Telecom Privatization, Liberalization Should Give Priority to Domestic Investors

Ethiopia is currently undertaking a partial privatization of ethio telecom. The plan of the government is to maintain 55Pct of the stake while selling 40Pct of the company to a global telecom operator. It aims to sell the remaining 5Pct to the general public. The government has also expressed its intention to license two private telecom operators. Accordingly, 12 foreign multinational telecom operators have expressed interest for both opportunities.While the decision to create a competitive telecom market is very timely and its positive spillover effect will boost businesses, create market efficiency, streamline government services and empower citizens by improving access to information, the fact that the process has sidelined domestic investors is worrisome.

Ethiopia has one of the least telecom penetrations in the world. Even in comparison with its sub-Saharan peers, the country lags far behind in mobile subscribers and internet penetration. The country is also among many in the continent where telecom service is both unreliable and fairly not affordable to the vast majority of the population.

In fact, this has been one of the several factors that have dragged the country’s competitiveness in the eyes of investors. Many attribute the low service quality and the relative high cost of telecom service to the 124 years old monopoly by a state-owned and state-run telecom service provider. The sheer absence of competition in the sector has indeed led to late acquisition of technologies and also very bureaucratic and expensive service provision. That’s why the decision by the government to open up the sector and even partially privatize the age-old ethio telecom was taken very positively.

However, the fact that the privatization process has sidelined domestic private investors poses an alarm. It’s true that there is no domestic company with the experience, technological, managerial and financial readiness to enter the telecom market at the moment. This is because the sector has been closed for private operators. However, if the government had expressed its intention of providing license to domestic operators, we could have seen local entrepreneurs taking advantage of the situation and rushing to form telecom companies, raise capital and acquire license as the telecom sector is very profitable. However, they need to operate under the protection of the government from large, highly capitalized and experienced multinational telecom operators until such time that they have built capacity. The government should have waited until its regulatory capacity is built. Had the government promised to close the market from foreign competition for some years, we would have witnessed the flourishing of multiple domestic telecom operators.

26 years ago, the government did the same with the partial liberalization of the financial sector. It allowed domestic investment in the sector in 1994. 25 years later, Ethiopia has 17 private banks, 17 insurance companies and hundreds of microfinance institutions. To date, the banks have a combined capital of over 40 billion birr and have created employment opportunities for over 50 thousand Ethiopians. The private banks have also opened more than 3,000 branches throughout the country, twice the number of branches the 78 years old state-owned Commercial Bank of Ethiopia has opened. The top three private banks have also been ranked among 100 top banks in Africa. What’s more, 18 new commercial, mortgage and investment banks are under formation, taking the total capital of the private banks to over seventy billion birr.

The country should be proud of its success of creating fast growing financial companies. The same should be repeated in the telecom sector. EBR

9th Year • July 1 – July 15 2020 • No. 88

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