Safaricom seeks to acquire stake in Ethiopia telco

Safaricom #ticker:SCOM is considering buying a stake in Ethiopia’s State-owned Ethio Telecom, which has announced the sale of shares through a privatisation plan.

Michael Joseph, Safaricom’s interim CEO, Thursday said that the Nairobi bourse-listed telecom operator is considering buying a stake in the world’s largest telecoms monopoly or setting shop in Ethiopia from scratch.

His comments came on a day when Ethiopian authorities launched the search for an adviser on the sale of a stake in its national operator, opening the country’s telecoms market to foreign investment for the first time.

“We are looking at all options,” Mr Joseph told the Business Daily in interview on Safaricom’s plan to either buy a stake in Ethio Telecom or seek a licence to start operations.

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

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

Besides the telecom, the Ethiopian government last year announced plans to open up Ethiopian Airlines, the State logistics firm and the power monopoly to private investment.

The telecommunications monopoly is seen as the biggest prize due to its huge protected market. Ethio Telecom’s subscriber base of 44 million makes it the biggest single-country customer base of any operator in Africa.

Players like Safaricom are attracted by the growth potential in the Ethiopian market, whose 100 million population offers the country a penetration of 44 percent.

Kenya’s 52.2 million mobile phone subscribers gives it a penetration of 109.2 percent. Ethio Telecom last year generated revenues of Sh124.5 billion (about $1.2 billion), which is nearly half the Sh250.9 billion that Safaricom posted in the year to March.

From a cash perspective, a deal for Ethio Telecom will not be difficult for Safaricom, Kenya’s most profitable company, which is cash rich.

Safaricom’s cash at bank stood at Sh20 billion at the end of March, up from Sh9.3 billion in a similar period a year earlier.

The firm started distributing gross dividends amounting to Sh74.9 billion more than two-and-a-half months ahead of the scheduled payment date of November 30, underlying the strong cash flows at the telco.

“Buying Ethio is the best investment Safaricom can make. They can use the firm as a platform to launch mobile money, which has huge potential in Ethiopia,” said George Bodo, a financial analyst and director at Callstreet Investor Relations.

Safaricom last year said it was in advanced talks with the Ethiopian government to introduce the M-Pesa mobile money service in that country.

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

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

Safaricom joins a list of Kenyan firms that have had their eyes on Ethiopia for years due to the country’s huge population. Ethiopia 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.

Its population, which is the second largest in Africa after Nigeria, offers immense opportunities for business.

Eyob Tolina, the minister leading Ethiopia’s economic liberalisation, told the Financial Times this week that the transaction advisors would help the government “structure the process, determine a minimum value and select the right partner.”

The Ethiopian government had previously signalled that it would only sell a minority stake of up to 49 percent of Ethio Telecom. Mr Tolina was quoted as saying that it now had a specific undisclosed number in mind and that the adviser would help assess market sentiment.

In addition to selling shares in Ethio Telecom, Addis Ababa plans to issue at least two new telecoms licences to other operators as part of a “synchronised process.”

It plans to announce both the share sale and the licensing process in March next year.