The largest company in East Africa is facing challenges in Ethiopia due to the recent devaluation of the country’s currency after five decades of being pegged. This devaluation has caused a significant depreciation of the birr against the dollar, impacting the financial performance of Safaricom Plc’s subsidiary in Ethiopia.
Safaricom Telecommunications Ethiopia Plc (STE) had initially aimed to break even within four years of entering the Ethiopian market, attracted by the large population and the monopoly in the wireless industry. However, analysts believe that the devaluation of the birr may delay this target as it increases debt-servicing costs and local-currency expenses for the company.
The depreciation of the birr has also led to higher inflation in Ethiopia, with projections suggesting it may reach 30% this fiscal year. This inflation will impact consumer purchasing power and increase costs for STE, affecting its ability to acquire new subscribers and generate revenue.
To finance its operations in Ethiopia, STE has secured loans from financial institutions and plans to issue local currency-denominated bonds in the near future. Capital-expenditure needs are expected to remain high until 2026, after which they may decrease significantly, according to industry analysts.
In a market now open to competition from Ethio Telecom, STE faces the challenge of attracting users and expanding its subscriber base. The company aims to add 10 million users by the end of March, but it still lags behind its competitor in terms of subscribers.
Overall, the devaluation of the birr and increased competition in Ethiopia are expected to impact the financial performance and break-even timeline of STE. The company will need to navigate these challenges to achieve its goals in the Ethiopian market.
