A soaring number of option-deprived customers and eye-watering packages continue to swell the earnings of the state monopoly Ethio telecom. In return the inglorious institution kept on crippling everything this country has achieved in the past with banks being the hardest hit
In February this year, while hosting his third presser with the local media since he assumed office as Prime Minister of Ethiopia, Hailemariam Desalegn was resolute in his response to a question from this magazine on whether or not his government was willing to assess the impact of running a dysfunctional state run telecommunication company on the economy. His government, PM Hailemariam said, was not ready to privatize the telecom sector, “Not now, not in the near future.” Needless to say, that was not the right answer to the question, but it is the incumbent’s long held stand on the state monopoly, Ethio telecom.
The giant service provider is spoiled by grave impairments and is often a source of growing public frustration. Yet a soaring number of option-deprived subscribers especially to mobile phones and its eye-watering packages continue to swell its earnings. In the past six months alone Ethio telecom has amassed some $350 million (7 billion br.) in revenue. Numbers like this corroborate the ruling party’s recurring reference to the sector as a ‘cash cow.’ But it is a cash cow that is wreaking havoc to almost everything this country has achieved in the past two decades, particularly to most of the things the nation’s infant banking sector wanted to accomplish as of late.
Shake off traditional banking, and get stuck with a mediaeval telecom
Three years after the collaps of the military Dergue regime in 1991, the country’s central bank, the National Bank of Ethiopia (NBE), was reconstituted by the Monetary and Banking Proclamation No 83/1994 as an autonomous financial regulatory organ. And more importantly, the subsequent Licensing and Supervision of Banking Business No 84/1994 laid down the legal basis for the participation of the private sector in the banking business. The first privately owned commercial bank, Awash International (AIB), therefore, came into existence shortly afterwards. Today the Ethiopian banking industry comprises of 15 more private and two state owned commercial banks as well as one state owned development bank.
A dynamic move in opening new branches by many of these banks saw a dramatic fall in the bank-branch-to-population ratio from 1: 116, 847 in 2009/10 to 1: 69, 000 in 2011/12. The recent figures indicate the ratio might even be lower than 1: 50, 000, according to a data obtained from the NBE.
However, Ethiopia’s law prohibits foreign nationals from involving in the financial sector, impending, among others, negotiations of accession to World Trade Organization (WTO), a process that has begun as far back as 2003, NBE admits. The toddling domestic banks are not financially, technically and technologically competitive either, compared to the sector in neighboring countries, for example; liberalization of the sector is may be one issue, but it is not everything to it. Cocooned from global banking heavyweights, the localbanks are moving at a snail’s pace towards modern banking trends. There are many reasons for that of which having a dysfunctional telecom system is the giant one.
As part of the NBE’s national payment system, all authorized banks are required to acquire Centralized online Real-time Electronic System (Core banking), which creates an electronic link that enables a given bank’s branches access applications from centralized data centers. So far, about twelve banks have completed the implementation and interface of core banking, NBE told Addis Standard. Five banks have completed the implementation and are in the final stages of interface. The remaining two banks are in the procurement process.
Number of ATMs by a bank (2013)
The state owned Commercial Bank of Ethiopia (CBE), which is going through a massive crusade of branch expansion since the past few years, opened 150 new local bank branches all over the country in 2013 alone, raising the number of its branches to 780 as of the end of the stated year and enabling it to sustain the quasi monopolistic power it holds – some estimate the CBE mobilizes around 80% of the country’s finances.
When the biannual report of CBE for 2013/14 (2005/6 Ethiopian calendar) fiscal year was presented in February this year in the lakeside city of Bahir Dar, the capital of the Amhara regional state 578 km North of Addis Abeba, the bank has announced that 470 of its branches were networked with Core banking solutions technology. It was possible to install 368 Automated Teller Machines (ATMs) and 367 Point of Sale (PoS) machines as well. As of September 30, 2013, the number of banks providing ATM services reached seven, collectively possessing 562 machines. By 2013 Dashen Bank, the pioneer to start the service, has 105 ATMs and 254, 933 cardholders, making it the largest from the private banks in the country. It also offers 780 PoS terminals. Three banks, Awash International Bank (AIB), Nib International Bank (NIB) and united bank, have launched Premium Switch Solutions (PSS) S.C. to help them provide ATM services by deploying shared switch card payment system machines. A forth bank, Berhan International, has joined this group recently while a fifth one, Addis International Bank, is on the way.
After announcing the winning bidder that will supply 100 ATMs and 80 PoS terminals in May 2013, AIB became the second largest from the private banks to operate ATMs and PoS terminals in the country next to Dashen. Some of the ATMs are being installed within bank branches, while the rest, known as lobby ATMs, are being installed in hotels and shopping malls. In theory, customers who hold AIB cards can get the service for free while customers of other banks under the umbrella of PSS will be charged 40 cents for every 100 birr withdrawal. Most banks in Ethiopia do not charge their customers at every ATM withdrawal to encourage the practice.
Head to Head
No of commercial banks
Fixed broadband prices as %of GNI P.C
No network no money
Apart from technical problems such as the breaking down of the machines or the deterioration of money notes, currently a major problem facing ATM services in Ethiopia is attributed to network failures, according to a document by the NBE. In the same manner the unreliability of telecom services is put forward as one of the challenges in implementing core banking. In their study titled “Competition in Ethiopian Banking Industry” published on The African Journal of Economics in December 2013, Zerayehu Sime, Kagnaw Wolde and Teshome Ketama maintain “in less monetized countries like Ethiopia, whilst financial sector is dominated by banking industry, effective and efficient functioning of the latter has significant role in accelerating economic growth.” However recent telecom realities appear to make that road to efficiency and effectiveness intolerably bumpy. Customers of banks in Addis Abeba and in major towns throughout the country are well acquainted with the unfortunate times when there is no internet connection at all not only for hours but for days. It is also becoming routine that hundreds of employees had to wait for days to get their salaries. Equally familiar is the sight of customers queuing around a network deprived ATM machine, hoping in despair that it may start working any minute. The city’s hotels and recreational centers that have helped the service sector contribute to a tune of 46% to the national GDP are unable to host guests because of non-responding PoS machines. Ethio telecom, which has 27 million mobile phone and 4.5 million internet subscribers as of mid February 2014, complains 80% of its network problem is caused by the incessant power cuts, a claim that convinces no one. For starters it is Ethio telecom’s responsibility to prepare abackup power source, something banks are forced to do, according to a banker.
For banks that have interlinked all or many of their branches in core banking system, power outage around the headquarters where the central server is located means unless they have a power backup they are unable to conduct business in all the connected branches. So they set up backup generators, although it means adding extra operational cost. But what they can’t do is have a replacement scheme to run the internet when it is no longer available.Occasionally when the cable networks are problematic, banks use expensive Enhanced Voice-Data Optimized (EVDO) network. But it is not unusual that both the cable and EVDO networks are unavailable at the same time.
An employee of a private bank who requested to remain anonymous told Addis Standard that many banks take three measures to tackle these difficulties. First, in the absence of sufficient information due to their inability to access the central data, branch managers sometimes risk in handling their known customers by offering them basic services without cross checking with their online database. Second, many banks are forced to look into offline solution, which allows each bank branch to assemble enough data to be able to carry on offering limited services in the absence of connection to the main server. Third, some banks are attempting to strike a deal with Ethio telecom to enable them obtain exclusive network services from the later.
On top a mobile banking?
In a conference titled “Catalyzing Transformation through Technology: How Mobile Financial Services Contribute to the Growth of Ethiopia”, held in early February this year here in Addis Abeba, Dr. Debretsion Gebremichael, Minister of Communication and Information Technology (MCIT), with the rank of Deputy Minister, said that 80% of Ethiopians, currently estimated to be above 90 million, reside in rural areas. “Because of that financial institutions have been unable to reach the majority of these people,”he said. Alternative ways to reach those people must be found, he said, adding it was his government’s belief that cheaper financial services with a better quality can be accessible. But that is an apple pie in the sky; something Ethio telecom can’t bring in as of yet. In his 2012 study titled “Prospects and Challenges of Private Commercial Banks in Ethiopia,” Simeneh Terefe of the Department of Economics at Unity University identifies lack of appropriate technology and inflation as a major challenge banks in Ethiopia are facing today. In most parts of Africa mobile banking has revolutionized access to finance serving as a virtual bank, a PoS terminal, an ATM and an internet banking terminal all together when need be. In most Sub Saharan Africa, where having bank accounts is not common, mobile banking is offering an opportunity to millions of unbanked people. Unfortunately though, it is a technology bypassing Ethiopia, one of the “fastest growing economies” in Africa, according to World Bank, and a country that is generating “more millionaires” than countries such as Tanzania and Ghana, according to New World Wealth.For now Banks in Ethiopia have set their eyes fixed on bank branch expansion as a way of reaching out to more customers – a costly and ineffective move for financial institutions to venture into. Unfortunately however, the government of Hailemariam Desalegn thinks it is better to keep the ‘cash cow’ as it is than calculating the chaos it imposes on everything this country has achieved from the financial to the service providing industry.