Posted on by Miguel Granier

Can Lagging Ethiopia Reach African Mobile Penetration Standards?

Adding 55M

Ethiopia is infamously lagging behind the African standard of mobile penetration rates. Currently, mobile penetration in Africa is around 50% and climbing, but Ethiopia’s mobile penetration is around 12%. The Government of Ethiopia, who controls the telecommunications industry in the country, has set some ambitious goals for the next five years to increase mobile penetration rates. While there are many benefits that come along with a mobile phone in the hands of the poor, here at ID, we’re wondering if Ethiopia can achieve their lofty goals. We looked at a few factors to find out if lagging Ethiopia can reach African mobile penetration standards, and it looks like it is possible.

Goals

The Ministry of Finance and Economic Development detailed its five-year strategic goals in Ethiopia’s Growth and Transformational Plan (GTP). To achieve the goal of 75% penetration by 2015, 65 million Ethiopians must have mobile phone subscriptions. It is important to note, however, that Ethio Telecom, the state-led telecom, wants to reach 65 million subscribers while maintaining a government monopoly over the industry.

Considerations in Ethiopia’s Favor

Many political and circumstantial indicators point to Ethiopia’s ability to reach 65 million mobile phone subscribers. Research by the Economist Intelligence Unit indicates that the underlying political climate is stable and should prove accommodating to telecommunications expansion (2008). Additionally, the US will continue to invest in Ethiopia to enjoy strategic advantages that come from the country’s proximity to Middle East and North Africa. China, Ethiopia’s dominant foreign investor, also has strategic benefits to gain from investing in the country to promote its global image. Relatively conservative predictions of 7.5% real GDP growth imply more than enough government revenue to afford the necessary capital expenditure (Lake & Walker, 2011).

Cost of Development

In order to determine if the government’s goal is feasible from a financial standpoint, we must understand if planned government expenditure can meet the cost of development. We estimated the cost of development by multiplying Ethiopia’s goal number of new subscribers (55 million) by the average capital expenditure necessary per subscriber in Africa. Public data from five operators (MTN, Vodacom, Orascom, Zain, and Vodafone) covering 16 African countries and over USD$5 billion in capital expenditure suggests an average cost per new subscriber of USD$32 per person (rounded towards the worst-case scenario). Based on that data, going from 10 million to 65 million subscribers in five years will require USD$1.76 billion in capital expenditure over the same period.

Government Expenditure

Assessing the government’s ability to pay for this infrastructure requires as estimation of expected values for GDP, tax rates, percent of government spending on capital expenditure, and percent of infrastructure spending on telecommunications.
Spending Capacity
=
5 Year GDP x Tax Rate x CapEx % of Budget x Telecom % of CapEx
Five-Year Estimates
  • Total GDP: Ethiopia will generate USD$180 billion in GDP over the next five years (World Bank, 2011; Lake & Walker, 2011)
  • Government Revenue: Collecting 15% of total GDP yields USD$27 billion in taxes (African Economic Outlook, 2011)
  • Capital Expenditure: Spending two-thirds of revenue gives USD$18 billion for development (African Economic Outlook, 2011)
  • Telecommunications: Allocating 10% of infrastructure spending to telecommunications leads to USD$1.8 billio in expected expenditure over the next five years (Foster & Morella, 2010).

 

An Attainable Goal?

Based on our analysis, reaching the additional 55 million subscribers will cost USD$1.76 billion while telecommunications expenditures should reach USD $1.8 billion. Though the numbers are a bit rough, Ethiopia could theoretically have enough money to reach its goal.Speculation that the government’s state-led development model hinders potential mobile penetration growth is justified. Nonetheless, the country reached their interim goal of 10 million subscribers in July of 2011 (Ethio Telecom, 2011) thanks to a $500 million loan from the Chinese government. Our analysis did not consider external funding but even with our conservative estimations indicate that the Ethiopian government could achieve its ambitious goal.
High penetration rates in Ethiopia will open many new opportunities for mobile transaction technologies to fight poverty, but it’s just the first step. State-run entities are often capable of building larger scale infrastructure but lag desperately behind the free market. The government can provide the infrastructure, but will need the private sector’s participation for value-added services like mobile money and information exchange. Will the government allow the private sector to participate? Time will tell.

 

Works Cited:

African Economic Outlook. (2011). Ethiopia Report. Issy les Moulineaux, France: OECD Development Centre. Retrived from http://www.africaneconomicoutlook.org/.

Economist Intelligence Unit. (2008). Country Profile: Ethiopia. Kent: Patersons Dartford.

Foster, V., & Morella, E. (2010). Ethiopia’s Infrastructure: A Continental Perspective. Washington, DC: The World Bank.

Lake, J., & Walker, P. (September 2011). Country Report: Ethiopia. London: Economist Intelligence Unit.

The World Bank Group. (2011, October 10). World Bank Data. Retrieved from http://data.worldbank.org/

Yamamoto, D. (2007). Ethiopia: Telecommunications Sector Update. Addis Ababa, Ethiopia: Embassy of the United States.