November 24, 2020//-Foreign investors are queuing up to invest in Ethiopia’s telecoms sector, which will soon bid adieu to the state monopoly. However, the rules of the road are not yet clear, and conflict in the north may put things on hold.
The privatisation of the Ethiopian state’s monopoly on the telecoms sector – the last on the continent – is crucial to Prime Minister Abiy Ahmed’s liberalisation agenda and to attracting foreign investment as the country opens up. The government is preparing to sell a 45% stake in Ethio Telecom to investors and to issue two new telecoms licences, even as the current war against the Tigray region continues.
“It is 40% to all interested bidders and 5% will be dedicated to Ethiopians. The 55% will remain with the government of Ethiopia”, an advisor to the minister of finance told Reuters. It should occur within the next nine months hope officials, though analysts have been more cautious, given that the war in the north has seen swathes of the national communications network silenced.
If the privatisation is successful, it should lead to billions of dollars of investment in the sector, a rapid drop in prices and competition to deliver speedy internet and other services.
With a population of 109.2 million and increasing needs in information and communications technology (ICT), the country represents a huge and growing market for potential investors. The number of mobile users alone rose by 7.2 million, or 18%, between January 2019 and 2020, bringing the total to 46.8 million.
There is a largely untapped market, a willing government and big demand, so what could go wrong? A civil conflict that sets the northern Tigray region against the centre is certainly not the noise that investors like.
In addition, there has been policy fluctuation. Confusion ensued after recent reports from news outlets announcing the barring of foreign companies from participating in the infrastructure side of the telecoms market.
When the liberalisation was announced, foreign operators including Orange, Vodacom, Safaricom and MTN, and telecom infrastructure companies like Helios Towers expressed interest. Ethio Telecom has been adamantly opposed to the latter’s potential entry into the market and was ultimately supported on this by the Ethiopian government.
It is, however, unclear how long the ‘home team’ will be able to affect regulation in the face of opposition from the Ethiopian Communications Agency (ECA), the sector’s new regulator.
Having invested massively in infrastructure, Ethio Telecom fears the competition if all aspects of the sector are liberalised. Following a meeting with key stakeholders in the sector on 7 September, Abiy confirmed plans to go ahead with the opening-up process.
Leasing of infrastructure
The new draft licensing directive from the ECA sets out plans for the lease of the existing infrastructure to the newly licensed operators, and in the long term would create the possibility for the operators to build their own.
This could be an important source of revenue for Ethio Telecom, especially in the first few years, while operators set up their infrastructure.
ECA director Balcha Reba told reporters that there should be several access options for new entrants: “sharing from existing infrastructure, having a tower company (infraco/ third party) providing infrastructure, an infrastructure-sharing agreement between the new entrants, […]or building your own infrastructure”.
He also cautioned that there might be “technical limitations” as “existing masts may not have been designed to cater to the additional load”. The government is currently assessing Ethio Telecom’s infrastructure capacity with the help of the consultants at Deloitte. The ECA’s upcoming directives are expected to clarify the way forward.
A source close to Ethio Telecom tells The Africa Report the parastatal is upgrading its infrastructure and implementing reforms to prepare for competition. The company has split its network infrastructure into five and has separated its technical department from its service departments for greater efficiency.
Things seem to be looking up, with a 34% increase in profits announced for the first six months of the 2019 budget year. This could be the driving force behind the new tariff cuts on internet and voice calls.
It is not yet clear which companies will bid for the Ethio Telecom stake. However, “the infrastructure projects currently under way are using Chinese-manufactured technology, including from Huawei. We should let the operators bring compatible material, especially in the context of the US sanctions on Huawei,” the source said.
Ethiopian telecoms specialist Terrefe Ras-Work argues that the privatisation “timing is off”. “We first need economic and political stability. […] If we are selling because of debt, let’s at least do it at a better time.” Covid-19 and the country’s debt are slowing economic growth and elections scheduled for October have since been postponed.
Alexander Demissie, the founding director of the China Africa Advisory, points out that “it is too late [to delay the liberalisation]. Ethio Telecom has borrowed $3.1bn from China to build its infrastructure and has only paid a small portion.”
No cash cow
Consultant Fentaw Abitew issued a warning to potential investors in Ethio Telecom, saying ‘There is a myth – and it is a myth – that Ethio Telecom is a cash cow providing positive annual revenue.’ He went on to say that, despite the Chinese loan for infrastructure, ‘services have remained terrible’.
The 12 expressions of interest that the government received by June for the two new licences included those from the Global Partnership for Ethiopia (a consortium composed of Vodafone, Vodacom and Safaricom), the Emirati company Etisalat, Madagascar’s Axian, South Africa’s MTN, France’s Orange, Saudi Telecom Company, South Africa’s Telkom and Zimbabwe-based Liquid Telecom.
So far it is the heavyweights – Vodafone and partners, Etisalat, MTN, Orange and Saudi Telcom – who are seen as having the best chance of winning.
They, and those that will bid for a stake in Ethio Telecom, will be watching eagerly as the battles over the future of the sector are fought out by the different players in the administration and telecoms ecosystem.
