In October 2022, Safaricom entered a new market: Ethiopia. When it did, the public consensus was that it would quickly shake up the house and, in no time, become a household name. Ethiopia is an over 119-million-people neighbour to Kenya —Safaricom’s biggest market— and has a vastly underserved market. Only 35 per cent of the adult population has a bank account, and cash is still king in the country.

So far, its journey has been impressive. As of August, it had signed up five million customers. The company also plans to double that number by March 2024. However, this feat will only happen if it can overcome its recent spate of challenges.

The first major challenge was the exit of its CEO, Anwar Soussa, in July. Soussa pioneered the launch of Safaricom and M-Pesa in Ethiopia. But he left less than a year after they started commercial operations. His replacement, former MTN Uganda CEO Wim Vanhelleputte, took over on September 1st.

Safaricom entered Ethiopia to rival Ethio-Telecom and end its decades-long monopoly. But catching up with them won’t be easy. Ethio-Telecom has 72 million subscribers. And because Safaricom spent time pitching regulators for a local license for M-Pesa (for which it spent $150 million), Ethio-Telecom’s Telebirr service has a two-year headstart.

That’s why Safaricom took the capital-heavy approach, spending nearly $400 million (55.6 billion Kenyan shillings) as of March 2023. It plans to spend another $300 million by March next year. But the market has been stiffer than expected. Ethiopia’s two largest regions have been the toughest to crack.

In the first week of August, Ethiopia’s federal government declared a six-month state of emergency in Amhara, the second-largest region. The reason was a crisis between the military and the Fano militia, a part-time militia with no formal command structure. As a result, Safaricom had to shut down operations in Amhara.

In the same month, Safaricom started dealing with a boycott campaign in Ethiopia’s largest region, Oromia. The campaign themed #BoycottSafaricomEthiopia is a protest movement by activists who consider Safaricom’s hiring practices unfair. They also have a grudge against the company’s non-usage of the local Afaan Oromo language in its operations in the region.

More so, Safaricom faces the tedious task of finding profit in a hyperinflated market. Annual inflation is running at more than 30 per cent in Ethiopia, squeezing consumers’ much-needed disposable income. This inflation risk also affects investors, whose potential profits could lose value on a whim.

Investors have not been bullish on Safaricom’s moves this year, as the company’s stocks have tanked by more than one-third. And it’s not hard to imagine why. When the mobile network operator released its FY23 results, covering the period between March 2022 and March 2023, it showed that its market entry into Ethiopia had yielded mixed results. While its revenue saw an increase of 4.3 per cent, its Ethiopian operations affected profitability, thanks to the costs associated with the market expansion.

According to the results, Safaricom’s profits after income tax were down by -13.6 per cent, with the group’s capital expenditure for the year surging by over 93 per cent. The company’s Ethiopian operating costs stood at almost 20 billion Kenyan shillings (~$146 million), which represents over 27 per cent of the group’s overall operating costs.

“The big issue with Safaricom, if you look at the earnings and the share price, is Ethiopia. This is really the big risk for Safaricom,” said Michael Joseph, Safaricom’s founding CEO and current chairman of Safaricom Ethiopia, in an interview with Business Daily last month.

It hasn’t been a dream start. But Safaricom will likely play the long game in Ethiopia. The race to become the next telecoms and mobile money giant won’t be a walk in the park. Meanwhile, its main competitor isn’t slowing down, as it recently launched commercial 5G operations.

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