportunity for Safaricom to break even faster and grow its net profit beyond the Sh68.67 billion posted in the year ended March.

The inquiries mean the civil war in Ethiopia, which has morphed into a humanitarian crisis, has not weakened Safaricom’s quest for a piece of the pie in the populous nation that has largely operated as a closed economy.

“The investment in Ethiopia is a long-term play. Our hope is that this matter would be resolved in a speedy and peaceful way,” said Mr Ndegwa.

Mobile money in Ethiopia would further lift the profile of M-Pesa, which has been raising its stake in Safaricom’s revenue mix since its launch in 2007.

M-Pesa accounted for Sh52.33 billion, 37.8 per cent, of the telco’s Sh138.43 billion total service revenue for the half-year ended September.

Safaricom has already tapped a Sh44.8 billion ($400 million) bridge loan to fund early costs ahead of the Ethiopia launch mid next year, and hopes to break even in the fourth year of operation.

A Safaricom-led consortium—which also includes Vodacom and Vodafone—was in May granted a telecommunication licence in Ethiopia following a Sh95.3 billion ($850 million) bid.

Prior to the bid, Ethiopia had announced that foreign-operated entities would not be allowed to operate mobile money for three years.

In May, Ethiotel, the country’s only telco at the time, launched mobile money, with Prime Minister Abiy Ahmed saying that mobile money would be open to other telcos within a year.

The promise was confirmed by Ethiopian Communications Authority when it invited proposals for the third licence.

Safaricom is counting on this development to introduce mobile money in Ethiopia as soon as it starts telecommunication operations.

Ethiopia is home to over 112 million people, making it the second-largest country in Africa by population, and M-Pesa is expected to thrive given the large population that is unbanked.

The Ethiopia market had largely been closed to external investors but started relaxing the stance in 2019 through an economic reform agenda, with the support of the International Finance Corporation.

The government has embarked on liberalising the economy with reforms such as granting licences to foreign mobile network operators and sale of a stake in Ethio Telecom seen as the initial steps.

However, the civil war has set back the pace of economic reforms with firms such as Safaricom monitoring the situation closely.

Safaricom has had to evacuate staff from Ethiopia and resort to remote working in what could delay its launch unless the security situation improves and state of emergency is lifted.