Ethiopia amends law on M-Pesa enlargement

Industry

Ethiopia amends law on M-Pesa enlargement


Safaricom data center

The $ 100 million China-total Safaricom data center in Addis Ababa, Ethiopia. PHOTO | TESFA-ALEM TEKLE | NMG

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Summary

  • Ethiopia has begun amending its national payment law to pave the way for Safaricom to introduce its popular M-Pesa to the market of 110 million people.
  • A consortium led by Safaricom last year secured the first private mobile phone license, which is not licensed for mobile financial services like M-Pesa.
  • The National Bank of Ethiopia (NBE) is now seeking to remove the remaining legal hurdle for Safaricom through the bill released last week.

Ethiopia has begun amending its national payment law to pave the way for Safaricom #ticker: SCOM to introduce its popular M-Pesa to the market of 110 million people.

The Central Bank of Ethiopia has drafted a bill that will allow foreign investors to offer mobile money services, strengthening companies like Safaricom that are seeking to start activities in the country this year.

A consortium led by Safaricom last year secured the first private mobile phone license, which is not licensed for mobile financial services like M-Pesa.

The National Bank of Ethiopia (NBE) is now seeking to remove the remaining legal hurdle for Safaricom through the bill released last week.

“So far, there is no law that allows foreign operators like M-Pesa to acquire a license in Ethiopia. If the new amendment is approved, it will allow M-Pesa to get a license in Ethiopia,” he said. Marta Hailemariam, head of payment settlement at NBE, to the Ethiopian press.

Ethiopia is liberalizing its telecommunications sector in an attempt to turn around a modern digital economy in line with reforms unveiled by Prime Minister Abiy Ahmed in 2018.

The state monopoly Ethio Telecom, which launched a new mobile financial service called Telebirr in May last year, attracted four million users within a few weeks, showing the potential of the market.

The state-sponsored bill states: “Foreign nationals may be allowed to invest in an issuer of payment instruments or a payment system operator; or establish a subsidiary to be licensed as a payment instrument issuer or payment system operator.”

Safaricom is part of a consortium that includes Vodafone, Vodacom, the UK’s CDC Group and Japan’s Sumitomo Corp, which secured the license with a bid of $ 850 million (Sh97.9 billion).

Ethiopia has one of the world’s most closed telecommunications markets.

Mobile financial services have become an essential part of the business of African telecom operators since Safaricom pioneered those with M-Pesa in 2007, giving people an alternative to banking.

If the proposed law is approved, the Safaricom consortium looks set to launch M-Pesa on the back of the new license.

The blockade of foreign companies meant that for telecom operators like Safaricom to offer the service in Ethiopia, they would need a partnership with Ethio Telecom, which is about to be privatized through the sale of a minority stake.

The Ethiopian government is preparing to sell a 45 percent stake in Ethio Telecom, part of a broader liberalization, including the auctioning of two new full-service telecommunications licenses.

Ethio Telecom, which is a telecom monopoly, is seen as the biggest prize because of its huge protected market. Its 58.7 million subscriber base makes it the largest single-country customer base for any operator in Africa.

Players like Safaricom are attracted to the growth potential of the market, whose 114.1 million people mean the country offers a penetration rate of 51.4 percent.

In contrast, Kenya’s 65.08 million mobile phone subscribers provide a penetration of 133.6 percent.

Mobile money services have the potential to transform Ethiopia’s economy, as M-Pesa has done in Kenya, by allowing people to bypass a shaky and inefficient banking system and send money or make payments at the touch of a phone button.

The ability to access digital banking services is likely to be a game-changer for Ethiopians if the banking sector does not have the ability to transfer money from one bank to another.

Safaricom is one of several Kenyan companies that have been looking at the Ethiopian market for years because of the country’s huge population. Ethiopia has kept foreign involvement in the economy to a minimum.

However, the country has consistently recorded robust economic growth, averaging 10 percent over the past five years, and its ongoing economic reforms appear to be strengthening investor sentiment.

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

Safaricom will have access to Ethio Telecom’s giant network, enabling the telecommunications company to roll out its services across the Horn of Great Africa.

This follows an Ethiopian government-backed deal that paves the way for Safaricom to launch commercial operations in the market, Safaricom officials said recently.

“The deal is very important and crucial to our commercial viability and launch. Hopefully (we will launch) soon, but we do not have a date yet,” said Safaricom chairman Michael Joseph Business Daily.

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