Kenya’s Safaricom, KCB Look North As Ethiopia Opens Market

Kenya's Safaricom, KCB Look North As Ethiopia Opens Market

Two of Kenya’s largest blue chip companies, regional lender KCB Group and giant telco Safaricom, are on course to establishing operations in neighbouring Ethiopia where reformist Prime Minister Abiy Ahmed is opening up the economy, creating opportunity for daring foreign investors.

KCB on Wednesday said it is preparing to enter the market of 100 million people through a partnership with an Ethiopian bank or opening a fully fledged subsidiary in the country, which currently has no foreign bank.

“Ethiopia has just begun the reform process, which we believe will lead to a more open market. We are looking at either partnering with an existing institution or setting up afresh as has been our regional expansion experience. It is the market we are looking at as a key growth area in the next level of our regional expansion,” KCB said.

Ethiopia has consistently registered robust economic growth, averaging 10 per cent in the past five years and the new premier’s reforms look set to strengthen investor sentiment.

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

Closed to foreigners

The country’s financial services industry is, however, one of the least developed in the region. Ethiopia has been closed to foreigners and available statistics show that less than 15 per cent of its 100 million people has access to a bank account.

Most of the country’s 18 banks are State-owned and Addis Ababa has maintained a tight lid on its financial services sector, keeping out foreigners.

Pan-African financial services provider Ecobank in 2013 estimated that Ethiopia’s unbanked population stood at 80 million, making it attractive to Kenyan banks.

The Ethiopian PM on Wednesday tweeted about a prospective deal that will see Safaricom take its mobile money M-Pesa services to the country.

“Ethiopians could soon enjoy the services of Kenya’s Safaricom,” said Mr Ahmed.

Earlier Reuters had quoted sources saying Safaricom was considering a partnership with Ethio Telecom, Ethiopia’s state-owned telecom giant, to roll out M-Pesa services.

Ethio Telecom in May this year agreed to allow some local firms to provide Internet services through its infrastructure, a move that allowed competition as well as expanded the data market. Analysts say Safaricom’s entry into Ethiopia would significantly boost its revenues.

“If confirmed, this is an important positive for Safaricom, and would offer an important upside on M-Pesa revenue growth numbers based on the number of subscribers it registers in the 100 million market,” Standard Investment Bank said in a research note.

“The upside could be higher depending on the negotiated revenue share – but unlikely to be substantially more than 15 per cent of revenue (unless the uptake is low).”

Ethio Telecom has slightly more than 16 million subscribers of Internet services, underlining the heavy potential for growth.

Initial steps

KCB, which opened a representative office in Addis Ababa three years ago as an initial step to establishing a presence in Ethiopia, said the level of financial inclusion remains relatively low in the country, making it a good target.

“This is the reason we set up our rep office so that when an opportunity arises, we can take it up. We are very much confident that within the next two years we will have an opportunity to actualise this. Our presence in Ethiopia gives us an opportunity to connect the Horn of Africa and facilitate trade,” KCB said.

Last August Safaricom acquired a 260-kilometre stretch of fibre cable between Marsabit and the border town of Moyale from a regional tech firm – a move that was seen to strengthen its presence in the vast semi-arid zone and prepare the ground for a possible entry into Ethiopia.

Mauritius-based Bandwidth and Cloud Services sold the fibre cable to Safaricom for an undisclosed amount.

The acquisition was seen as a strategy to provide an additional redundancy route through Ethiopia in the event of outages on the Mombasa undersea cables.

“We continuously look for means to expand our coverage and find additional fibre routes that will enable our customers to have convenient access to more connectivity options,” Safaricom CEO Bob Collymore told the Business Daily at the time.

Several Kenyan financial institutions, including Cooperative Bank of Kenya, Equity Bank and Standard Bank Group which trades under the CFC Stanbic brand in Kenya, have over the years expressed desire to enter the Ethiopian market.

Last October Standard Bank said it had received a licence to open a representative office in Ethiopia. And in May last year, Co-operative Bank shareholders backed the lender’s plans to enter the Ethiopian market.

Co-operative Bank said it planned to enter the market in a joint venture with Ethiopia’s cooperative movement in a deal similar to its South Sudan business model in which the government has a stake.

Despite the majority of Ethiopia citizens having low income, ongoing economic transformation that is largely driven by public investment in infrastructure and industrialisation has spread the benefits of economic growth to the majority of the population, making them more bankable.

Mr Ahmed, a 41-year-old former intelligence officer who came to office in April this year, has announced a series of far-reaching reforms that have turned politics on its head in the region.

He has, for instance, ended a state of emergency, released political prisoners and announced plans to partially open up the economy – including letting foreign investors take stakes in state-run Ethiopian Airlines.

Ethiopia’s economy more than quadrupled in the past decade from $10.13 billion in 2004 to $55.61 in 2014, and is expected to continue growing at the rate of between seven per cent and 10 per cent in the next five years.

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