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Joshua Fagbemi
Guest
Kenya’s biggest telecoms operator, Safaricom has experienced a shortfall in earnings following a sharp fall in net income as a result of the deprecation of the Ethiopian birr. Despite its strong customer base, Safaricom experienced a mixed ride owing largely to security, inflation, and currency challenges.
According to a recent report by the company, half-year earnings before interest and taxes (EBIT) grew by 31.9% year-on-year. On projection, full-year earnings are expected to decline by about 94 billion ($731 million) to 100 billion ($778 million) Kenyan shillings from the 103 billion to 109 billion it had last year.
Following the depreciation of the Ethiopian birr by 106%, Safaricom’s net income fell 17.7% year-on-year. Group Chief Executive Officer, Peter Ndegwa described it as “an effect of the government’s free float of the unit.”
The company won the first telecoms licence in Africa’s second most populous country, with about 120 million people, in 2022, after the liberalization of the sector.
Launched two years ago, Safaricom’s Ethiopian arm will take at least an additional year to break even because of the country’s foreign exchange reforms and to achieve profit in the 2027 financial year, Ndegwa projected.
Reacting to the economic slump, Ndegma asserted that the company remains optimistic about future growth amidst the current challenges.
“Despite the short-term challenges, we remain confident in the long-term commercial success of our Ethiopian business, and we are very encouraged by the commercial acceleration,” Ndegwa said.
Safaricom CEO Peter Ndegwa
“Due to the uncertainty of what (exchange) rate we will have at the end of the year, we are guiding that any 10 percentage points change in terms of currency depreciation, would result in about eight billion shillings in terms of balance sheet impact,” he said.
Safaricom also posted a 14.0% increase in group service revenue to 181.4 billion shillings at the end of September. Meanwhile, the company’s shares on the Nairobi Securities Exchange, where it is the largest listed company, have been down by 2.75%.
In July, the Ethiopian central bank adopted a market-determined foreign exchange rate to secure a new International Monetary Fund lending programme and to put debt restructuring back on track. The Ethiopian birr currency has since weakened by 28% against the dollar.
The removal of foreign exchange trading restrictions helped Ethiopia to clinch the IMF deal and funding from other creditors like the World Bank. Some Ethiopian analysts forecasted it would cause price hikes that hit the poor hardest.
Following that, two Ethiopian local governments ordered the closure of dozens of businesses found hiking prices of basic commodities after the central bank floated the national currency.
“The businesses were caught making unreasonable price increases mostly on food items. The stocks were imported before the new exchange rate,” said Sewnet Ayele, a spokesperson for the Addis Ababa City Trade Bureau.
A man counts Ethiopia’s birr notes in Merkato, one of Africa’s biggest open-air markets, in Addis Ababa, Ethiopia, April 25, 2024
About 71 businesses have been affected by the closure order, Sewnet said. In the Oromiya region, another 19 businesses were closed and three people were detained, said Meseret Assefa, head of the Trade Bureau of Oromiya. The main commodity whose price has gone up is cooking oil, which is selling at 25%, or 300 birrs, more, said a trader in Addis Ababa.
When Ethiopia solicited bids in 2020 for the country’s first private telecoms licences it touted duty-free capital goods imports and temporary income tax exemptions as incentives for new telecoms investors, according to portions of the Request for Proposals seen.
In November 2023, Ethiopian regulators said they had suspended the process of issuing a third telecommunications licence after potential investors said the conditions on offer needed to be improved.
Eyob Tekalign, a senior Ethiopian finance ministry official, attributed delays in awarding the third telecoms licence to difficult economic conditions globally and in Ethiopia.
In the same vein, France’s Orange told Reuters then it had withdrawn from the process to buy an up to 45% stake in Ethio Telecom, because “the conditions do not allow for the rapid deployment of our strategy“.
Safaricom’s response to written questions was that it had “learned fast” during its first two years in Ethiopia and there had been “an enthusiastic uptake” of its products and services.
In 2023, Safaricom signed up 7 million users, including 4.1 million active customers over the past three months after launching its network in October 2022. It also recorded 1.2 million customers for its mobile money service M-Pesa, launched in 2023.
It expects earnings in Ethiopia to break even in the 2026 fiscal year. Early losses in Ethiopia have dragged down the company’s overall earnings but analysts say the performance is broadly in line with expectations.
Also read: Privatization: Ethiopia to List 10% of State-owned Telecom Company on New Exchange.
The post Safaricom’s earnings fall by 17% YoY following depreciation of Ethiopian currency first appeared on Technext.
According to a recent report by the company, half-year earnings before interest and taxes (EBIT) grew by 31.9% year-on-year. On projection, full-year earnings are expected to decline by about 94 billion ($731 million) to 100 billion ($778 million) Kenyan shillings from the 103 billion to 109 billion it had last year.
Following the depreciation of the Ethiopian birr by 106%, Safaricom’s net income fell 17.7% year-on-year. Group Chief Executive Officer, Peter Ndegwa described it as “an effect of the government’s free float of the unit.”
The company won the first telecoms licence in Africa’s second most populous country, with about 120 million people, in 2022, after the liberalization of the sector.
Launched two years ago, Safaricom’s Ethiopian arm will take at least an additional year to break even because of the country’s foreign exchange reforms and to achieve profit in the 2027 financial year, Ndegwa projected.
Reacting to the economic slump, Ndegma asserted that the company remains optimistic about future growth amidst the current challenges.
“Despite the short-term challenges, we remain confident in the long-term commercial success of our Ethiopian business, and we are very encouraged by the commercial acceleration,” Ndegwa said.
Safaricom CEO Peter Ndegwa
“Due to the uncertainty of what (exchange) rate we will have at the end of the year, we are guiding that any 10 percentage points change in terms of currency depreciation, would result in about eight billion shillings in terms of balance sheet impact,” he said.
Safaricom also posted a 14.0% increase in group service revenue to 181.4 billion shillings at the end of September. Meanwhile, the company’s shares on the Nairobi Securities Exchange, where it is the largest listed company, have been down by 2.75%.
The Slump of the Ethiopian Birr
In July, the Ethiopian central bank adopted a market-determined foreign exchange rate to secure a new International Monetary Fund lending programme and to put debt restructuring back on track. The Ethiopian birr currency has since weakened by 28% against the dollar.
The removal of foreign exchange trading restrictions helped Ethiopia to clinch the IMF deal and funding from other creditors like the World Bank. Some Ethiopian analysts forecasted it would cause price hikes that hit the poor hardest.
Following that, two Ethiopian local governments ordered the closure of dozens of businesses found hiking prices of basic commodities after the central bank floated the national currency.
“The businesses were caught making unreasonable price increases mostly on food items. The stocks were imported before the new exchange rate,” said Sewnet Ayele, a spokesperson for the Addis Ababa City Trade Bureau.
A man counts Ethiopia’s birr notes in Merkato, one of Africa’s biggest open-air markets, in Addis Ababa, Ethiopia, April 25, 2024
About 71 businesses have been affected by the closure order, Sewnet said. In the Oromiya region, another 19 businesses were closed and three people were detained, said Meseret Assefa, head of the Trade Bureau of Oromiya. The main commodity whose price has gone up is cooking oil, which is selling at 25%, or 300 birrs, more, said a trader in Addis Ababa.
Some regulatory challenges in Ethiopia
When Ethiopia solicited bids in 2020 for the country’s first private telecoms licences it touted duty-free capital goods imports and temporary income tax exemptions as incentives for new telecoms investors, according to portions of the Request for Proposals seen.
In November 2023, Ethiopian regulators said they had suspended the process of issuing a third telecommunications licence after potential investors said the conditions on offer needed to be improved.
Eyob Tekalign, a senior Ethiopian finance ministry official, attributed delays in awarding the third telecoms licence to difficult economic conditions globally and in Ethiopia.
In the same vein, France’s Orange told Reuters then it had withdrawn from the process to buy an up to 45% stake in Ethio Telecom, because “the conditions do not allow for the rapid deployment of our strategy“.
Safaricom’s response to written questions was that it had “learned fast” during its first two years in Ethiopia and there had been “an enthusiastic uptake” of its products and services.
In 2023, Safaricom signed up 7 million users, including 4.1 million active customers over the past three months after launching its network in October 2022. It also recorded 1.2 million customers for its mobile money service M-Pesa, launched in 2023.
It expects earnings in Ethiopia to break even in the 2026 fiscal year. Early losses in Ethiopia have dragged down the company’s overall earnings but analysts say the performance is broadly in line with expectations.
Also read: Privatization: Ethiopia to List 10% of State-owned Telecom Company on New Exchange.
The post Safaricom’s earnings fall by 17% YoY following depreciation of Ethiopian currency first appeared on Technext.