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January 19, 2019

M-Pesa goes into Ethiopia

Customers queue outside an M-Pesa shop in Nairobi. /FILE
Customers queue outside an M-Pesa shop in Nairobi. /FILE
It has been no secret that Safaricom has been looking to unlock the geographical expansion opportunity. I recall the chairman indicating as much early last year. The story has been on the background for a while. In one of its finest financial interventions, DFID via its Financial Deepening Challenge Fund (FDCF) awarded Vodafone a grant of nearly £1m, which they were required to match, to begin developing a product that would leverage mobile phone technology to deliver financial services in East Africa. I recall [as if it were yesterday] Michael Joseph taking out his phone and walking me through probably the very first iteration of M-Pesa and saying, ''We think it will be very sticky''. Stickiness is a good thing, you will find. You could say that again. I recall a time when Airtel came calling and launched an ''irrational'' price war and of the reasons that price war went down in flames was the stickiness of M-Pesa. Of course, M-Pesa has metasized from being largely an in-country money remittance service. The Flow was one where Folks working in our cities needed to move money to their Families who were dispersed out of town and typically deep in the countryside. M-Pesa was serving a need and the service at its inception was a ''leapfrog'' level improvement, it was doing the transfer in the ''Now'' versus maybe a 24 or even 36 hour process of handing your hard earned ''moolah'' to a matatu driver or Tout to deliver. Consider how the velocity of money accelerated and how it improved livelihoods at the fringes. [MIT has done some outstanding research on the upliftment in particular at the Fringes]. Since then M-Pesa has driven our financial inclusion numbers off the charts and the M-Pesa Economy has grown by leaps and bounds. M-Pesa has integrated with the Banks. The PayPal partnership has meant that anyone anywhere with a Safaricom connection can transact with the World. Many folks talk about ''democratisation'' and I can think of no finer example of that characterisation. I visited Kakuma refugee camp [the furthest North I had ever visited] and I keep thinking this place is so far from anywhere and then i realised but its not because everyone is connected. The velocity of money has surged and I reckon M-Pesa has added more than 1.5% to the GDP score consistently every year. 

''Mpesa has been a growth engine. Whenever there's a cash transaction, we see an opportunity. Transaction value in 2017 doubled. We are building the ecosystem to monetise tomorrow'' said Sateesh kamath to me on the occasion of the release of their full year numbers this year.
M-Pesa full year revenue expanded +14.2% to clock 62.91b [$624m] and is currently responsible for 27.83% of Safaricom's total revenue.  
Now something can be a ''no-brainer'' but its also about timing your market-entry. 
On June 6, I wrote: "This can add up to 20% to Safaricom's share price. It's a big deal and Ethiopia is a 100m market and ripe for the taking for M-Pesa in particular."
What has changed in Ethiopia is first, the arrival of Prime Minister Abiy Ahmed whose arrival I rate as the most consequential arrival of any African politician since 1994 and when Mandela exited prison and soon thereafter became president. Abiy has made so many pivots it's head-spinning, but he has read the writing on the wall when it came to the economy. He saw that notwithstanding the stellar growth numbers, it was running on empty, FX reserves were down to weeks of import cover. He had to make a move and pronto. I was at a lunch that KEPSA hosted for president of African Development Bank, Akinwumi Adesina, and we agreed that growth was a silver bullet. For Abiy and his counterpart in Asmara, President Isaias Afwerki, growth will provide wind in their sails. What we know is that mobile money is seriously stimulative and at the grass roots. 
Kenya’s Safaricom is in “advanced talks” with the Ethiopian government to introduce M-Pesa mobile money service to neighbouring Ethiopia, a market of 100 million people, two Reuters sources said last Tuesday. Britain’s Vodafone, Safaricom’s parent company, will license the use of the M-Pesa trade name to an Ethiopia-based bank while Safaricom will host the servers in Nairobi, one telecoms industry source told Reuters.
Ethiopia’s state telecommunications monopoly, Ethio telecom, will carry the service, the source added. Started in 2007, M-Pesa has nearly 30 million users in Kenya. It is ''Abiymania'' which has opened the Ethiopian door wide open for Safaricom and Kenya; It is a singular moment. 
Aly-Khan Satchu

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