Why Safaricom’s Ethiopia telco bid must be ideal for investors
Steve Umidha @UmidhaSteve
Safaricom risks “betraying” its investors if the deal on Ethiopian bid goes south, experts following developments in the transaction now say.
The telco is on the verge of sealing a multi-billion dollar contract in an intricate deal that could see the operator’s regional dominance outside Kenya soar beyond the East Africa Community (EAC) market where it has enjoyed steady growth in the last decade.
An economist at the University of Nairobi (UoN) Samuel Nyandemo, although the transaction offers an ideal “early Christmas” for its shareholders it also has risks.
“It would all come crumbling down if the deal eats into Safaricom’s profits in the short to long term, but otherwise I think it will be another success story for them,” he opined.
Michael Mburugu, an economic expert and a tax partner at PKF, a regional body for accountants and business advisers termed the new deal a safe risk for Safaricom if they have to go out to grow as they have the capital for it.
“Ethiopia is a big market and I believe they have a chance even though it may take them time to break-even in the initial stages of infrastructure deployment,” he said.
Safaricom, Mburugu added will aim to ride on its Kenyan success story to grow its presence in Ethiopia – a market where penetrations particularly in the telecommunications space are known to be multifarious.
“Of cause they have the backing of their investors but they have to get it right, I do not see why that can be a problem bearing in mind the kind of machinery and economic advisors it has in its disposal,” he said during a telephone interview.
Mburugu noted that the advisors must have done their groundwork and are certain it is the right investment route.
Safaricom yesterday increased its chances of clinching the deal, ahead of a formal announcement by the Ethiopian government after it raised its controlling stake in Global Partnership for Ethiopia to 56 per cent from the 51 per cent, a clear indication it was a “done deal”.
The revised ownership structure was made public by South Africa-based Vodacom Group which has a 34.9 per cent stake in Safaricom.
“The consortium is 56 per cent owned by Safaricom, six per cent by Vodacom, 25 per cent by Sumitomo, the Japanese conglomerate and 10 per cent by CDC, UK sovereign investment fund,” Vodacom’s chief executive Shameel Joosub was quoted as saying at an investor briefing on Tuesday.
Safaricom had in April this year made a formal bid to get a licence to operate in Ethiopia — which remains one of the world’s last major closed telecoms markets today.
The Ethiopian government is expected to assess the bids within a one-month window and announce the successful firms before the end of May.
The request for proposal for the two new licences was launched on November 27 last year and some 12 firms including Safaricom expressed interest.
The licences will pave the way to open up Ethiopia’s telecoms industry, which is considered the big prize in the country’s push to liberalise its economy with over 100 million population.
The liberalisation will also involve the sale of a 45 per cent stake in Ethio Telecom, which has said it also plans to launch mobile money transfer services.
Besides Safaricom, Ethiopia received a licence bid from a consortium including Vodafone Group, Vodacom Group as well as MTN Group, Africa’s largest wireless carrier, and China’s Silk Road Fund.