Safaricom’s Ethiopia expansion seems to be coming at the expense of the mobile network operator’s profitability.

In early October 2022, TechCabal reported that Kenya’s leading telco Safaricom officially launched its Ethiopian service following a ten-city pilot and a phased launch across the country. 

Today, the mobile network operator released its FY23 results, covering the period between March 2022 and March2023, which showed that its market entry into Ethiopia has yielded mixed results. While its revenue saw an increase of 4.3%,  its Ethiopian operations affected profitability thanks to the costs associated with the market expansion. 

According to the results, Safaricom’s profits after income tax were down by -13.6%, with the group’s capital expenditure for the year surging by over 93%. The company’s Ethiopian operating costs stood at almost 20 billion Kenyan shillings (~$146 million), which represents over 27% of the group’s overall operating costs.

While Safaricom’s  Kenyan operations reported over 110 billion Kenyan shillings (~$804 million) in profits, Safaricom Ethiopia incurred over 21 billion Kenyan shillings (~$154 million) in losses.

The company’s share price dropped by as much as 8.5% following the release of its latest results. At its lowest today, Safaricom shares traded at 14 Kenyan shillings per share on the Nairobi Stock Exchange, prices last seen in 2015. 

Despite weakening earnings and a persistent slide in share price, Safaricom board chair, Adil Khawaja, defended CEO Peter Ndegwa in the earnings call and swatted at rumours about a planned exit for the chief executive.

State of Ethiopia operations

According to Safaricom, the company now has 2 million, 1.4 million, and 700,000 voice, data and messaging customers respectively in the country since commencement of operations in October 2022. Overall, the number of customers onboarded stood at 3 million in 22 cities, a 22% penetration.

Revenue from Ethiopian operations stood at 1.8 billion Kenyan shillings with service, voice, data, and messaging accounting for 600 million, 100 million, 400 million, and 3.9 million shillings respectively.

A bet worth making?

In the current macroeconomic environment, the majority of financial experts seem to support bottomline growth over topline growth, with profitability supposed to take precedence over revenue growth. It seems like Safaricom is taking a different approach and making what some might consider a risky bet.

It is important to note that South Africa’s MTN Group pulled out of a second tender offer to purchase a telco licence in Ethiopia in 2021, citing an unwillingness to operate in conflict-ridden markets, a reference to conflict in the Tigray region.

But the opportunity in the Ethiopian market is clear if costly. Together with its annual results, Safaricom also announced that it has secured the licence to operate mobile money services in the country at a cost of $150 million. It plans to launch the service this quarter.

Until Safaricom’s entry, state-owned Ethio Telecom operated as a monopoly with 54 million subscribers in Ethiopia, Africa’s second most populous country with an estimated population of 118 million people. Now Safaricom’s wildly successful M-Pesa gets to compete with the Telebirr service from the government–backed mobile network operator.

In June last year, Ethio-Telecom announced that it had on-boarded over 21 million customers to its mobile money offering, figures which show the immense potential of the service in Ethiopia.

On the results, Safaricom puts the scaling of its Ethiopian operations, specifically its mobile money offering, as one of core FY24 focus. Only time will tell if the bet will be worth it.