Why Ethiopia closed the door on foreign mobile money firms

As the world continued to focus on the unfolding impact of Covid-19 on every aspect of our lives, one important story was quietly developing and almost passed by unnoticed. In the end, it could turn out to be the most important story in corporate Kenya this year.

Ethiopia, the second-largest market in Africa, has shut the door to foreign mobile money companies such as Safaricom, which had hoped to introduce mobile money transfer platforms such as M-Pesa.

After nearly two years of advanced talks between the Ethiopian government and foreign mobile operators on potential investments in Ethiopia, what could have triggered such a sudden change of heart, particularly at a time when mobile money has been promoted as a strategy for containing the spread of coronavirus?

This is a difficult question that economists have had to wrestle with and hawk-eyed observers have started peeling back the layers of an onion that has deep roots in political economy.

To answer this question, one must first appreciate Ethiopia’s economic history over the past 30 years. Development has largely been driven by the state, leaving very little room for private sector. It is therefore not surprising that the Ethiopian government would prefer local companies such as Ethio Telecom, which is a government-owned monopoly, to move into mobile money services.

For Ethiopia, the idea of having the critical levers of money circulation being controlled by foreign private companies must have been viewed as a fundamental contradiction of its economic ideology. If anything, the country draws more inspiration from China, which places all monetary functions under the state.

Chinese model

And truth be told, it is a model that has its merits. A case in point is the global financial services industry where 20 years ago, the top eight banks were private American banks - a sharp contrast to today’s lineup where the top three banks are now state-owned Chinese banks led by the Industrial and Commercial Bank of China.

Ethiopia’s admiration of the Chinese growth model is not limited to economic ideology. There is a distinct possibility that the Chinese approach to mobile money could also be replicated in Ethiopia.

More specifically, many observers will pay close attention to the blossoming relationship between Chinese businessman Jack Ma and Ethiopia’s political class. His generous donations to African countries to fight the Covid-19 pandemic were notably channeled and distributed through Ethiopia.

Furthermore, only a few months ago, a memorandum of understanding was witnessed by Ethiopian Prime Minister Abiy Ahmed, Ma and Ant Financial Services chairman Jing Xiandong for the creation of the Electronic World Trade Platform, which aims to position Ethiopia as the gateway for Africa.

At any rate, it must be said that all is not lost regarding the future of M-Pesa in Ethiopia. The government plans to auction two new licences next year, in line with its objectives of liberalising the telecommunications sector.

This could, however, prove to be a risky option because it ties down foreign mobile operators into a lengthy and expensive bidding process which has no guarantees.

It might be more prudent to settle for a stake in the current operator Ethio Telecom which, despite its limitations, provides Safaricom with an opportunity to understand the lay of the land. Pursuing mutually beneficial initiatives might also help cultivate more trust and insight.

The writer is Chief Economist at Mentoria Economics