Safaricom’s mobile money rollout in Ethiopia marks moment for ‘last frontier’

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

M-Pesa, which allows people to store and send money by phone, has been credited with bringing tens of millions of unbanked Kenyans into the financial system and supporting one of Africa’s most sophisticated telecoms sectors.

Named after the Swahili word for “money”, the service went live in Ethiopia this month and will be officially launched and promoted across the Horn of Africa country in September.

“By the end of September we will fully launch M-Pesa here. We have been building technology, created products, and will have M-Pesa integrated with more banks — the opportunity is massive,” Peter Ndegwa, chief executive of Safaricom, told the Financial Times in Ethiopia’s capital, Addis Ababa. 

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

This has been shifting with plans from the government of prime minister Abiy Ahmed, who took office in 2018, aimed at liberalising the economy. A consortium led by Safaricom, which is part-owned by the UK’s Vodafone, paid $850mn two years ago for a telecoms licence and another $150mn in May for a mobile money licence to operate in Ethiopia.

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

M-Pesa has more than 50mn customers across seven countries in Africa — including two with big populations, Egypt and the Democratic Republic of Congo — making more than $314bn in transactions per year.

But Ethiopia has 120mn people, making its telecoms market — a monopoly since 1894 when Emperor Menelik II installed the first line between Addis Ababa and the eastern city of Harar — the key African one to break into.

“Mobile financial services is about numbers, it is about having a big population,” said Ndegwa. “There’s absolutely no other country that’s this large, and which 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 secured the telecoms licence in 2021 at the peak of a brutal two-year conflict in northern Ethiopia, which ended with a peace deal in November last year.

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

A speed bump remains until Ethiopia liberalises its foreign exchange system — something the IMF and the World Bank are encouraging the country to do — which is currently managed by the National Bank of Ethiopia, the central bank. Foreign companies operating in the country struggle to repatriate profits amid a crippling foreign exchange crunch and inflation at around 30 per cent.

“We are hopeful that the government’s efforts for financial liberalisation will continue to bear fruit as the economy opens to support mobile money and the banking sectors,” said Ndegwa. “Dividends will not need to be paid for quite a while, so they have time.”

Safaricom owns 52 per cent of the Ethiopian operation itself, with 25 per cent owned by Sumitomo and the rest belonging to Vodafone’s South African subsidiary, Vodacom, the BII — the UK’s international development investment arm — and the IFC, a body of the World Bank.

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

“This means we are already opening up the financial sector to foreign players,” Mamo added. The government also vowed to liberalise the foreign exchange regime and envisages a sell-off of a stake in the state 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 a strong underlying demand for the use of such services,” said Mamo. He added that the total number of mobile banking users — essentially, subscribers of Telebirr, which was launched in 2021 as the mobile money service of Ethio Telecom — had topped 27mn in two years.

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

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

He described mobile money as “the jewel in the crown” of the Ethiopian licence and forecasts that it “will be a material part of our business”, although not as profitable as in Kenya. This is partly because Telebirr is ahead in customer numbers — but mobile money services in Ethiopia are still predicted to make up “a quarter or a third” of Safaricom’s revenues in the country.