Safaricom’s mobile money launch in Ethiopia marks moment of ‘last frontier’

Safaricom, the largest telecommunications operator in Kenya, is finally launching its pioneering mobile money service in Ethiopia, the second largest country in Africa by population and hailed as “the last frontier” for digital banking.

M-Pesa, which allows people to store and send money over the phone, is credited with bringing tens of millions of unbanked Kenyans into the financial system and supporting one of the most sophisticated telecommunications sectors in Africa.

Named after the Swahili word meaning “money”, the service went live in Ethiopia this month and will officially launch and promote across the Horn of Africa country in September.

“At the end of September we will fully launch M-Pesa here. We have been developing technology, creating products and will integrate M-Pesa with more banks; the opportunity is huge,” Peter Ndegwa, chief executive of Safaricom, told the Financial Times in the Ethiopian capital, Addis Ababa.

Safaricom is the first private telecom provider in Ethiopia, considered one of the potentially most lucrative markets for telecom operators. But it has proven hard to fathom given the country’s long history of state-led development, which promoted national control of many sectors, including telecommunications and banking.

This has been changing with the plans of the government of Prime Minister Abiy Ahmed, who took office in 2018, aimed at liberalizing the economy. A consortium led by Safaricom, which is partly owned by Britain’s Vodafone, paid $850 million two years ago for a telecommunications license and another $150 million in May for a mobile money license to operate in Ethiopia.

“This is a cash country, credit card penetration is not high here, there are many rural markets that still need to be connected, so mobile money has all the ingredients for success,” Ndegwa said. “Ethiopia is the last frontier”.

M-Pesa has more than 50 million customers in seven countries in Africa, including two with large populations, Egypt and the Democratic Republic of the Congo, and conduct more than $314 billion in transactions annually.

But Ethiopia has a population of 120 million, making its telecommunications market (a monopoly since 1894, when Emperor Menelik II laid the first line between Addis Ababa and the eastern city of Harar) the biggest African market to enter. .

“Mobile financial services is about numbers, it’s about having a large population,” Ndegwa said. “There is absolutely no other country that is as big and has this potential, and it is virgin territory at the moment.”

Ndegwa added that Safaricom made a bet “on the future of the country” when it obtained the telecommunications license in 2021, at the height of a brutal two-year conflict in northern Ethiopia, which ended with a peace agreement in November last year.

“We knew that the political conflict had to be resolved before accelerating the economic transformation,” Ndegwa added. Since it started operations last year, the Kenya-based company has attracted more than 5 million mobile phone customers in Ethiopia. His green billboards are almost as ubiquitous in Addis Ababa as they have been in Nairobi for the past three decades.

There is still a hurdle until Ethiopia liberalizes its exchange rate system – something the IMF and World Bank are encouraging the country to do – which is currently run by the National Bank of Ethiopia, the central bank. Foreign companies operating in the country are struggling to repatriate profits amid a crippling currency crisis and inflation of around 30 percent.

“We are hopeful that the government’s efforts at financial liberalization will continue to bear fruit as the economy opens up to support the mobile money and banking sectors,” Ndegwa said. “There won’t be a need to pay dividends for quite some time, so they’ll have time.”

Safaricom owns 52 percent of the Ethiopian operation, with 25 percent owned by Sumitomo and the remainder owned by Vodafone’s South African subsidiary Vodacom, the BII (the UK’s international development investment arm) and the IFC , an agency of the World Bank. .

Ethiopian central bank governor Mamo Mihretu said the government was “committed to deepening economic reforms” including allowing foreign banks to operate in Ethiopia in the coming months, calling M-Pesa “the first international investor in the mobile money space.

“This means that we are already opening up the financial sector to foreign players,” Mamo added. The government has also promised to liberalize the exchange rate regime and plans to sell a stake in state-owned provider Ethio Telecom, with Orange and Etisalat having expressed interest, officials said.

“The menu of digital finance offerings has expanded significantly in recent years, showing strong underlying demand for the use of such services,” Mamo said. He added that the total number of mobile banking users (essentially subscribers to Telebirr, which launched in 2021 as Ethio Telecom’s mobile money service) had exceeded 27 million in two years.

Ethiopia had originally told bidders that foreign companies could not offer cashless transactions, largely due to central bank restrictions on foreign banks, which would have left Ethio Telecom as the sole provider. However, the government eventually allowed new operators to offer mobile money services.

“We always made it clear to the government that we were building on the basis that telecom operators will be able to operate mobile financial services,” Ndegwa said, noting that 40 percent of Safaricom’s revenue in Kenya comes from M-Pesa-related services. that can be used from any type of mobile phone device.

He called mobile money “the jewel in the crown” of the Ethiopian license and predicts that it “will be a material part of our business”, although not as profitable as in Kenya. This is partly because Telebirr leads the way in customer numbers, but mobile money services in Ethiopia are still expected to account for “a quarter to a third” of Safaricom’s revenue in the country.