Safaricom’s grand entry into Ethiopia has bolstered hopes of Kenyan banks gaining a foothold in the country’s market of 120 million people that has for long been closed to outside investors.
With the liberalisation of the telecommunications sector in Ethiopia, Kenyan banks such as KCB and Equity which have representatives in the country are now waiting on the wings.
Equity Bank Chief Executive James Mwangi, said they have their ears on the ground. And I think what the ground is saying, noted Mwangi, is that it is just a matter of time before the financial sector is liberalised.
He noted that currently, the private sector cannot get the credit it requires to be able to scale up the economy from the State-owned banks. “So, it will be a matter of a necessity. And if it is a matter of necessity, then it is a question of time,” said Mwangi.
The Ethiopian government led by Prime Minister, Abiy Ahmed awarded the bid for a second telecommunication licence to a consortium that includes Safaricom and parent companies Vodacom Group of South Africa and Vodafone Group of UK.
According to senior government officials, the consortium placed a $850 million (about Sh91 billion) bid to bag the licence. Analysts are optimistic about the financial sector opening up to Kenyan banks.
Private sector credit as a fraction of Ethiopia’s gross domestic product (GDP) stood at 11 per cent according to the 2019 World Bank report.
This, said the World Bank, was an indicator that businesses and households were not getting adequate financing with much of the credit going to State-owned enterprises.
There are 19 banks operating in one of Africa’s most tightly State-controlled banking system.
The State-owned Commercial Bank of Ethiopia holds a disproportionate share of the market with 59 per cent of total banking assets and 60 per cent of total deposits. To sustain the growth momentum of the past decade, Ethiopia in 2019 tasked the World Bank to reform its financial sector as a precursor to loosening its grip.
Ethiopia’s Central Bank set a minimum deposit interest rate of seven per cent but lenders set their un-benchmarked loan prices.
KCB, which has representation in Ethiopia, is optimistic that Addis Ababa’s financial sector will soon be freed from the tight grip of the State.
KCB Chief Executive Joshua Oigara said they were excited about joining this vast market, adding that the liberalisation of the mobile market was a catalyst to the opening up of the financial sector,” said Oigara.
This comes at a time when Kenya has unveiled Lamu Port targeting the Southern parts of Ethiopia. The Lamu Port, opened recently by President Uhuru Kenyatta, is supposed to take business from the port of Djibouti.
But Dr Elijah Munyi, an International Relations lecturer at the United States International University-Africa (USIU-Africa), does not think Kenya has an edge on port business as it does with banking. “I am less optimistic about the port,” said Munyi.
Dr Munyi noted that the war in Tigray might also be making Ethiopia vulnerable and maybe using this opportunity to allow multinationals from the neighbouring countries such as Kenya to get their support.
Ethiopia, whose economy has been battered by the war and Covid-19 will need lots of debt from multilateral lenders such as the World Bank and International Monetary Fund (IMF) which might come with conditions for them to open up their economies.
There have been reports that Ethiopia has signalled that Jubilee, East Africa’s largest insurer, will be allowed entry once financial services are opened to foreign companies. “Once the financial sector starts to open, insurance will be the next step,” Jubilee Insurance Chairman Nizar Juma told The Africa Report.
But it will not be that easy for companies to get into Ethiopia. First, although Ethiopia has a large population a big chunk of it still largely poor.
Ethiopia was the first to launch an electric cross-border railway line in Africa, which put its fiscal management under threat with the rating agencies downgrading it. According to the World Bank, Ethiopia’s per capita income of $619 (Sh63,757) is lower than the regional average.
Kenya’s per capita at $1,376 (Sh141,728) is twice bigger than that of Ethiopia. Some of the multinationals getting into Ethiopia will also struggle to convert the huge population into a lucrative market.
There are still restrictions from the government including currency transfer controls.