In Ethiopia, there is only one telecommunication company, called Ethio Telecom, although plans have been on since October last year to allow private companies to take part in the market. While Ethio Telecom is waiting for that to happen, it is adding banking via mobile money to its range of offers. After series of negotiations and deliberations, the National Bank of Ethiopia (NBE) has finally granted a license to the company to start mobile money service in the east African country. 

Late To East Africa’s Booming Mobile Money Market?

Despite being the second most populous country in Africa with a population of more than 109 million, only about 33.86% of Ethiopian adults has formal accounts at financial institutions in Ethiopia, compared to the neighboring Kenya with over 82%.

The country has also been largely left out of the booming mobile money market across the East African region. As of 2019, the total value of mobile money transactions reached $17 billion in Kenya, $12 billion in Tanzania and $5.9 billion in Uganda. Even war-torn Somalia, with a meagre population of 15 million, about seven times smaller than Ethiopia’s, recorded approximately 155 million mobile money transactions, worth $2.7 billion, every month in 2018. 

In 2019, the Global System for Mobile Communications (GSMA) declared East Africa number 1 in the world in terms of transaction volume and value of mobile money. With more than 102 million active accounts, generating more than 17.1 billion transactions — an unmatched $293.4 billion in value and a 24% increase from 2018 — the region is the highest of any other sub-regions in the world. Sadly, none of these figures included Ethiopia.

It is therefore little wonder that a 2018 report by the GSMA described Nigeria, Ethiopia and Egypt, home to a combined adult population of over 242 million, as Africa’s mobile money sleeping giants. 

Ethiopia’s low rate of mobile money usage could be attributed to the rigid regulatory walls that have ensured monopoly and lack of innovation. Telecommunication, aided by enabling legislations, has particularly driven the widespread adoption of the relatively new financial service type across Africa. 

Safaricom’s M-Pesa, recently acquired by Vodacom, accounted for 655.95 million out of the 810.9 million mobile money transactions recorded in Kenya in the third quarter of 2019 alone. In Uganda, MTN enjoys over half the market share for mobile money.

“The reasons for this vary,” notes GSMA in its report about why Nigeria, Egypt and Ethiopia remain the continent’s sleeping giants when it comes to mobile money usage in Africa. “…In Ethiopia, a strictly regulated telco, restrictions on competition, lack of internet connectivity, and low levels of consumer trust and financial literacy have created barriers to uptake and market entry.”

Finally Loosening The Regulatory Barriers And Joining The League

In April 2020, the National Bank of Ethiopia issued a regulation called Licensing & Authorization of Payment Instrument Issuers. For the first time in Ethiopia’s history, the regulatory regime will allow mobile money transactions. However, there is a caveat: any company interested in the new financial service regime must set up a trust account with a deposit money bank in Ethiopia. 

“As part of the application process,” the directive read, in parts, “the National Bank, may request for a preliminary meeting and demonstration of the intended payment instrument to be issued, its related services, products as well as operation. Based on requests made and written approval of the National Bank, a payment instrument issuer may be allowed to provide cash-in and cash-out; local money transfers including domestic remittances, load to card or bank account, transfer to card or bank account; domestic payments including purchase from physical merchants, bill payments; over-the-counter transactions; and inward international remittances services.”

The regulation has also opened up the country’s financial services sector to include that a licensed payment instrument issuer may, with the relevant agreement with regulated financial institutions and pension funds, be allowed to provide micro-saving products; micro-credit products; micro-insurance products; or pension products in the country. 

In any case, banking, insurance, brokerage services, and legal consultancy still remain off limits for foreign investors, according to a new set of investment rules published on the Ethiopian Investment Commission’s website. 

The implication of this is that the two telcos to be selected from the ongoing licensing process in Ethiopia —two out of either Etisalat, Axian, MTN, Orange, Saudi Telecom Company, Telkom SA, Liquid Telecom, Snail Mobile, and Global Partnership for Ethiopia, a consortium of telecom operatorscomprising Vodafone, Vodacom, and Safaricom — will not be allowed to engage in mobile money services.

“When the telecom sector is liberalised,” said CEO of Ethio Telecom, Frehiwot Tamiru, at a consultative meeting Ethio Telecom held with IT and startup companies on the on-going national telecom reform program, “there are guiding policies and directives. We are not opening up completely.”

Like in Nigeria, mobile money operations in Ethiopia will solely be regulated by the National Bank of Ethiopia and not the Ethiopian Communication Authority (ECA), even though telcos may be involved. 

“Mobile money service involves two sectors — both the telecom and banking sector,” argued Balcha Reba (Eng.) director general of the Ethiopian Communication Authority. “Since it is a financial service it has to be regulated by the NBE. But, it also involves the telecom sector. Companies would provide the service using the telecom infrastructure; so ECA should also look at the telecom side. So ECA, NBE and Ethio telecom have to discuss the matter.” 

And since the matter is yet to be discussed, the NBE remains the sole regulatory authority for mobile money operations in Ethiopia. 

The Ethiopian Ministry of Finance (MoF) is also in the process of partially privatising Ethio telecom. To that effect, the ministry has engaged Deloitte Consulting as its transaction advisor to source a strategic partner that would acquire 40 percent stake in Ethio Telecom. However, it is not yet clear if the international firm that would acquire stake in Ethio Telecom would indirectly be permitted to engage in mobile money business. 

Charles Rapulu Udoh

Charles Rapulu Udoh is a Lagos-based lawyer who has advised startups across Africa on issues such as startup funding (Venture Capital, Debt financing, private equity, angel investing etc), taxation, strategies, etc. He also has special focus on the protection of business or brands’ intellectual property rights ( such as trademark, patent or design) across Africa and other foreign jurisdictions.
He is well versed on issues of ESG (sustainability), media and entertainment law, corporate finance and governance.
He is also an award-winning writer