By JULIUS BARIGABA

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After losing out to the Safaricom-led consortium in the race for a telecom licence in Ethiopia in May, MTN now says it will not make a second bid to expand into the region via the reissued licence that comes with mobile money.

The telecom giant is cautious about the investment risk that Ethiopia currently poses, which company executives say outweighs the benefits.

“Our April bid for a new telecom licence in Ethiopia was unsuccessful. Our bid took into account the licence conditions as well as related uncertainties. We had also adopted a partnership approach to ensure that funding and risk was diversified. While disappointing, we are comfortable that our approach was guided by disciplined strategic and capital allocation frameworks,” MTN said while announcing its results last week on Thursday.

“We thank the Ethiopian government for the opportunity to have been part of the previous process. We also thank the partners we had in our unsuccessful licence bid,” the telco said.

The ongoing conflict in the north of the country, which saw the US in May slap visa restrictions on government officials, as well as tensions between Ethiopia and its Nile Basin partner states Sudan and Egypt over the filling of the giant Renaissance dam are top of the risk factors that make the deal unfavourable.

Sources said an escalation of the Tigray conflict could trigger full-scale US sanctions against Ethiopia, as was the case with Iran, where MTN operates and is poised to exit.

According to US Secretary of State Antony Blinken, the punitive measures target current and former government officials, members of the security forces, and members of the Tigray People's Liberation Front (TPLF). He also announced cuts in economic and security aid to Ethiopia.

Rating companies Fitch Solutions and Coface have flagged these factors as potential sources of concern for investors in Ethiopia, despite a reassuring landslide election victory for the ruling Prosperity Party in June this year.

“The ongoing insecurity in the Tigray region will remain a key source of instability, while rising tensions with Sudan and Egypt pose additional risks,” said a Fitch rating note dated July 12.

It adds that the re-election of Prime Minister Abiy Ahmed is unlikely to give him the legitimacy he needs to restore peace in a highly divided country, and that social unrest and ethnic violence will persist in the coming quarters.

MTN insiders say that “barring a last-minute U-turn,” the position is to discontinue interest, because the telco “has first-hand experience of operating in conflict-ridden markets” and is “well aware of the operational costs and risk of investing in a country that is fraught with unrest”.

The telecom giant has had operations in war-torn Afghanistan, Syria and Yemen, as well as Iran, which is under US sanctions, and the company announced in August 2020 that it will exit all these markets in the medium term, to focus on a pan-African growth strategy.

In Ethiopia, the telecom giant is wary of bidding for the licence and then sink millions of dollars in telecom infrastructure that carries a risk of being damaged.

In Yemen, the total wartime losses of the telecommunications sector as of March 2020 was estimated at $4.1 billion due to damage or destruction of telecom infrastructure, according to a Sana’a Centre for Strategic Studies report, titled 'Impacts of the War on the Telecommunications Sector in Yemen,' published in January this year.

Bloomberg recently reported that MTN’s assessment for telecom infrastructure in Ethiopia is about 8,000 new mobile towers to expand services around the country, but the likelihood of damage is high, requiring further investment, hence its reason to drop its bid. This, however, is a reversal from the telco’s position just after the first bid winners were declared a little over two months ago, when it was eager for the reissued licence that would come with a mobile money services option — a cash cow for the industry.

On May 28, MTN Group chief executive officer Ralph Mupita told shareholders during a virtual address that the company’s executives would consider putting in a bid if the Ethiopian government reissued the licence.

“There are views that the Ethiopian authorities will reissue the licence with mobile money, and if they do that and in a relatively short period, we will apply our minds on the issue. We have not made a firm decision on that,” Mr Mupita said at the time.

Ethiopia is a frontier market that has been on the radar of multinationals especially after Prime Minister Abiy’s reforms to liberalise the economy opened up the telecom sector to bring in other players to compete with state-owned Ethio-Telecom — the only operator in the populous country of 112 million people.

Initially, authorities had indicated that two licences were up for grabs, prompting interest from telecom giants like MTN, Orange, Etisalat, Saudi Telecom and Global Partnership for Ethiopia.

When the bids were announced, MTN was beaten to the licence by a Safaricom-led consortium that also includes South Africa market leader Vodacom, which offered an $850 million for the licence against MTN’s $600 million.

The licence, however, did not include mobile money services — a strong revenue stream for the industry — but barely a week after picking the Safaricom-led consortium, it emerged that Ethiopia would reissue the telecom licence with an option for financial services.

Recently, Addis Ababa cleared the way for Safaricom to introduce its popular money transfer service M-Pesa in the Ethiopian market after deciding to include the mobile phone-based financial services in the telco’s licence offered in May. Ethiopian authorities told the Business Daily that the Safaricom licence would be upgraded to include mobile financial service when it completes bidding for its second telecoms operator permit. The bidding will be opened this month.