Safaricom seeks partners for billion-dollar Ethiopia entry

Safaricom #ticker:SCOM has opened talks with undisclosed investors to form a consortium that will this year bid for one of two Ethiopian telecoms licences due to the high entry costs that are likely to breach the Sh100 billion mark.

The Nairobi Securities Exchange-listed firm said it was racing to assemble the group of investors ahead of its Ethiopia bid, which is expected in April.

Safaricom had last year talked of a joint bid in partnership with South Africa’s Vodacom, which owns a 35 percent stake in the firm. However, sources at the company said that more firms could be involved in the consortium angling for a market that has attracted the interest of global telecommunication firms, including Vodafone, which owns five percent of Safaricom.

“We have not made any decisions (source of funding) yet as the constitution of the consortium has not been finalised,” acting Safaricom CEO Michael Joseph told the Business Daily in an interview on Monday. “It’s a consortium because it’s a big investment. I cannot provide names”.

Mr Joseph had earlier said that it would require a “billion-dollar range” for licence fees and network expenses.

Ethiopia plans to award permits later this year, opening the country’s telecoms market to foreign investment for the first time.

Ethio Telecom, the State monopoly, has also taken steps towards offering a minority stake to a strategic investor. Safaricom is considering all the options.

For Safaricom, an acquisition would provide an easier solution compared to setting up its own shop, which would involve buying land, putting up buildings, hiring staff, recruiting subscribers and growing market share against a dominant player like Ethio Telecom.

Safaricom, like a number of global telecom firms including MTN, Orange, Etisalat and Zain, have all expressed interest in gaining access to Ethiopia’s fast-growing mobile market.

Players like Safaricom are attracted by the growth potential in the Ethiopian market, whose 100 million population offers a penetration rate of 44 percent. Kenya’s 52.2 million mobile phone subscribers give it a penetration of 109.2 percent.

The firm’s mobile money transfer platform, M-Pesa, could transform the Ethiopian economy as it has done in Kenya, by allowing people to sidestep the banking system, send each other money and make payments at the touch of a button.

The ability to access digital banking services would likely to be a game-changer for Ethiopians whose banking sector has no way of transferring funds from one bank to another.

Safaricom joins a list of Kenyan firms that have had their eyes on the Ethiopian market for years due to the country’s huge population. The country has more than 105 million people. Its population, which is the second largest in Africa after Nigeria, offers immense business opportunities.

Addis Ababa has kept foreign involvement in the economy at a bare minimum.

The country has consistently registered robust economic growth, averaging 10 percent in the past five years and its ongoing economic reforms look set to strengthen investor sentiment. It now plans to issue two new telecoms licences together besides the sale of Ethio Telecom.