Ethiopia is one of the last "frontier markets" with a population of over 120 million people making it a rare market opportunity for strategic investors with long term plans. Despite recent economic and political challenges, Ethiopia's economy had fared above regional average over the years.
Since 2019, Ethiopia has seen trends in market opening and sector liberalization in key sectors, including telecom, digital financial services, capital markets, and public private partnerships (PPP). The following are some of the major opportunities for investors looking to have a first-mover advantage in new markets.
Telecommunications Service: Following the liberalization of the telecom sector through Communications Service Proclamation No. 1148/2019, Safaricom Telecommunications Ethiopia Plc (a Vodafone consortium) secured the first private unified telecommunications license by paying a bid price of USD 850 Million in 2021. The government also has plans to issue yet another unified telecom license. Further, the Ethiopian government plans to partially privatize Ethio telecom, the incumbent telecom service provider for the past 130 years. Foreign telecom operators seeking to gain foothold in Ethiopia's telecommunications market have opportunities to pursue a unified telecommunications license or to consider share acquisition in the state-owned Ethio telecom through privatization.
Digital Financial Services: With the opening of the digital financial services sector to foreign investors following the promulgation of the National Payment System (Amendment) Proclamation No. 1282/2023 (Payment Proclamation), Safaricom M-Pesa Mobile Financial Services Plc, a subsidiary of Safaricom Telecommunications Ethiopia Plc, became the first foreign investor to obtain payment instrument issuers license. To obtain the license, Safaricom M-Pesa Mobile Financial Services Plc paid USD 150 million as a license fee. The payment system operator's business sector has also been opened to foreign investors, and major multinational payment system operators are expected to engage in the sector. The digital financial service liberalization is also anticipated to expand the market opportunity for value added services and innovative technology solution providers.
Capital Markets: With the enactment of the Capital Market Proclamation No. 1248/2021, the Ethiopian Capital Market Authority was established. The Ethiopian Securities Exchange has also been established as a share company in October 2023. Based on the Capital Market Service Providers Licensing and Supervision Directive No. 980/2024, multiple capital market service licenses, including credit rating and investment banking, are now open for foreign investors. Given that major government enterprises, including Ethio telecom, and private companies are showing interest in listing on Ethiopian Securities Exchange, it is expected that sizeable opportunities are in the pipeline for service providers, lawyers, and financial advisers.
Joint Venture with the Ethiopian Investment Holdings (EIH): EIH is an investment arm of the Ethiopian government that has major government-owned enterprises such as Ethio telecom, Ethiopian Airlines, Commercial Bank of Ethiopia, and others under its portfolio (worth over USD 40 billion (source: eih.et)). EIH is partnering with private sector investors to jointly invest across various sectors, including printing, transportation and logistics, power, hospitality and beyond. EIH has so far partnered with Toppan in securities printing, signed a joint development agreement with Masdar and an MoU with 4th Resource Corp in renewable energy, among others.
Public Private Partnership (PPP): PPP has long remained an untapped opportunity to attract foreign capital for various infrastructure and public utility projects. Despite repeated efforts, the bankability of PPP projects in Ethiopia has been challenging. However, recent regulatory concessions that allow opening of offshore accounts, currency convertibility guarantee, and debt to equity ratio of 80:20 for PPP and other strategic projects are expected to address longstanding project bankability concerns raised by investors seeking to engage in PPP projects.
Banking Business: As part of the liberalization of the financial services sector, the Ethiopian government is working on opening the banking business to foreign investors. The National Bank of Ethiopia (NBE) is reportedly preparing draft legislations to regulate the entry and operation of foreign banks. It is expected that the NBE will start issuing banking business licenses to foreign banks/investors once the draft legislations are promulgated into law in 2024.
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