The largest company in East Africa may face challenges in achieving profitability in Ethiopia following the recent decision to allow the country’s currency to float freely for the first time in fifty years, leading to a significant depreciation of the birr against the dollar.
Since the devaluation at the end of July, the birr has lost more than 44% of its value against the dollar, which will increase debt-servicing costs for Safaricom Plc’s local unit and raise local-currency expenses such as leases.
Safaricom Telecommunications Ethiopia Plc (STE), a Kenya-based telecommunications operator, entered the Ethiopian market nearly two years ago, attracted by a large population and a telecom industry dominated by a state-owned operator. Initially, it aimed to break even within four years, but the currency devaluation may delay this target as it impacts disposable incomes.
Analysts like Michael Odundo from CIC Asset Managers in Kenya suggest that the depreciation of the birr will likely extend the break-even period for STE. The birr is currently trading at 107.12 in Addis Ababa, double its previous rate before the currency liberalization.
Inflation in Ethiopia is expected to average 30% this fiscal year, which poses challenges for consumers and STE in acquiring subscribers due to increased costs for goods and services. Additional financing, including loans and planned bond issuances, will support STE’s capital expenditure needs until 2026 when a potential slowdown is anticipated.
STE faces competition from Ethio Telecom, the former monopoly in the market with a significantly larger subscriber base. Despite ambitions to add 10 million users by March, STE’s path to profitability may be prolonged by competitive pressures, according to industry analysts.
Overall, the currency devaluation and competitive landscape in Ethiopia may impact Safaricom’s operations in the country, potentially delaying its path to profitability.
