Ethiopia has taken a significant step in its ongoing economic reform efforts with the launch of the partial privatization of Ethio Telecom, the country’s 130-year-old state-owned telecom operator. On October 16, 2024, Prime Minister Abiy Ahmed announced the sale of 10% of Ethio Telecom’s shares to the public, marking an important move toward modernizing the country’s economy and establishing a foundation for Ethiopia’s stock market.

This is part of a broader strategy by Ethiopia’s government to open up key sectors to private and foreign investments, and to reduce the role of state-controlled enterprises in the economy. Ethio Telecom’s partial privatization is a critical component of this strategy.

The Significance of Ethio Telecom’s Partial Privatization

1. Pioneering Ethiopia’s Stock Market
   Ethio Telecom’s sale of 10% of its shares to Ethiopian nationals is particularly significant because it sets the groundwork for Ethiopia’s long-anticipated stock market. Ethiopia remains one of the few African countries without a stock exchange, despite being the second-most populous nation on the continent. This offering is expected to be a stepping stone toward the establishment of a functioning capital market that would allow companies to raise capital by issuing shares to the public. It also opens a pathway for the government to potentially privatize other state-owned enterprises in the future.
2. History of Delays
   The partial privatization of Ethio Telecom has been in the works since Prime Minister Abiy Ahmed introduced economic reforms after taking office in 2018. However, progress has been slow due to various challenges. In June 2021, Ethiopia officially launched the process, intending to sell a 45% stake in the company. Yet, by March 2022, the process was paused due to economic uncertainties exacerbated by conflict, the COVID-19 pandemic, and other factors. The resumption of this process in late 2022, leading to the recent sale, reflects a renewed commitment by the government to continue with its economic reform agenda.
3. A Gateway for Public Ownership
   Prime Minister Abiy emphasized that this move will expand “access to ownership in one of the nation’s leading state-owned enterprises.” By offering 10% of shares to Ethiopian nationals, the government is enabling the public to directly invest in and benefit from the growth of one of the country’s most vital companies. Ethio Telecom has long been a key player in Ethiopia’s economy, providing telecommunications services to millions of people. The opportunity for citizens to own a stake in the company could foster a greater sense of public participation in the economy.

Ethio Telecom: An Overview

1. Legacy and Role in Ethiopia’s Economy
   Ethio Telecom is one of the oldest and largest telecommunications companies in Africa. It was established in 1894, and for decades, it operated as a government monopoly. With over 70 million mobile subscribers and millions of internet users, Ethio Telecom plays a central role in Ethiopia’s connectivity and digital infrastructure. Its services include mobile telephony, broadband, and fixed-line connections, which are crucial for driving economic activities in various sectors such as agriculture, manufacturing, and services.
2. Technological and Service Expansion
   In recent years, Ethio Telecom has made significant investments to expand its infrastructure and improve service quality. The company rolled out 4G services in major cities and has been exploring the deployment of 5G technology to cater to Ethiopia’s growing demand for faster and more reliable internet services. This expansion is crucial as Ethiopia increasingly adopts digital solutions, including mobile banking, e-commerce, and e-government platforms, which are expected to boost economic growth and productivity.
3. Challenges and Competition
   Despite its strong market presence, Ethio Telecom has faced challenges, particularly since the government issued a second mobile telecommunications license to Kenyan operator Safaricom in 2021. Safaricom’s entry into the market marked the end of Ethio Telecom’s monopoly, introducing competition that is expected to drive improvements in service quality and innovation. Safaricom has rapidly expanded its services in Ethiopia, leveraging its experience in the mobile money sector to introduce products such as M-Pesa, which could reshape the country’s financial landscape.

Ethiopia’s Economic Landscape

1. Economic Reforms Under Prime Minister Abiy Ahmed
   Since coming to power in 2018, Abiy Ahmed has embarked on a series of economic reforms aimed at transforming Ethiopia’s largely state-controlled economy into one that is more open to private and foreign investment. Key components of this reform package include the liberalization of critical sectors such as telecommunications, energy, and aviation, as well as the privatization of state-owned enterprises like Ethio Telecom.

Abiy’s reform agenda is intended to create jobs, attract foreign investment, and foster sustainable economic growth. While these reforms have faced delays due to internal conflicts, the COVID-19 pandemic, and global economic headwinds, the government remains committed to pushing forward with its plans.

2. The Impact of Conflict and Economic Challenges
   Ethiopia’s economy has been battered by several crises in recent years. A two-year war in the northern Tigray region, which ended with a peace agreement in late 2022, severely disrupted economic activities, particularly in agriculture, which is the backbone of the country’s economy. Additionally, Ethiopia has faced a range of other challenges, including the COVID-19 pandemic, climate shocks such as droughts and floods, and inflation, which remains at around 20%.

The country also has an external debt burden of approximately $28 billion, which has further complicated efforts to revive the economy. Despite these challenges, Prime Minister Abiy reported in July 2024 that Ethiopia had achieved an average GDP growth rate of 7.1% from 2019 to 2023, demonstrating the resilience of the economy in the face of adversity.

3. Humanitarian and Social Issues
   Beyond the economic challenges, Ethiopia continues to grapple with significant humanitarian issues. According to the United Nations, more than 21 million people, or about 18% of the population, rely on humanitarian aid. The impact of conflict, particularly in Tigray, as well as climate-related disasters, has left millions vulnerable to food insecurity and displacement.

The government’s focus on privatization and economic liberalization, including the sale of Ethio Telecom shares, is seen as part of a broader effort to stabilize the economy and create opportunities for investment, job creation, and improved living conditions for Ethiopia’s population.

Future Prospects for Ethiopia’s Telecom Sector

1. Potential for Further Privatization
   The sale of 10% of Ethio Telecom’s shares is likely to be just the beginning. Ethiopia’s government has indicated that it may eventually sell up to 45% of the company to private investors. This could include foreign investors, which would inject much-needed capital into the telecom sector and accelerate infrastructure development. The involvement of international telecommunications companies could also bring technological expertise and innovation, further improving the quality of services in Ethiopia.
2. Growth of the Digital Economy
   The liberalization of Ethiopia’s telecom sector, coupled with the entry of private players like Safaricom, is expected to fuel the growth of the country’s digital economy. With improved access to mobile and internet services, Ethiopia’s population will have greater access to digital platforms for financial services, education, healthcare, and e-commerce. This digital transformation could have a profound impact on economic growth, reducing poverty, and creating new opportunities for entrepreneurship and innovation.
3. Regional and Global Implications
   Ethiopia’s telecom sector is not only vital for its domestic economy but also for its regional standing. As Africa’s second-most populous country, Ethiopia is a key player in the continent’s economic and political landscape. The success of its economic reforms, including the partial privatization of Ethio Telecom, could set an example for other African nations seeking to modernize their economies and attract foreign investment. Moreover, Ethiopia’s growing digital economy could create opportunities for cross-border trade and investment, further integrating the country into the global economy.

Conclusion

The partial privatization of Ethio Telecom is a historic moment for Ethiopia as it embarks on a path toward economic modernization and liberalization. While challenges remain, including economic instability, conflict, and humanitarian crises, the sale of Ethio Telecom shares represents a positive step forward in the government’s reform agenda. As Ethiopia opens up its economy and embraces new opportunities in the digital age, the telecom sector will play a crucial role in driving growth, innovation, and improved livelihoods for millions of people.

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Photo source: Google

By: Montel Kamau

Serrari Financial Analyst

17th October, 2024