Telecommunication and Information Technology

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Mobile Money: Mobile money is a significant opportunity in Ethiopia and Tanzania, as both countries struggle with financial inclusion. Tanzania has one of the most developed mobile money infrastructures in the world.  While Ethiopia has a banking rate of only 1%, this number is 62% in Tanzania.

Value Added Services: To spur human capital and economic development, there is a strong opportunity for VAS investment. Learning-based or skill building applications, such as eLearning, eFishing, or eFarming can drive productivity and help move industries up the value chain. There is also an opportunity to spur mobile data usage. Data is very expensive for consumers in Ethiopia and cheap for consumers but unprofitable for mobile network operators in Tanzania.

Infrastructure: In Tanzania, there appears to be willingness for foreign ownership and private capital when the suppliers commit to serving government priorities. In Ethiopia, both Ethio Telecom and MCIT signaled openness to private capital co-investing in fiber infrastructure to increase reliability and reduce internet transit costs. Because Ethiopia is landlocked, it is entirely reliant on suppliers in Sudan, Kenya, and Djibouti for connection to the global internet through undersea fiber optic cables. Ethio Telecom currently purchases capacity from the owners and/or operators of through-fiber in neighboring countries, but could secure better internet transit rates if it owned and/or operated through-fiber and direct access to landing stations in neighboring nations.

 

Challenges

Political/Regulatory Environment: In both Ethiopia and Tanzania, the political and regulatory environments present significant challenges to operators and investors. The licensing process in both countries is lengthy, taking up to several years and requiring significant patience and a willingness to navigate intense bureaucracy.

Sparseness of Population: Approximately 80% of the populations of both Ethiopia and Tanzania are rural and spread across huge geographies, making it difficult to achieve economies of scale. Although Ethio Telecom and UCSAF in Tanzania have addressed voice coverage issues for rural populations, mobile usage rates in rural areas are still low. Usage levels are hindered by the costs of getting phones and services, a lack of services specific to rural users, a lack of technology literacy, and access to electricity to charge phones. Power reliability is an issue that also impacts businesses. Power transmission and distribution improvements are underway and companies are building off-line capabilities to mitigate outages.

Agent Management: In Tanzania, mobile money agent management has two main challenges: liquidity and traceability.  Due to the presence of multiple scaled mobile money platforms, the vast majority of agents are not exclusive. Given that most agents are budget constrained, serving multiple operators forces agents to partition their electronic inventory of capital across multiple mobile money platforms.  Currently, agents must maintain liquidity for each provider that they represent, as they cannot easily shift cash between providers. Liquidity issues can drive stock-outs of funds for certain providers and other customer service related issues.  Traceability presents an issue as there are limited electronic records of transactions. Agents record transactions in log books, typically by hand, but there are minimal ID checks and enforcement of rules and regulations. Operations and security concerns need to be addressed.

Opportunities

Reinvest Profits: Leaders in the Ministry of Communication and Information Technology (MCIT) and Ethio Telecom have stated on many occasions that one of their reasons for not privatizing the telecom sector in Ethiopia is to realize the profits from telecom and invest those profits into other development projects.

Value-Added Services: As the Ethiopian government tightly controls development of telecom infrastructure and providing telecom service to users, value-added services are the only way for private finance to engage in the telecom sector. Firms like BelCash and Kifiya have identified business opportunities that deploy the publicly built and operated mobile telecom infrastructure to provide desirable services for individuals and businesses.

Utilize relationships within porous bureaucracies to define regulations. Across both countries, successful private operators have adapted their business styles to local government contexts. In Ethiopia, the presence of a state-owned monopoly and closed telecoms sector has created an ‘umbrella’ strategy: entrepreneurs spend years building personal contacts within ministries and then use single licenses obtained through these contacts to branch into multiple service sectors. In contrast, Tanzanian private operators have taken advantage of government sluggishness to advantageously define the mobile money space as they simultaneously build rural telecommunications infrastructure with the support of the federal government.

Moving up the ICT value chain allows for innovation in other sectors as well as better business opportunities.  While the market for building core ICT infrastructure is not attractive in either country, there is ample opportunity to move up the ICT value chain to work on cross-sector challenges with clear business returns. Especially in Tanzania, there are many business opportunities to engage private capital to build services that improve other aspects of local infrastructure.

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