My Opinion | Jun 15,2019
Ethio telecom wants to unfasten its non-guaranteed external debt from Ethiopia’s total outstanding debt stock. Its executives hope the move would enable access to credit for the company, which had a non-guaranteed external debt portfolio of 780 million dollars at the onset of the year and the efforts come in the lead up to its first taste of market competition.
Telecom services remained under the state's monopoly for over a century, but are at the cusp of liberalisation with the impending entry of Safaricom Ethiopia Plc.
Ethio telecom executives have tabled a proposal to the Ministry of Finance, which will decide whether to submit a formal request to the IMF. The request will not be the first, as authorities have sought to exclude Ethio telecom’s non-guaranteed external debt from the Debt Sustainability Analysis (DSA) since 2019. They argue the company’s profitability and balance-sheet solid position make it a candidate for exclusion from the DSA, a tool employed by Bretton Woods institutions (the World Bank and the IMF) to measure the debt distress of a given country.
The IMF, however, has rejected previous appeals with its officials uneasy about a lack of independent annual financial audits since 2014/15.
The Bank can consider public enterprises for external lending if it can borrow externally without a public guarantee and its operations pose a limited fiscal risk. Last year, Ethio telecom submitted its financial books beginning in 2014 to the Audit Service Corporation, a state-owned firm established in 1969.
“The audit results for the past three consecutive years were unqualified,” said Frehiwot Tamiru, CEO of Ethio telecom, during a media briefing last week on the company’s six-month performance.
Ethio telecom settled 46.5 million dollars in debt over the first half of the fiscal year, with the balance expected to be paid back over the coming seven years.
If it weren't for the shortage of foreign currency, the company might have settled more of its debt, according to Mehedi Jemal, a strategic officer at Ethio telecom.
Ethio telecom's debt has been accumulated since 2013, with most of the loans invested in the enlargement of a network dubbed "Next Generation" and the expansion project. Ethio telecom soon faces competition from a private telecom operator, Safaricom, which paid 850 million dollars last May for a 15-year license. Safaricom Ethiopia is expected to begin operations in the coming months.
The two firms are in negotiations to reach an infrastructure sharing deal.
The 126-year old Ethio telecom achieved 86.4pc of its revenue forecast during the first half of the fiscal year, generating 28 billion Br. The company missed its revenues target by 14pc, partly due to network disruptions and service interruptions due to the war in the north. However, its users have reached 60.8 million, registering a 20pc growth since last July. Of the total subscriber base, 58.7 million are mobile users, while 23.8 million and 923,000 are mobile data and broadband internet users.
Though the state-owned telecom company has been expanding rapidly over the past few years, experts believe other candidates are more suitable for exclusion from the DSA. Leta Sera (PhD), assistant professor of economics at Jimma University, argues the Ethiopian Airlines Group is a better fit.
“Ethio telecom only serves the domestic market," he said.
Ethiopian Airlines is the only public enterprise that meets the criteria for exclusion from DSA. The national carrier runs on commercial terms, has a sizeable profit margin and enjoys managerial independence, according to the World Bank. Much of the Ethiopian Airlines debts are asset-backed. Its long-term external debt stood at 89 billion Br as of June 2020, a 15.5pc rise from the previous year. Close to 94pc of its external loans are Dollar-denominated.
By the end of last September, the two public companies had an aggregate non-guaranteed external debt stock of 3.2 billion dollars, representing 11pc of the country's total external debt stock.
Experts see little benefit from excluding Ethio telecom's outstanding external debt, which is insignificant compared with Ethiopia’s total external debt stock of 29 billion dollars.
Sewale Abate, assistant professor of finance and investment at Addis Abeba University, argues the move would not have a significant impact on the country's debt sustainability.
“However, in the long run, both the company and the country will benefit from it," Sewale said.
The share of Ethiopia's total external debt has reached 26.6pc of the GDP, a little above the median level of 26pc for developing economies. The federal government owes 67pc of the total external debt, while public enterprises (with and without government guarantees) owe the balance. The Bretton Woods Institutions account for 40pc of outstanding loans.
Other experts believe the exclusion of Ethio telecom can bring a modest relief for a country where the massive domestic and external debt of state enterprises has become a growing concern for government officials over the past three years. Close to 138 million dollars in external loans were disbursed over the first quarter of the fiscal year, marking 34pc lower than the credit secured during the same period in 2020 and the lowest figure in the past five years.
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