Jun 18, 2021

Mawazo Writing Africa

Writing about the main

Safaricom’s bid to operate M-Pesa in Addis boosted by mobile money services launch

Safaricom is still hopeful that it will launch mobile money services in Ethiopia as it awaits the decision on the acquisition of a licence to operate in the country.

The telco’s bid for control of the Ethiopian telecommunication market seems to have received a boost ahead of the official acquisition of the licence with the news that the Addis administration plans to liberalise mobile money services next year.

Prime Minister Abiy Ahmed said mobile-based financial services in Africa’s second most populous country will be opened to competition in the next 12 months, setting the stage for Safaricom to launch M-Pesa platform, which is a key driver of its revenues.

In April 2020, Addis indicated that only local companies would be allowed to offer mobile money transfer services in the country after the central bank sought to boost non-cash payments.

Safaricom declined to comment on the mouth-watering proposal ahead of the conclusion of its bid for the Ethiopian telecom licence, but the management remains optimistic that the proposal will open up opportunities for growth and investment for a teleco that is in the process of transforming into a technology company.

Safaricom announced that it is in the process of transforming into a purpose-driven technology firm by broadening its financial offerings beyond mere payments and credit to financial solutions that are capable of supporting small and medium-sized enterprises (SMEs) and corporates, including investment in the fibre business.

“We are in a competitive process at the moment. We submitted a bid as part of a consortium, which we are leading. We can’t say anything in relation to that bid because we are in a competitive process and until the process is complete we will be unable to talk about the results of that,” Safaricom CEO Peter Ndegwa told reporters in Nairobi.

“That said, of course, there is a lot of information in the public domain. You will have seen that there is a mobile money that was launched by the current state-owned enterprise Ethio Telecom recently and there was reference to mobile money being allowed for any incoming telecom operator at some point in the future. We can’t verify that because at the moment, international — or rather foreign — players are not allowed to operate mobile money, but we are sure in time they will be allowed.”

The initial block imposed to allow the country to build its own expertise in phone-based financial technology will be lifted after about a year, PM Abiy said at the launch of Telebirr, a mobile-payments service that will be run by Ethio Telecom. “This decision has cost us a high price,” the PM admitted. “When it was decided to open up the telecom market about two years ago, one of the key areas of contention was the issue of mobile money.”

Ethiopia’s decision to exclude mobile money from the terms of two new telecom licences cost the government about $500 million from bid levels, he added.

Share price

Safaricom’s stock on the Nairobi Securities Exchange (NSE) declined by two percent to Ksh39.30 ($0.36) per share last week on Thursday (2.40pm) from a high of Ksh40.10 ($0.37) per share on Wednesday after the release of its full-year results showing a 6.7 percent decline in net profit.

Its net earnings for the year ended March 31, declined by 6.7 percent to Ksh68.67 billion ($641.77 million) from Ksh73.6 billion ($687.85 million) last year, weighed down by the Covid-19 pandemic, which hit voice and M-Pesa revenues, largely due to zero-rating of mobile payment transactions below Ksh1,000 ($9.34)

M-Pesa and voice revenues declined by 2.1 percent and 4.6 percent respectively to Ksh82.64 billion ($772.33 million) and Ksh82.55 billion ($771.49 million). M-Pesa accounted for 33 percent of the total service revenues down from 33.6 percent last year. But mobile data revenues increased by 11.5 percent to Ksh44.79 billion ($418.59 million). Safaricom, which controls over 50 percent of the total market capitalisation on the NSE, is 35 percent owned by Vodacom and the government of Kenya (35 per cent). Vodafone owns five per cent while the remaining 25 percent is held by individuals and institutional investors.

The firm, which listed 10 billion shares (25 percent) on the NSE in 2008 with an offer price of Ksh5 ($0.04) per share, has declared the final dividend of Ksh36.86 billion ($344.48 million) translating into Ksh0.92 ($0.008) per share for the financial year ended March 31, 2021.

“As part of our five-year strategy of being a purpose-driven technology company, the fibre business will be an important part of that strategy. We believe there is significant unexploited opportunity in this market,” said Mr Ndegwa.

Lucrative market

The battle for the lucrative Ethiopian telecommunications market narrowed down to consortia led by two of Africa’s telecom giants, Vodacom and MTN Group after nine other firms — Etisalat, Axian, Orange, Saudi Telecom Company, Telkom SA, Liquid Telecom, Snail Mobile, Kandu Global Communications and Electromecha International Projects — which had expressed interest in the deal, pulled out of the bidding process.

The bids of the two consortia led by Safaricom on the one hand, and MTN Group on the other, were opened by the Ethiopian Communication Authority (ECA) evaluation committee in April.

Vodacom, South Africa’s largest mobile phone operator is in the consortium also comprising the UK parent Vodafone, UK sovereign wealth fund CDC Group and Japanese conglomerate Sumitomo Corporation.

Safaricom, Vodafone and Vodacom offer voice, messaging, data, entertainment and financial services to at least 452 million customers in Africa, Europe and India.

Sumitomo Corporation’s operations include mobile telephony and development of the latest 5G technology, which is being built around the world.

Safaricom launched its 5G network in late March.

The consortium has also lined up a $500 million loan from America’s sovereign wealth fund US International Development Finance Corporation.

“What I would say generally we have the capacity both internally and across our consortium partners, but also offerings from others to ensure that our bid is properly financed and we want to do it in a way that doesn’t compromise our ability to continue meeting our commitments to our shareholders,” said Ndegwa.

The Ethiopian telecoms market has remained largely unexplored in terms of mobile telephone services penetration after many years of government control, until Prime Minister Abiy’s administration came into power and started instituting reform measures meant to liberalise the economy and boost forex reserves. Vodacom, which has operations in 29 countries — including Tanzania, Kenya and DR Congo — with a customer base of 120 million, has been seeking to expand its network coverage on the continent.

The ECA is awarding two full-service licences to multinational mobile phone operators to break the monopoly enjoyed by the state-owned Ethiopian Telecommunication Corporation (Ethio Telecom).

The government is also pushing on with the sale of a 45 percent stake in Ethio Telecom in a bid to open up the telecom market to competition, to ease the biting foreign reserves shortage in the country.

The issue of mobile money has been vital to the progress of the licence auction. Financial technology is a major revenue and profit driver for African telecom operators, who are filling a gap left by traditional banks and taking advantage of soaring smartphone use.

“Though Ethiopian mobile penetration lags behind peers, investment and lowered prices should lead to strong growth in takeup of mobile services,” Bloomberg Intelligence analyst John Davies said in a note. “The value to international investors depends on agreements with the government and how it chooses to regulate the market.”

Additional reporting by Bloomberg