At the beginning of September, the Addis Ababa Exhibition Center was gearing up for its annual New Year Bazaar, an extravagant event that usually brings in hundreds of thousands of visitors. The sheer volume of business being done at the event — in cash — has long made it an attractive showcase for local banks, which have placed their ATMs in strategic points around the halls and dispatched sales teams to recruit customers.

This year, for the first time, the banks had a new competitor: Telebirr, a new mobile money service launched in May by Ethiopia’s state-owned telecomms service provider, Ethio Telecom. Developed in partnership with China’s telecomms equipment giant, Huawei, it had already acquired 10 million subscribers and processed more than 1 billion Ethiopian birr ($21 million) in transaction value by the end of September. 

“Thirty percent of our sales were done via Telebirr,” Biruk Gebeyehu, who was selling shirts at the New Year Bazaar, told Rest of World.

Ethiopia is Africa’s second-largest country by population. Its economy has been one of the world’s fastest-growing for the past 15 years, but tight state control over the private sector has meant that it has often lagged behind its neighbors in the adoption of new communication technology, including the fintech products that have proved incredibly successful across much of the continent. But liberalization of the telecomms market, starting in 2018, has driven a surge in interest in mobile money in Ethiopia, which locals and analysts hope will help the country lessen its reliance on inefficient cash payments and spur yet more growth in the tech sector and the wider economy.

“Easy exchange of payment is like grease for the economy,” Dawit Bekele, regional vice president for Africa at the Internet Society, a global nonprofit, told Rest of World.  “[It] can help bring economic growth.” 

However, the government’s desire to protect its national monopoly, along with rising political instability in the country, threatens to derail the nascent industry.

Prime minister Abiy Ahmed came to power in 2018, promising to loosen the state’s grip on the economy. Among newly liberalized sectors was the telecomms market, dominated by the state-owned Ethio Telecom. The government later announced it would sell 45% of the monopoly and sell licenses for two new telecomms operators.

Bidding for the new licenses opened in April 2021. Local media had reported that the country expected to generate up to $2 billion from the sale, and 12 companies, many of them large global players, were said to have shown interest. But in the end, only two placed offers, and those offers were well short of expectations. 

“We wanted to give Ethio Telecom a head start, and that goal was met. You can’t please everyone.”

A global consortium, led by Kenya’s Safaricom, including Vodacom, Vodafone Group, Sumitomo Corporation (a Japanese firm), and the U.K.’s development finance institution, CDC Group, offered $850 million. South Africa’s MTN was the other bidder, offering $600 million. 

The reason for the anemic interest was that the government had chosen to exclude mobile money services from the licenses and was insisting that new entrants would have to either build their own infrastructure or rent it from Ethio Telecom. These policies were designed to insulate the incumbent — and, in particular, the mobile money business — from foreign competition, Brook Taye, a senior advisor to Ethiopia’s finance ministry, told Rest of World. 

“When you open up a market, you can’t disadvantage your state-owned enterprise and destroy its business strategy,” Brook said. 

Telecom companies and their financial backers who all showed great enthusiasm early on in the process started to drop out, one after the other. In the end, the bid by the Global Consortium for Ethiopia was accepted; the MTN bid was rejected. 

“The government must have sought to balance the amount of money it could get from the new licenses against the debt to be paid off and Ethio Telecom’s ability to survive as a functioning entity,” said Russell Southwood, CEO of Balancing Act, a telecomms and media consultancy. “However, this was not a circle that could be squared.” 

A few days after the results of the bid were announced, Ethio Telecom launched Telebirr. But during the launch ceremony, Abiy revealed the decision to exclude mobile money service from the auctioned licenses had cost the country $500 million.

“We knew the outcome of our decision. We knew the value would be reduced; this was not a secret,” Brook said. “We wanted to give Ethio Telecom a head start, and that goal was met. … The initial ban was not a mistake. You can never please everyone, and it depends on how you see it. But for Ethiopia, it was the ultimate best decision.”

Finbarr O’Reilly/The New York Times/Redux

Telebirr isn’t Ethiopia’s first mobile money product. Since 2016, around a dozen services, including M-Birr and HelloCash, have launched, mostly operated by financial institutions offering services such as airtime top-ups, airline tickets, utilities, school fees, pay-TV subscriptions, and transportation, according to a recently released report by an Ethiopian investment firm, Cepheus Growth Capital Partners. But these services have been hampered by a lack of interoperability, limited product use cases, regulatory restrictions, undeveloped merchant payment services, and weak outreach, according to the Cepheus report.

Telecom companies have tended to have more success in mobile money than traditional banks, with greater reach into consumers’ daily activities. As part of a long-standing monopoly, Ethio Telecom’s Telebirr already has a huge head start, before any other new-entrant network operator rival is able to launch a mobile money service. The service is already planned to expand beyond payments into other digital financial services, including small loans, remittance services, online savings accounts, and insurance. “Telebirr, if well executed, is on the verge of transforming person-to-person transfers, merchant payments, and potentially ‘micro-credit,’” wrote the researchers of  the Cepheus report.

The digitization of retail financial services has been transformative in other African countries. In Kenya, the equivalent of half the national GDP is transacted over mobile money each year, and there are nearly 68 million registered mobile money accounts in the country — more than one per person. That precedent has created excitement over the potential for the industry in neighboring Ethiopia, and for the impact it could have.

The prime minister has said that the mobile money market will be fully liberalized by May 2022. Bidding for the second telecomms license has now opened, with mobile money services added to the license, as is the tender for the mobile money component of the first license. That operator, locally incorporated as Safaricom Ethiopia, still has to negotiate its price. 

Brook said he believes the sheer size of Ethiopia’s marketplace should create interest and push up prices. “This is a numbers game,” he said. “We are twice the size of Kenya, and the volume of transactions in Ethiopia is much larger.”

However, it’s far from certain that the bidding will be competitive. Abiy’s economic reforms were bundled with political reforms, which were not universally popular. Over the last year, a regional conflict in the north of the country has deteriorated into a full-blown civil war, fought between the federal government and the Tigray People’s Liberation Front (TPLF). The TPLF has threatened to advance on the capital Addis Ababa, which, along with the rest of the country, is under a state of emergency. Its residents have been told by the federal government to arm themselves and defend their neighborhoods. Venues that recently were populated by mobile money agents trying to sign up subscribers now host military campaigns and demonstrations.

MTN has said it won’t be resubmitting a bid

Safaricom Ethiopia is still hoping to launch in early 2022 and has said it will invest $8 billion in the country’s infrastructure in the next 15 years. The operator plans to begin operation with 4G network services and quickly introduce 5G. It will also deploy an orbiting satellite by 2023 to guarantee national coverage of 4G.

But its plans are already facing disruption due to the conflict. After allegations that there had been acts of violence against civilians in the Tigray conflict, one of Safaricom Ethiopia’s financiers, the U.S. International Development Finance Corporation, has delayed disbursement of a $500 million loan while it weighs up the situation.

“We hope the political situation will be stabilized by the time we launch,” Anwar Soussa, managing director of Safaricom Ethiopia, told Rest of World in September. But with the commercial launch scheduled to take place in the first quarter, international observers do not see the war ending anytime soon.