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World Bank suggests gov’t stop preferential treatment to ethio-telecom

Post Date: Monday, February 17, 2020

The World Bank recommended the Ethiopian government stop offering preferential treatment to ethio-telecom, downplaying attempts to preserve the status quo of the state dominated sector.

Expressing its displeasure towards the measure by the government of Ethiopia to ban foreign companies from being involved in digital banking services, the Bank warned that such a measure may slow down innovation and investment in the market, and may actually hinder ethio-telecom’s own ambitions to attract a strategic investment partner from abroad.

In a blog published on February 11, 2021, Country Director of the Bank, Ousmane Dione highlighted the process of opening the telecom market has rarely proven to be a smooth process, since there are vested interests that may prefer to preserve the status quo.

“A better strategy would be to encourage ethio-telecom to compete on equal terms with the new market entrants in providing mobile money services, without ownership restrictions,” he said.

ethio-telecom is currently under preparation to launch mobile banking services throughout the country, after getting the green light from National Bank of Ethiopia and the amendment of its establishment proclamation, which has increased its paid-up capital by ten folds to 400 billion Birr.

Commercial banks have been expressing their concerns over the joining of the telecom giant in the provision of digital banking services, citing its monopoly on telecom infrastructures, although it was later rejected by the government.

By the same token, the NBE directive which bans foreign companies from investing in digital banking services has disappointed telecom service providers that showed interest to acquire a license in the country.

The plan of Safaricom, a Kenyan telecom company known for its mobile money platform M-PESA, was jeopardized after the effectiveness of the directive, which the World Bank opposes.

“To benefit fully from competition does not mean offering preferential treatment to ethio-telecom but rather creating a level playing field on which it can compete fairly with its new rivals,” said Dione.

The Ministry of Finance and Ethiopian Communications Authority repeatedly said that they have no mandate over digital banking services, while explaining the position of the government.

“It should be understood that we are liberalizing the telecom sector, not the financial sector that is close to foreign competition,” said Brook Taye, a Senior Advisor to Ministry of Finance, in an interview with The Reporter last month. 

Nonetheless, for Dione, it will be ethio-telecom that has the most to gain from the expansion of the digital economy, while also being at risk from losing its market share if it fails to compete effectively.

Furthermore, he opposed the direction taken by the government in limiting investment by independent cell tower companies, obliging new entrants to use the infrastructure provided by ethio-telecom, a decision which he thinks may slow down network roll out, particularly in rural areas.

“Ultimately, policies that seek to protect ethio-Telecom’s infrastructure by allowing it to charge high prices for interconnection will end up harming the company,” he said, adding, “ethio-telecom has the potential to become a regional powerhouse, but only if it is well-prepared for the competitive environment.”

By the end of last year, ethio-telecom announced its potential to earn USD 1.6–1.8 billion annually from the lease of telecom infrastructure.

Earlier last month, the telecom giant called on interested telecom providers willing to share its infrastructure, including the 7,300 towers, 21,327 km fiber network and 4,000km metro fibers in the cities.