Daily Times

In the weeks since Ethiopia announced sweeping privatization plans after decades of state control, foreign businessmen have been beating a path to Belachew Mekuria’s office.

“Everyone is here. MTN is here, Safaricom. I mean everyone is coming,” the new head of the Ethiopian Investment Commission (EIC) said of the stiff competition to enter the previously off-limits telecoms sector.

“A lot of them. Including U.S., by the way,” Belachew, an affable lawyer who is the first port of call for foreign investors, said with a smile following an evening meeting with an executive from Kenyan mobile operator Safaricom. Of the industries facing privatization – the government will also open up Ethiopian Airlines, the state logistics firm and the power monopoly to private investment – Ethiopia’s state telecommunications monopoly is the prize because of its huge protected market.

But the form liberalization takes and the speed with which it is carried out will hinge on competition between the government’s two top priorities: raising foreign exchange and creating jobs.

Since coming to power in April, Prime Minister Abiy Ahmed, 41, has turned Ethiopia on its head with a dizzying drive towards openness.

On the diplomatic front, he has made peace with neighboring Eritrea and is pushing for reconciliation with exiles. Turning to the economy, Abiy aims to loosen the government’s tight grip on strategic sectors after decades of socialist central planning and authoritarian rule.

The impact of the reform push in sub-Saharan Africa’s second most populous nation could be huge for multinationals, which are currently restricted to a handful of sectors.

International telecommunications firms in particular are excited at the prospect of entering one of the few African telecoms sectors – one that serves a population of 100 million – still protected by a state monopoly.

“Technology companies and telecoms companies want to get in as quickly as possible. It’s a rare thing,” Andrew Kitson, head of telecommunications research with BMI Research, told Reuters.

They need forex’

These companies have been eyeing Ethiopia for years.

Reuters reported this month that Safaricom, whose parent companies are South Africa’s Vodacom and Britain’s Vodafone, is in advanced talks to introduce its popular M-Pesa mobile money service there.

MTN, which operates in 24 countries in Africa and the Middle East, last month said the Ethiopian market “would be a natural fit”.

France’s Orange, whose subsidiary Sofrecom won a two-year contract to manage state-owned Ethio Telecom in 2011, is also interested.

“If the state opens a process to privatize or seek a partner for Ethio Telecom, we would be in the running. That’s certain,” a source close to the matter said. Vietnam’s state-owned Viettel, which operates or holds licenses in Mozambique, Burundi, Cameroon and Tanzania, is looking at opportunities in Ethiopia, a company official said.

Other potential suitors include Etisalat and Zain from the Middle East, Kitson said. A Zain spokesperson was not immediately available. Etisalat did not respond to a request for comment.

Though the competition has already begun, no one yet knows what the ultimate prize will be.

The government is yet to chose consultancy firms to advise on the overall shape of privatization, which will include valuation of Ethio Telecom. Potential scenarios outlined by government officials include the sale of a minority stake, opening up the sector to competition through the granting of new licenses to multiple telecommunications operators or a combination of both. The first option would help address what is perhaps Ethiopia’s most immediate challenge.

“They need new sources of foreign exchange now and one way is to open up to foreign investors. I don’t think it’s a shortage of technical expertise within the country that’s driving this,” one telecoms executive told Reuters.

For the past decade, the government has focused on growing its light manufacturing and garment sectors to create jobs and industrialize the largely agrarian economy.

But despite heavy state investment in infrastructure, exports have been slow to take off, creating an acute dollar shortage.

The central bank governor last week declined to give Reuters the current level of foreign reserves but economists believe they hover between one to two months of import cover.

Selling a piece of Ethio Telecom, which boasts over 60 million mobile subscribers, could provide much-needed foreign exchange, especially if the deal comes with a pledge to maintain the monopoly.

It’s a model Ethiopia has used before.

In two transactions in 2016 and 2017, Japan Tobacco International (JTI) bought more than 70 percent of Ethiopia’s National Tobacco Enterprise Share Company. Though the company only had annual earnings of around $15 million, the government included a 10-year monopoly, according to a rival bidder. JTI paid almost $1 billion for the stake.

Investor interest in Ethio Telecom could be dampened, however, once it is forced to open its books to bidders.

“We’ve got no idea how big this company is, what its liabilities are, what its weaknesses are. All we know is how many subscribers,” Kitson said.

The government has also made clear the state will maintain a majority stake and control of the board, which could discourage investors.

Published in Daily Times, July 31^st 2018.