Safaricom is set to launch M-Pesa in Ethiopia following an announcement on Thursday evening that the Ethiopian government will grant the telco a mobile money licence.
The news came hours after Safaricom Ethiopia switched on its 2G, 3G and 4G network across 11 cities after months of trials.
"A deal has been reached between the government of Ethiopia and Safaricom to grant a license for mobile money service to Safaricom," said Ethiopia's Finance Minister Ahmed Shide.
This followed a meeting between Ethiopian Prime Minister Abiy Ahmed and Kenyan President William Ruto during his first trip to the Horn of Africa nation.
The conditions and timelines for granting the licence are not yet clear as well as the fees Safaricom will be required to pay.
During the launch of Ethio Telecom's mobile money platform Telebirr last year, a senior Ethiopian official revealed that the decision to exempt the mobile money licence from the bid floated in 2021 had cost the government Sh60 billion.
The decision to delay the issuance of a mobile money licence to Safaricom was viewed by industry experts as a protectionist move to allow Ethio Telecom to build capacity ahead of stiff competition from M-Pesa Africa.
Launched in May last year, Ethio Telecom's Telebirr has 23.9 million subscribers as of last month, with 82,000 agents and 22,000 merchants on its network.
Telebirr also has agreements with 14 Ethiopian banks for mobile-to-wallet integration and last year transacted a total of Sh100 billion in value.
M-Pesa last year recorded a 7.8 per cent growth in subscribers to hit 30.5 million. In comparison, revenue went up 30 per cent to Sh107 billion, surpassing voice as the largest contributor to Safaricom's revenue.
Safaricom will be keen to replicate this success in Ethiopia, banking on low mobile and internet penetration rates, a young population and falling costs of devices.
A recent report by rating firm Moody's indicated that Safaricom stood to gain billions in new revenue streams from its foray into Ethiopia.
The report indicates that Kenya and Ethiopia have an estimated 23 per cent and 19 per cent internet penetration respectively, presenting massive opportunities for new subscriber markets in the data segment.
“Vodafone Group Plc, Orange and Emirates Telecommunications Group have invested in sub-Saharan Africa to diversify away from their mature domestic markets,” explains Moody’s in its report.
“For these operators, revenue from sub-Saharan Africa represents a modest 11 to 14 per cent of total revenue but generally accounts for most of the growth.”
At the same time, the rating agency cautioned that poor sovereign credit quality, which has grown worse in Ethiopia over the past two years, could pose a risk to investors due to the challenges of repatriating earnings.
“This increases risks for telecom operators who can face a combination of low real economic growth, currency weakness and increased hard currency borrowing costs,” says the report.
In its recent annual report, Safaricom said the expansion into Ethiopia opens new markets that also bring on various risks, particularly insecurity amid an ongoing political conflict in the region.
"Disruption to the supply chain due to geo-political exposures, conflicts, global supply chain challenges that could mean that we are unable to execute our strategic plans, resulting in increased cost of operations and delays in provision of services/products," said the telco.
So far, Safaricom Ethiopia has incurred operating costs of Sh5.1 billion, which are attributed to staff expenses, consultancy costs in establishing the operating company and publicity. Safaricom further says it anticipates 2023 earnings for the group to hit up to Sh93 billion, including Ethiopia, and Sh123 billion if it's excluded.