The Politics Behind Mobile Money in Ethiopia

The East African mobile revolution seems to be hitting every country in the region, including the state-less Somalia. However, the second-most populous country and growing economic powerhouse of the continent has been immune to it up until very recently. Over the past decade, Ethiopia has been lauded for its economic progress, with an average GDP growth rate of about 10 percent and its ambitious goal to reach middle-income status by 2025. Despite its growth, the country’s mobile penetration rate is among the lowest in the region and the world, at around 31 percent at the end of 2014, compared to the African average of 73 percent. Just in 2012, however, it was 22 percent, reflecting a changing tide in the country. Ethiopia is also an outlier in terms of mobile operators. Along with its continental cohorts Eritrea, Djibouti, and Sao Tome and Principe, Ethiopia is among the few African countries with a single mobile operator: the 100 percent government-owned Ethio Telecom.

The monopoly is as an intentional approach by the government – one that its critics say has stifled mobile innovation and uptake. This controlling government approach might not come as a shock when looking at the theoretical underpinnings of Ethiopia’s development, which has long rested on the shoulders of Meles Zenawi, the late prime minister that led the country for more than 20 years up until his death in 2012. In his book, “States and Markets: Neoliberal Limitation and the Case for the Developmental State,” Zenawi teases out the approaches to technology that featured prominently throughout his rule and bolstered the economy: enhancing the capacity to adopt and refine existing technology; and spurring innovation by “cross-pollinating” technology solutions across industries. According to Zenawi, although Ethiopia does not have the capability, both financial and human capacity, to invest in cutting-edge technology, a system based around the adoption and diffusion of existing technology is a potential source of development. Therefore, the economy of Ethiopia is better served learning how to effectively adopt the existing technology. However, up until this leadership change, Ethiopia hasn’t been active with mobile money.

The current government has confirmed its adherence to Zenawi’s technology-forward vision and the continuation of his legacy. But recently, the adoption of mobile technology in financial services has been a major point of interest, suggesting the young government’s approach is inclusive of mobile money technology, too.

In 2012, the National Bank of Ethiopia developed a set of guidelines to regulate mobile and agent banking – which went into effect in the beginning of 2013. One of the last countries on the continent to open its borders to these banking options, economists in Ethiopia cited boosting the economy and mobile penetration as reasons for the decision. Since then, a number of conferences on the subject have been held in the country. An event of early last year, “Catalyzing Transformation through Technology: How Mobile Financial Services Contributes to the Growth of Ethiopia,” explored the role mobile money and digital financial services can play to develop the country’s financial services sector by bringing together an array of stakeholders including policymakers, financial institutions, government officials, and development partners. Discussions touched on strategic considerations required for Ethiopia to develop a strong ecosystem for digital financial services, as well as the results of pilot studies within the country. At the end of 2014, the national bank conducted a workshop to encourage the use of digital financial services.

Moreover, mobile money services are now being offered in various regions through a handful of financial institutions. M-BIRR, after receiving regulatory approval in December to move beyond piloting its service, officially launched in March. M-Birr is offered by five MFIs and focuses primarily on poor households in rural areas. HelloCash, another recently launched mobile money service in the country, anticipates it could have several million customers by year’s end and 20,000 agents in the next three years. More services are on the way, too, like Kifiya.

This is progress, but it’s still too early to speak to the success of the new services.

As we near the end of the country’s first five-year national “Growth to Transformation Plan” this July, it provides the Ethiopian people, and the local and federal governments an opportunity to reflect upon the progress thus far. Where do the gaps remain in Ethio Telecom and the Ethiopian National Bank prioritizing digital financial services? Where should mobile money be positioned within the strategy for financial inclusion in the next five years?

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