As Ethiopia opens its telecom market, what lessons can foreign investors learn?

 (This is a transcript of the podcast posted on Monday, July 12th 2021. You can listen to the podcast by clicking on this link https://mansamedia.africa/the-weekly-beat-july-12-2021/)

Welcome to The Weekly Beat by Mansa with your hosts, Arnold Segawa, Maggie Mutesi, and Dumi Jere. Giving you all the info on Africa’s big finance and economic stories, The Weekly Beat by Mansa.

ARNOLD SEGAWA:

Greetings and welcome to this edition of the Weekly Beat, of course, brought to you by Mansa. My name is Arnold Segawa, and as always we’re joined by our resident in a crime, or should I say residents in crime, Dumi Jere’s joining us from Jo’burg and Maggie Mutesi. I’m not very sure where she is. I think she’s in Kenya now. Maggie, let me start with you. How are you doing today?

MAGGIE MUTESI:

I’m doing okay, Arnold. I’m in Nairobi.

ARNOLD SEGAWA:

Dumi?

DUMI JERE:

I’m all right my brother, you are?

ARNOLD SEGAWA:

Not too bad, not too bad. This Jo’burg winter is doing rounds on me, but we still survive. Fascinating news of course coming in with Jacob Zuma. I don’t know what you’ve made of it.

DUMI JERE:

On the one hand it’s an upholding of the democracy and constitution I guess. On the one hand it’s sort of sad to see him in that position. Man, I wish he had just gone to the commission and say these two cents but here we are.

ARNOLD SEGAWA:

Maggie, Uncle Jacob, what’s your 2 cents?

MAGGIE MUTESI:

I don’t know what to make of Dumi’s comments though. There’s got to be accountability Dumi. And for me, I think that this needed to happen. It’s just been a game of I won’t show up here, I won’t show up, and he even makes fun of it on social media. And this is not how things are supposed to be, especially when you’re trying to make leaders accountable of some of these things they do, or even corruption

DUMI JERE:

Game of Thrones South Africa.

ARNOLD SEGAWA:

Okay, I’m quite unsure what the stakes are, but of course this is the Weekly Beat brought to you by Mansa and we’re all about economic, financial news. We’ll get into the Jacob Zuma in another edition of the podcast maybe, but less than six weeks ago, we got confirmation that Ethiopia awarded a telecoms license to a consortium led by Kenya’s Safaricom as the East African nation seeks to open up the lucrative telecoms sector, which is of course controlled right now by the state owned Ethio telecom.

Now this particular consortium that won this time around, this bid actually includes Britain’s Vodafone, South Africa’s Vodacom, and of course they offered to pay a whopping $850 million for the license, which of course trounced the second bidder who I would say is MTN that they came in with $600 million for their bid. Let me start with you Maggie, your 2 cents on this. After that Dumi you can jump in wherever.

MAGGIE MUTESI:

It was an interesting bid Arnold. There were lots of all these players who really wanted to get into the market. Ethiopia is a huge market. I mean, we’re talking about a hundred million people and we’re talking about a country that had just liberalized telecommunications. I think for me it was quite interesting to see the players in the bid but how it ended up. I know probably Safaricom had much more to give. I think they plan to invest about $8.5 billion into the continent over the years. Now we have to face it though.

DUMI JERE:

From my side even when you look at the technological experience that the Safaricom consortium was bringing versus MTN, MTN seemed to be operating alone. Whereas Safaricom decided to partner with Japan Sumitomo in the consortium. There’s also Vodacom, Vodafone, even the British development finance agency, CDC Group, formed part of the $850 million bid for the license. So they seem to be bringing a lot more expertise to the table, a grouping of whatever technological advancements or whatever the British might be bringing to the table versus the Kenyans and their know-how of the East African market, formidable competitor really.

That aside though, I really was hoping for Ralph. For those that don’t know, Ralph is the CEO of MTN. And I really wanted the MTN group to get it because he’s trying to make a mark on the African continent and they haven’t quite ruled out that they might make a second attempt to win a telecom license in Ethiopia. So we’ll see how that goes.

ARNOLD SEGAWA:

Of course as you mentioned Dumi, Ralph Mupita is the current CEO. I remember interviewing him as the CFO at the time for MTN, a while back or some years back. He seems like a decent guy, but I cannot rule out hubris because you have 280 million customers, right? And you put to the table of 600 million, right? Which is nowhere near that 850 million that the Safaricom consortium is bringing to the table.

What do you say would have informed such a meager bid, if I would call it hubris, because 600 million is nowhere near? This is euros if I’m not mistaken, is nowhere near what the competitors actually brought to the table. And I think Maggie you can jump in again. Dumi you can also comment on this any time because I do not get the maths here.

MAGGIE MUTESI:

For me I would just add the fact like Dumi mentioned, away even from the money because the money like we’ve mentioned Arnold is far away. It’s a lot of money compared to what MTN was bringing on the table. But also I know you guys are rooting for MTN, but this is an industry that I also feel like keeps evolving in terms of innovation.

I felt like I still was rooting for Safaricom and coming from my place in Kenya, for me, I felt like this market if I had a chance I would put Safaricom in every African markets, not to sound too biased in a way but this for me also comes back to what are you bringing to the table in terms of innovation, connectivity, and all of that. I know there’s the new MTN CEO trying to turn around a lot of things but it could be too late. I don’t want to think about that.

DUMI JERE:

Well Arnold, I sort of disagree with you. 600 million is a lot of money.

ARNOLD SEGAWA:

Not compared to 850.

DUMI JERE:

Okay, fair enough. Fair enough. But Arnold you mentioned that you once interviewed Ralph when he was still the CFO. So transitioning from a CFO into now the CEO, he’s a person who’s got a grip on the numbers at MTN for the group. So I would think, and I would assume if I also put on my chartered accounting head that one, they probably would have looked at the potential hurdles that were on the journey.

They would look at the license conditions on the bid, and then they look in-house at their capital allocation framework and say, “Okay, so given all our other markets, what is it that we need to do in this market and that market and that market? Will this allow us to actually go into Ethiopia and make an impact?”

So having then taken all of those factors into consideration, then you see the opportunity from a strategic point of view and say, “Okay, 600, let’s put it on the table. Maybe once this license comes in, we’re hoping that maybe Ethiopia will allow us to offer our mobile money services that will gain more money. And that will boost from our 600 million. We can actually make more and use that for the infrastructure and the development.”

When I put on a CFO hat, I’ll think that’s how Ralph and the team were thinking, but I also then read something that the government changed the rules after the deadline. In early May, it said that the licensees could offer those services, but they had earlier denied that possibility. So MTN had fitted all of that in the consideration in making the bids to say, “Okay, so if we put on the 600, we’ll make more from these extra services.” And then the government changes the rules at the last minute and that threw them off.

ARNOLD SEGAWA:

But again I don’t think I can categorically confirm nor deny that particular statement, but what I can actually confirm is the fact that other bidders, the likes of Orange, Etisalat, and Zain, the three players who initially actually expressed interest in obtaining the license, but it looks like they’re actually competing for a 45% stake in Ethio telecom, which is also on the table.

Now the thing that you touch on Dumi is around mobile money. Now it looks like this is a very gray area. Apparently there are some reports that foreign companies were not allowed to play in the mobile money space. And this may be through the likes of MTN off. Maybe that is what informs the 600 million valuation that they brought to the table. But what does it say if the likes of Orange and ZaIN are walking away, is it even worth it? And don’t get me started on the instability and the potential civil war that we saw in Tigray.

DUMI JERE:

There seems to be a lot more going on in Ethiopia currently. And perhaps that’s why I keep mentioning Orange and all the other guys that’s why they probably took a back seat and said, “Maybe let’s not go in.” Because I would also imagine if I was in Ralph’s position, I would also weigh that risk. Okay. And look at the risk matrix and say, “Okay, does it make sense for us to go in? Or should we maybe stay put?” It’s a big population so once you successfully make it and build a brand for yourself, you’re likely to succeed, but is it worth it, the give and take?

ARNOLD SEGAWA:

Maggie, you’re the CEO of Maggie telecom. How do you see yourself playing this out? Would you rather go for the 45% stake in Ethio telecom, which is, of course it has the monopoly, it has the state, and then you jump in there and get a 45%. Obviously they’ve been in the business for over 20 years. Or would you try your luck in going there as a big MTN?

MAGGIE MUTESI:

Oh my God Arnold, I take this honestly. I think the bigger the risk, the better. I mean, I feel like you just have to go in. There is a risk, but that means that within that risk there is also a big opportunity. I would still have gone in bigger.

ARNOLD SEGAWA:

But guys we’re really running out of time, just in one sentence your two cents on this. The second round might be coming in a few months is what they say. Your two cents. Let me start with you Dumi, Maggie wrap it off.

DUMI JERE:

I think when we try to be positive, we can credit Ethiopia’s Prime Minister Abiy for opening up Ethiopia’s health, e-commerce and transport sectors through the new investment laws that he has come up with. And that has been key in his re-election campaign.

If I’m talking to Ralph, I would want him to really look closely at how easy is it going to be to repatriate the profits because there’s a crippling foreign exchange crunch in the country, inflation that’s consistently exceeding around 20%. I would look at those closely as well as the instability that’s from the Tigray. How long has it been going on now? Seven months or so? Yeah, I’ll really reweigh the risk matrix to see if it’s worth it going ahead or not.

ARNOLD SEGAWA:

Maggie?

MAGGIE MUTESI:

For me, I think I would love to see what happens in the next two months. There’s a round two and with the amount of money the consortium plans to put into Ethiopia, I want to overlook what’s happening now and look at the years if all goes as planned how are they going to change the industry within Ethiopia?

I’m very, very optimistic if the consortium goes ahead with the plans and the amount of money they would put on the table to invest, I would love to see what is going to change within the country. Other than that, I’m glad that Ethiopia is now open for business. I think this is a good thing.

ARNOLD SEGAWA:

Thank you. Thank you for that. And thank you Dumi and Maggie for making time. As always the Weekly Beat is available on demand. If you missed anything in the course of the week, just visit the website. That’s mansamedia.africa. If you’re not very conversant with the keyboard, you need to start with a www. If you’re on Twitter, just check out Mansa Media @mansa_media. From me and the entire gang, have a lovely day, week.

The Weekly Beat by Mansa with your hosts Arnold Segawa and Maggie Mutesi and Dumi Jere, giving you all the info on Africa’s big finance and economic stories, The Weekly Beat by Mansa.

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