Ethiopia, one of Africa’s most populous countries, is expected to become the next big frontier for investments in financial technology (finetch).
The likes of Vodacom have already begun to plough their capital into the Horn of Africa nation and reap from the growing market.
Fintech continues to be one of the big areas of innovation and technology investment in Africa. Most of that success has, however, come from the continent’s three biggest start-up markets or tech hubs: SA, Kenya, and Nigeria.
Ethiopia has evolved into a technology investment destination to become a big hub, in addition to countries such as Egypt. As with Nigeria, the main attraction is the country’s large population size.
The nation is home to more than 120-million people, making it the second most populous country in Africa. The country also has a large number of unbanked people, presenting opportunities for fintech players.
“The country has many of the right ingredients to become Africa’s next big fintech giant,” says Yohannes Tsehai, country manager at Onafriq Ethiopia.
“At the same time, the country continues to experience high economic growth and rapidly increasing connectivity levels.”
Formerly known as MFS Africa, Onafriq is Africa’s largest digital payments network. The firm connects more than 500-million mobile money wallets and 200-million bank accounts through a network spanning 40 African markets.
The network pushes domestic and cross-border disbursements and collections, card issuing and processing, agency banking and treasury services.
Tsehai argues that the opening up of the country’s telecom sector beyond state-run Ethio Telecom will be a big driver for fintech growth in Ethiopia.
In late 2022, Vodacom started operating in Ethiopia through its Kenyan affiliate Safaricom as part of a wider effort to reduce its reliance on SA, which traditionally generates more than half of its total service revenue.
A big part of this plan is using financial services to boost revenues.
“Our recently launched Ethiopian business, Safaricom Ethiopia, has made good progress since its commercial launch in October 2022, already reaching 4.1-million customers. More recently we launched M-Pesa, which will no doubt be a game-changer in boosting financial inclusion and economic growth in Africa’s second-most populous country,” the company said as it reported interim earnings in November.
M-Pesa has 1.2-million customers in the country.
“Over time, those numbers will continue to grow. And while the bidding process for a third telco licence has had to be put on ice for the moment, Ethiopia’s strong economic growth means that it’s only a matter of time before one is granted,” said Tsehai.
MTN had been in contention for a licence but after losing out to Safaricom, it chose not to compete for the other licence, citing the difficulty of playing catch-up as the No 3 player in the country.
With 75% of the country’s population reportedly unbanked, Tsehai says “increasing connectivity levels is one of the most powerful ways of giving people access to financial products, both from telcos and third parties”, as demonstrated by Ethio Telecom’s mobile money app Telebirr, which has 39.3-million customers.
At national level, the country aims to increase financial inclusion from 46% to 70% of all adults by 2025, with plans to do so by scaling digital payments through mobile money services. It aims to increase the use of digital payments from 20% of all adults in 2020 to 49% by 2025.
According to global telecom body GSMA, mobile money services “could lift 700,000 people out of poverty, add $5.3bn to Ethiopia’s GDP, increase tax revenue by $300m and provide a cushion for the economic shocks experienced by almost 40% of Ethiopian households”.
Outside financial services, Ethiopia has been lauded for its efforts in healthcare.
Ethiopia’s ministry of health has partnered with its national identity programme to integrate the Fayda digital ID with its healthcare sector.
“This will serve as a patient registry while supporting national health insurance schemes, employee and professional licensing, and the sharing of health records,” says Lance Fanaroff, chief strategy officer at iiDENTIFii, a Cape Town based digital identity company.
While prospects for technology investment look attractive, the country is not without its shortcomings, particularly around its macroeconomic picture.
Jacques Nel, head of macro at Oxford Economics Africa, says “Ethiopia has started 2024 steeped in controversy”.
He points out that the East African nation was unable to honour a Eurobond coupon payment and has now joined Zambia and Ghana in the club of African debt defaulters. Ethiopian authorities are in for a protracted period of challenging negotiations, with a deadline at the end of the first quarter looming.
Meanwhile, the Ethiopian government has signed a memorandum of understanding with the government of Somaliland, an autonomous region of Somalia, to lease land adjacent to the Berbera port.
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