Ethiopia: Africa’s sleeping fintech giant?

The fintech sector has been one of Africa’s biggest technology success stories. According to Disrupt Africa, the continent’s 678 fintech startups raised more than US$2.7bn between 2021 and August 2023. Additionally, almost all of the continent’s are in the fintech sector. 

The majority of that success has, however, come from the continent’s three biggest startup markets: South Africa, Kenya, and Nigeria. In fact, 68% of African fintech startups come from these ‘big three’ markets. But things are steadily changing. More and more countries are realising the benefits that come with an active fintech ecosystem, with a growing number of entrepreneurs in those countries also looking to enter the space. 

One such country is Ethiopia. Home to more than 120 million people the country has many of the right ingredients to become Africa’s next big fintech giant. In addition to the country’s population size, it’s home to large numbers of unbanked people. At the same time, the country continues to experience high economic growth and rapidly increasing connectivity levels. 

An evolving landscape 

A few years ago, that’s not a question many would have dared to ask. More recently, however, several things have changed, which suggests that Ethiopia is waking up to, and embracing its fintech potential. 

Take telco licensing, for example. Ethiopia has previously been closed off, with only the state-owned Ethio telecom allowed to operate. But Ethiopian Prime Minister Abiy Ahmed sees the liberalisation of the country’s telecommunications sector as key to its economic future. As such, the country has opened up to other operators. In October 2022, Safaricom became Ethiopia’s second official operator. 

In the ensuing months, it has built up a four million-strong customer base and added 1.2 million users to its M-Pesa mobile money platform. Over time, those numbers will continue to grow. And while the bidding process for a third telco license has had to be put on ice for the moment, Ethiopia’s strong economic growth means that it’s only a matter of time before one is granted. 

Those telcos will play a critical role in establishing an Ethiopian fintech ecosystem too. Right now, the country has a 53.5% mobile penetration rate but mobile connections grew by nearly 18% between 2022 and 2023. With 75% of the country’s population reportedly unbanked, increasing connectivity levels is one of the most powerful ways of giving people access to financial products, both from telcos and third parties, as demonstrated by Ethio telecom’s mobile money app Telebirr having 39.3 million customers.      

Another significant move is the establishment of an Ethiopian stock exchange. The exchange, which is set to open in 2024 or 2025, is designed to be a source of funding for the small and medium-sized companies that form the backbone of the country’s economy. For local fintechs looking to raise the capital they need to expand at scale, it could prove critical. 

Supportive policies 

The Ethiopian Government has also made significant strides when it comes to developing policies that encourage the growth of a fintech ecosystem. One of the most significant such policies is the National Financial Inclusion Strategy. 

According to a research paper published by the GSMA, the aim is to increase financial inclusion from 46% to 70% of all adults by 2025. One of the key avenues it’s identified for doing so is by scaling digital payments through mobile money services. The country additionally aims to increase the use of digital payments from 20% of all adults in 2020 to 49% by 2025. 

These policies could be dramatically transformative for both the Ethiopian economy and its people. According to the GSMA, mobile money services “could lift 700,000 people out of poverty, add US$5.3bn to Ethiopia’s GDP, increase tax revenue by US$300mn and provide a cushion for the economic shocks experienced by almost 40% of Ethiopian households.” 

There is, admittedly, a long way to go before mobile money can drive those advancements. GSMA figures show that just 4.2% of adult women and 5.1% of adult men had mobile money accounts in 2022. That said, those numbers are significantly higher than the 0.1% and 0.6% who had accounts in 2017. This suggests that, as much as there’s significant room for mobile money growth in Ethiopia, there’s a sizable and growing appetite too with increasingly accessible outlets. 

Putting policy into practice 

For policy to be effective, however, it has to be matched with practices that encourage the growth of fintech. Here, too, there are encouraging signs from Ethiopia. 

The Government has, for instance, used the mobile banking service HelloCash to digitise social protection payments under the flagship Productive Safety Net Programme (PNSP). Additionally, it’s increasingly accepting digital payments for public services such as utilities and has mandated digital-only payments for fuel purchases. The Ministry of Trade, meanwhile, has adopted Ethio’s Telebirr services and now allows traders to pay for services like commercial registration, trade licences and trade name-related service fee payments.

In conjunction with the adoption of mobile money by government departments, its growing use by private sector players such as mid-sized brands like supermarkets, petrol stations, and SMEs should help further drive their adoption.

Growth beyond mobile money 

Of course, there are still other things that need to be put in place before Ethiopia really starts to achieve its fintech potential. Reliable interoperability, for example, remains a challenge, as does a shortage of access points and a lack of high-quality agent networks. 

None of those challenges are, however, insurmountable. And, given the success that’s already accompanied the adoption of mobile money, overcoming them will help unlock other services that enable digital financial inclusion which have commenced (such as insurance, micro-financing, and savings products).

As more and more of those solutions fall into place, Ethiopia will be well on its way to unlocking its potential and becoming Africa’s next fintech giant.