Orange CEO downplays Ethiopia ambitions

July 27th 2023

Heydemann currently sees little opportunity for value creation in Ethiopia under current conditions.
Ethiopian government finally launches tender for third telecoms licence.
Africa and Middle East remains strongly performing element of Orange Group.
Orange Money sees rebound following transformation to improve service mix.

Orange Group Chief Executive Christel Heydemann was keen to dispel rumours that the France-based operator could be on the verge of investing in the Ethiopian market, suggesting that such a move would not be sufficiently value-accretive for the Group, at least at this time. During the Group’s earnings call for the second quarter of 2023 (Q2 FY23), Heydemann said that while Orange’s focus in Africa and the Middle East is on organic growth, “we’re also always looking at non-organic opportunities, but only if we believe they are creating value for the Group”.

“ The conditions are not yet the ones that that we would consider value creation. But again, these discussions are ongoing, officially driven by the government in Ethiopia. ”
Heydemann.

In June 2023, the Ethiopian Communications Authority launched a tender for a third telecoms licence in the country, prospectively bringing in further competition to former monopoly Ethio Telecom and new entrant Safaricom Telecommunications Ethiopia (STE). In addition, the government has indicated it plans to sell up to 45% of the state incumbent. Reports have cited Orange as well as Emirati operator e& and Netherlands-based VEON as among those interested in entering the market, either through an investment in the incumbent or the third licence. The ECA has so far issued a Request for Qualifications, inviting “world-class telecommunications operators to come forward and take part in this exciting opportunity to operate within Ethiopia’s rapidly growing economy”.

“ There are several positive developments occurring in the Ethiopian telecommunications sector since the beginning of the liberalisation process, including a strong telecommunications sector legal and regulatory framework, a legal framework to provide mobile financial services, and availability of additional spectrum. ”
ECA.

Despite these enticements, Orange clearly appears wary of entering a market that continues to face a number of economic and political challenges, including hyperinflation. Business Daily Africa reported that Ethiopia could be forced to devalue its currency because of its economic woes. Ethiopia’s inflation rate stood at 34% in 2022, although it is projected to ease to 28% this year, the report said.

In May 2023, the World Bank said that “multiple conflicts combined with historic drought and other shocks have severely impacted millions of Ethiopians, jeopardising the economic and social development progress the country has achieved in recent years”. The World Bank’s International Finance Corporation recently confirmed that it will take a minority stake in STE.

The Group will also not have been encouraged by reports that STE has faced hefty startup costs, while Safaricom does not expect its Ethiopian foray to break even until its fourth year of operation (Vodafonewatch, #216).

STE’s parent Global Partnership for Ethiopia (GPE) consortium, led by Safaricom and backed by Vodacom and Vodafone, secured a full-service telecoms operator licence in Ethiopia during May 2021 for a fee of $850m (£662m/€772m). Two licences were on offer in that contest, but out of a dozen parties that submitted Expressions of Interest in the run-up to the sale, only one (GPE) was deemed to have entered an adequate bid. An MTN-led consortium was the only other player to lodge a bid, and saw its offer rejected. Recently, Safaricom received its licence to provide mobile money services in Ethiopia, firing the starting gun for an M-PESA launch “in the coming weeks and months”. It is the country’s first mobile money licence issued to a foreign firm. Ethiopia, which has 65 million mobile customers, was previously a closed market dominated by state-owned Ethio Telecom’s Telebirr m-money proposition.

Jewel in the crown

As things stand, Africa and Middle East is one of Orange’s most consistently high-performing businesses. In Q2 FY23, the division recorded a 12% rise in revenue to €1.77bn (£1.5bn). In the first six months of the year, revenue increased 10.5% to €3.47bn and earnings before interest, taxation, depreciation, and amortisation after leases (EBITDAaL) grew by 12% to €1.26bn. Orange noted that seven of the 16 countries in the region recorded double-digit EBITDAaL growth. The Group also appears to have enjoyed greater success with mobile financial services in Africa than in France and Spain, w here it is to “progressively withdraw” from retail banking and has entered into “exclusive negotiations” with financial services provider BNP Paribas. For instance, Orange Money registered 25.5% revenue growth in the first half of 2023 and experienced a “very strong rebound”, according to Heydemann. The service is now used by more than 80 million customers and is available at in excess of 400,000 points of sale.

Orange Money was launched in 2008 in Côte d’Ivoire, while Orange Bank Africa was established in 2020.

Jérôme Hénique, who was appointed Executive Vice-President and CEO of Orange Middle East and Africa in April, said Orange Money recently underwent a transformation that created a “better mix of revenues” and no longer relies only on cash-out transfers.

“ It’s now much more balanced between cash-in, cash-out transfers, international transfers, and payments. And that gives us a very strong positive perspective for the months and years to come. Because the more we will rely on the diversity of services, the more we will be able to increase our revenues on top of the very strong dynamics of the customer base. ”

Source: Telecom Titans Back