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by EOS Intelligence EOS Intelligence No Comments

Ethiopia’s Half-Hearted Push to Telecom Privatization Finds Limited Success

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Ethiopia’s telecom sector has been considered as the last frontier for telecom players, since the country is one of just a few to still have a state-run telecom industry. However, this is due to change, as the Ethiopian government has finally opened up the sector to private investment. Privatization of the telecom sector has been on the prime minister Abiy Ahmed’s agenda since he first took office in 2018, however, it was initially a slow process, mostly due to bureaucracy, ongoing military conflicts, and COVID-19 outburst. Apart from that, the privatization terms have not been very attractive for private players, making the whole process complicated.

With a population of about 116 million and only about 45 million telecom subscribers, Ethiopia has been one of the most eyed markets by telecom players globally. The telecom sector has immense potential as Ethiopia has one of the lowest mobile penetration rates in Africa.

To put this in perspective, Ethiopia has a mobile connection rate of only 38.5%, while Sub-Saharan Africa has a mobile connection rate of 77%. Moreover, 20% of Ethiopian users have access to the Internet and only about 6% currently use social media, which is much lower than that in other African countries. That being said, about 69% of the country’s population is below the age of 29, making it a strong potential market for the use of mobile Internet and social media in the future.

This makes the market extremely attractive for international players, who have for long been kept at bay by the Ethiopian government. Thus, when the government expressed plans to open up the sector, several leading telecom players such as MTN, Orange, Etisalat, Axian, Saudi Telecom Company, Telkom, Vodafone, and Safaricom showed interest in penetrating this untapped and underserved market.

Currently, state-owned Ethio Telecom, is the only player in the market. Lack of competition has resulted in subpar service levels, poor network infrastructure, and limited service offerings. For instance, mobile money services, which are extremely popular and common across Africa have only been introduced in Ethiopia in May 2021.

Moreover, as per UN International Telecommunication Union’s 2017 ICT Development Index (IDI), Ethiopia’s telecom service ranked 170 out of 176 countries. To correct this, in June 2019, the government introduced a legislation to allow privatization and infuse some competition and foreign investment into the sector. The privatization process is expected to rack up the country’s foreign exchange reserves, in addition to facilitating payment of state debt. It also aims to improve the overall telecom service levels and help create employment in the sector.

As a part of its privatization drive, the government has proposed offering two new telecom licenses to international players as well as partially privatizing Ethio Telecom by selling a 40% stake in the company. The sale of the two new licenses will be managed by the International Finance Corporation, which is the private sector arm of the World Bank.

Ethiopia’s Half-Hearted Push to Telecom Privatization Finds Limited Success by EOS Intelligence

While this garnered interest from several international telecom players, with 12 bidders offering ‘expression of interest’ in May 2020, the process has not been very smooth, owing to bureaucracy, ongoing military conflicts in the north of the country, and the proposal of an uneven playing field for international players versus Ethio Telecom. This last challenge appears to be a major obstacle to a smooth privatization process.

As per the government’s initial rulings, the new international players were not to be allowed to provide financial mobile services to their customers, while this service was only to be reserved for Ethio Telecom. Mobile money is a big part of the telecom industry, especially in Africa, where it is extremely popular and profitable as banking infrastructure is weak. This made the deal much less attractive for foreign bidders as mobile money constitutes a huge revenue stream for telecom players in African markets.

However, post the bidding process in May 2021, the government has tweaked the ruling to allow foreign players to offer mobile money services in Africa after completing a minimum of one year of operations in the country. However, since this ruling came in after the bidding process was completed, the government missed out on several bids as well as witnessed lower bids, since companies were under the impression that they will not be allowed to offer mobile money services. As per government estimates, they lost about US$500 million on telecom licenses because of initial ban on mobile money.

Another deterrent to the entire process has been the government’s refusal to allow foreign telecom tower companies to enter the Ethiopian market. The licensed telecom companies would either have to lease the towers from Ethio Telecom or build them themselves, but they would not be allowed to get third party telecom infrastructure players to build new infrastructure for them, as is the norm in other African countries. This greatly handicaps the telecom players who will have to completely depend on the state player to provide infrastructure, who in turn may charge high interconnection charges that may further create an uneven playing field.

These two regulations are expected to insulate Ethio Telecom from facing fierce competition from the potential new players, and in turn may result in incumbency and poor service levels to continue. Moreover, even with regards to Ethio Telecom, the government only plans to sell 40% stake to a private player (while 5% will be sold to public), thereby still maintaining the controlling stake. With minority stake, private players may not be able to work according to their will and make transformative changes to the company. It is considered a way to just get fresh capital infused into the company without the government losing real control of it.

In addition to these limitations, the overall process of privatization has faced delays and complications. The bidding process has been delayed several times over the past year owing to regulatory complexities, the COVID crisis, and ongoing military conflict in the northern region. The process, which was supposed to be completed in 2020 was completed in May 2021, with the final bidding process taking place in April 2021 and the government awarding the bids in May 2021.

During the bidding process, the government received only two technical bids out of the initial 12 companies that had shown interest. These were from MTN and a consortium called ‘Global Partnership for Ethiopia’ comprising Vodafone, Safaricom, and Vodacom. While the Vodafone consortium partnered with CDC Group, a UK-based sovereign wealth fund, and Japanese conglomerate, Sumitomo Corporation, for financing, MTN group teamed up with Silk Road Fund, China’s state-owned investment fund to finance their expansion plans into Ethiopia. The other companies that had initially shown interest backed out of the process. These include Etisalat, Axian, Orange, Saudi Telecom Company, Telkom SA, Liquid Telecom, Snail Mobile, Kandu Global Communications, and Electromecha International Projects.

In late May 2021, the government awarded one of the licenses to the ‘Global Partnership for Ethiopia’ (Vodafone, Safaricom, and Vodacom) consortium for a bid of US$850 million. While it had two licenses to give out, it chose not to award the other license to MTN, who had made a bid of US$600 million. As per government officials, the latter bid was much lower than the expected price, which was anticipated to be close to a billion by the government.

Moreover, the government seems to have withheld one of the licenses as currently the interest in the deal has been low, considering that it only received two bids for two licenses. Given that they have somewhat altered and relaxed the guidelines on mobile money (from not being allowed to be allowed after minimum one year of operations), there may be some renewed interest from other players in the market. That being said, the restriction on construction of telecom infrastructure is expected to stay as is.

In the meanwhile, Orange, instead of bidding for the new licenses, has shown interest in purchasing the 40% stake in Ethio Telecom, which will give the company access to mobile money services right away. However, no formal statement or bid has been made by either of the parties yet. If the deal goes through, it will give Orange a definite advantage over its international competitors, who would have to wait for minimum one year to launch mobile money services in the market. In May 2021, Ethio Telecom launched its first mobile money service, called Telebirr, and managed to get 1 million subscribers for the service within a two-week span. This brings forth the potential mobile money holds in a market such as Ethiopia.

EOS Perspective

While several international telecom companies had initially shown interest in entering the coveted Ethiopian market, most of them have fizzled out over the course of the previous year, with the government only receiving two bids. Moreover, the bid amounts have been much lower than what the government initially anticipated and the government chose to accept only one bid and reject the other. Thus the privatization process can be deemed as only being partially successful. Furthermore, the opportunity cost of restricting mobile money services has been about US$500 million for the government, which is more than 50% of the amount they have received from the one successful auction.

This has occurred because the government has been focusing on sheltering Ethio Telecom from stiff competition by adding the restrictions on mobile money and telecom infrastructure. While this may help Ethio Telecom in the short run, it is detrimental for the overall sector and the privatization efforts.

Restrictions on using third-party infrastructure partners, may also result in a slowdown in rolling out of additional infrastructure, which is much needed especially in rural regions of Ethiopia. Other issues such as ongoing political instability in the northern region have further cast doubt in the minds of investors and foreign players regarding the government’s stability and in turn has impacted the number of bids and bid value.

It is expected that the government will restart the bidding process for the remaining one license soon. However, the success of it depends on the government’s flexibility towards mobile money services. While it has already eased its stance a little, there is still a lot of ambiguity regarding the exact timelines and conditions for the approval. The government must shed clarity on this before re-initiating the bidding process. MTN has also mentioned that it may bid again if mobile money services are included in the bid.

However, with Vodafone-Safaricom-Vodacom consortium already winning one bid and expecting to start services in Ethiopia as early as next year, the company definitely has an edge over its other competitors. Considering that the first bid took more than a year and faced several bureaucratic delays, it is safe to say that the second bid will not happen any time soon, especially since this time it is expected that the government will give a serious thought to the inclusions/exclusions of the deal and the value that mobile money brings to the table for both the government and the bidding company.

by EOS Intelligence EOS Intelligence No Comments

As Myanmar Works Towards Stability, Communal Violence Holds The Nation Back.

In mid-2012, we published a report on Myanmar, looking into its potential as a new emerging market with considerable investment and trade opportunities for foreign investors (see: Myanmar – The Next Big Emerging Market Story?). Almost a year later, we are returning to Myanmar, to check and evaluate whether the political, social, and economic changes envisioned and proposed by the quasi-civilian government have really translated into actions to push the country forward on the path to becoming the next big emerging market story.

Being plagued by uninspiring and inefficient governance for more than six decades, Myanmar for long has been proclaimed as Asia’s black sheep. The Chinese named it ‘the beggar with a golden bowl’, asking for aid despite its rich natural and human resources. However, having embarked on a momentous yet challenging political revolution, the nation is said to be on its way to open a new chapter in the Asian development story.

Contrary to what was believed to be just hollow promises and sham, the reforms initiated by the Thein Sein government have gathered much steam in quite a few cases. Bold moves over the last year have also immensely helped the country in gaining goodwill internationally. We are looking at some of the game-changing reforms enacted over the past present year in Myanmar.

Media Censorship

In August 2012, the government put in actions their proposed end to media censorship. As per the new system, journalists are no more required to submit their reports to state censors prior to publication. To further strengthen the power of media, in April 2013, the government abolished the ban on privately run daily newspapers – ban remaining in force for over 50 years.

Foreign Investment Law

In January 2013, the Thein Sein government passed a foreign investment law that was initially drafted in March 2012. The law allows foreign companies to own up to 80% of ventures across several industries (apart from activities mentioned on the restricted list –including small and medium size mining projects, importing disposed products from other countries for use in manufacturing, and printing and broadcasting activities). This acts as an important milestone in opening up the Burmese economy to heaps of foreign investment.

Opening Up Of Telecom Sector

Myanmar, one of the least connected countries in the world, has embarked on the deregulation of its much neglected telecom sector by initiating the sale of 350,000 SIM cards on a public lottery basis. It plans to offer additional batches on a monthly basis. As a more tangible effort to revolutionize the sector, the government is auctioning two new 15-year telecom network licenses to international companies. These companies are to be announced in June 2013 from a list 12 pre-qualified applicants, namely, Axiata Group, Bharti Airtel, China Mobile along with Vodafone, Digicel Group, France Telecom/Orange, Japan’s KDDI Corp along with Sumitomo Group, Millicom International Cellular, MTN Dubai, Qatar Telecom, Singtel, Telnor, and Viettel. Despite the current 9% mobile penetration claimed by the government, an ambitious goal has been set to reach 80% penetration by 2015.

The World Responding To Myanmar’s Progress

As Myanmar works towards attaining political stability, introducing economic reforms and easing social tensions, the world is also opening up its arms to increasingly embrace the otherwise banished land. In April 2013, the EU permanently lifted all economic sanctions against Myanmar, while maintaining the arms embargo for one more year. The USA, on the other hand, has not permanently removed the sanctions, but has had them suspended since May 2012. This allows US companies to invest in Myanmar through the route of obtaining licenses. The definite abolishment of these sanctions by the EU puts pressure on the USA to act soon and lift them as well, to avert the risk lagging behind in the race to tap this resource-rich market. The USA has already begun working on a framework agreement to boost trade and investment in Myanmar. Japan has also been improving its relations with Myanmar to gain a foothold in this market.

With the EU, the USA and Japan encouraging investments in Myanmar, several international companies have directed investments to this previously neglected country.

  • In August 2012, a Japanese consortium of Mitsubishi Corporation, Marubeni Corporation and Sumitomo Corporation contracted with the Burmese government to jointly develop a 2,400 hectare special economic zone in Thilawa, a region south of Yangon. The Myanmar government will hold a 51% stake, while the Japanese consortium will own the remaining share in the industrial park, which will also include large gas-fired power plant. In the first phase of the project development, the companies plan to invest US$500 million by 2015 to build the necessary infrastructure on the 500 hectares area in order to start luring Japanese and global manufacturers.

  • In August 2012, Kerry Logistics, a Hong-Kong based Asian leader in logistics, opened an office in Myanmar. Recognizing the immense potential in the freight forwarding and logistics sector (underpinned primarily by growing international trade), European freight forwarders, Kuehne + Nagel, also began operations in this country in April 2013.

  • To cash upon a booming tourism market, in February 2013, Hilton Hotels & Resorts initiated the development of the first internationally branded hotel in Yangon, which is expected to open in early 2014. The hotel will be a partnership between Hilton Worldwide and LP Holding Centrepoint Development, the Thai company that owns the 25-storey mixed-use tower, called Centrepoint Towers, which will house the hotel. Hilton has signed a management agreement with LP Holdings to operate the 300-room property.

  • In February 2013, Carlsberg, the world’s fourth-biggest brewer, announced its plans to re-enter Myanmar, after it left the country in mid 1990’s owing to international sanctions.

  • Fuji Xerox, a joint American-Japanese venture, set up its office in Myanmar in April 2013. The company, which is the first player in the office equipment industry to start direct operations in Yangon, looks to revive its internationally declining business through this venture.

  • In April 2013, JWT, an international advertising firm, entered into an affiliation agreement with Myanmar’s Mango Marketing, in anticipation of opportunities in this country, given an increasing interest in Myanmar expressed by a number of international players who are likely to seek advertising and marketing services.

Civil Unrest Still Stands As a Major Concern

While Myanmar has made great strides in reforms over the past year, the ongoing unrest between Myanmar’s majority Buddhists and minority communities (primarily Muslims), and the lack of a concerted effort by the government to address it, poses a major threat for the nation to descend into ethnic-religious war. In October 2012, the Rakhine riots between the Buddhists and Muslims claimed 110 lives and left 120,000 displaced to government setup refugee camps around Thechaung village. A similar case followed in April 2013 in Meiktila, where the death roll of Muslims reached 30. Strong international condemnation for the growing racial and religious violence in the region has caused concerns of losing international support gathered over the past few years. Moreover, the use of military force to suppress the Meiktila riots raises fear about the army once again seizing power in the name of restoring order to the nation.


Myanmar’s attempts to transition into a democracy from a highly repressive state have yielded positive outcomes over the past year. While Myanmar seems to be on the right trajectory for future growth and stability, the government must address internal conflicts immediately before the nation stands at risk of tumbling back into chaos, with possible outcomes similar to those seen in Yugoslavia. Therefore, it is safe to say that although political and economic developments are increasingly seeing the daylight, underpinned by the government’s pro-development course, the recent spate of religious, ethnic and communal violence as well as the magnitude of reforms still to be introduced, might still question the nation’s ability to attract and sustain foreign investments and economic development in the long run.

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