KEMMCOM Media and Communications

Regulatory shakeup continues in Ethiopia in 2023

Following a peace agreement between the Federal Government and the Tigray People’s Liberation Front (TPLF) in November 2022, Ethiopia fast tracked the first of 2023 with a slew of regulatory, market, and structural reforms as it continues to slowly liberalise its economy, open up previously-closed sectors to foreign investors, fast-track digital transformation, and improve its revenue collection from domestic sources. Here are the highlights of the laws, decisions, and numbers to make sense of East Africa’s largest economy

Fayda, Ethiopia’s national Digital ID, signs up 1.5million
After nearly two years of passing through the country’s law making ladder, Ethiopia became the latest African country to adopt a national digital ID proclamation in April 2023. Named Fayda after the Amharic word for relevance, the national ID makes all residents, as opposed to just nationals, in Ethiopia eligible and seeks to streamline a reliable eKYC process for service providers in the telecom, finance, and other sectors.

As of June 2023, more than 1.5million residents in Ethiopia have obtained their national digital IDs.

Safaricom bags mobile money license
Ethiopia has revised its National Payment System Proclamation, which now permits foreign operators to participate in payment system businesses within the country. The draft proclamation underwent four public discussions by the House of Peoples Representatives’ Budget and Finance Affairs Standing Committee after it was referred to the committee on October 19, 2022.

The revision process was initiated to foster a competitive environment in the payment service and create new opportunities for foreign investment. The National Bank of Ethiopia is now empowered to grant licenses to payment instrument issuers or payment system operators, according to the revised proclamation. This change marks a significant shift in Ethiopia’s economic policies, signalling its openness to foreign investment and trade.

Accordingly, Safaricom Telecommunications Ethiopia, a company formed as a consortium with three international telecom operators and their financiers, bagged the first international mobile money license in May clearing the last regulatory barrier to operationalise its much-acclaimed MPESA in the Ethiopian market.

Government steps up digitised fuel payments
One of the significant regulatory changes in Ethiopia in 2023 is the digitisation of fuel payments across Ethiopia. After an initial period of optional adoption for all users and mandatory adoption for vehicles qualifying for all fuel subsidies in Addis Abeba, the Ethiopia Petroleum and Energy Authority (EPEA) announced that all fuel transactions in Addis Ababa would be exclusively through electronic payment as of April. The move is part of the government’s efforts to promote a cashless economy and minimise the incidences of corruption in the fuel sector.

Two months after first implementation in Addis Abeba, the operation has now gone online across the country with all industry actors such as stations, fuel trucks, and depots sharing real-time data with the authority. As of the end of June 2023, ETB 8.6 Billion ($157.6million) has been transacted through the system in about 10 weeks of operation with the state-owned Telebirr and Commercial Bank of Ethiopia (CBE) processing the bulk of the transactions.

HoPR mandates property tax collection to regions
On January 11, 2023, Ethiopia’s House of Federation and House of Peoples’ Representatives agreed to transfer the authority of property tax to regional and city administrations instead of the federal government. The resolution was proposed to help reduce budget deficits and attain budgetary independence, with proponents believing that imposing a property tax will help them attain budgetary independence while relieving pressure on the federal government. However, there were concerns about the equity of the tax and potential increases in rents and property prices.

Addis Abeba City Administration has been the quickest off the blocks to first revise its roof and wall tax and complete the first batch of collections by the end of the Ethiopian fiscal year (7th July 2023). Encouraged by the developments and with a slew of other taxes coming into the picture, it is now targeting raising 100% of its budget for the 2016 (July 8 2023 to July 7 2024) fiscal year.

Excise Tax revision for the second time
The Ministry of Finance has revised the excise tax proclamation in response to the need to boost tax income and the persistent call from various interest groups to lower the rate on some products vital to the country. The excise tax reform that Prime Minister Abiy Ahmed’s administration undertook in 2020 was one of the most consequential of all the tax amendments enacted during that time.

The issued Excise Tax Amendment Proclamation includes changes to the excise tax rates on various products such as alcoholic beverages, tobacco products, and soft drinks. The excise tax rates on these products have been increased to promote local production and reduce the importation of goods.

The amendment also introduces exemptions for some goods such as agricultural inputs, raw materials, and machinery used in manufacturing. However, the exemption does not apply to luxury goods and items that are not considered essential.

Furthermore, the new law imposes an excise tax on certain services such as telecommunications and air travel, which were previously not subject to excise tax. Basic necessities like medicine, food, and other essential goods remain exempt from the excise tax.

Implementing excise stamps could increase excise tax revenue by 300 to 400 percent, according to The Reporter news. For the just-ended fiscal year 2015 E.C, the approved budget aimed to collect approximately 35.2 billion birr in excise tax, with nearly 20 billion birr expected to come from domestically manufactured goods such as beer, soft drinks, sugar, and tobacco.

Large SOEs announce milestones

It was a year of records for Ethiopia’s three major State Owned Enterprises (SOEs) as Ethiopian Airlines, Ethio Telecom, and the Commercial Bank of Ethiopia announced impressive performances in the 2015 fiscal year.

Making a full recovery after a partial slowdown during the years of the COVID pandemic, Ethiopia Airlines earnings jumped 20% to $6.1billion despite the impact of Russian-Ukraine war and the increase in fuel prices. The airline transported 13.7 million passengers and 723,000 tons of cargo in the fiscal year. In the middle of the year, the airline also saw a change in its board with long-time former CEO and board chairman Girma Wake giving way to Lieutenant General Yilma Merdassa at the head of its board.

Buoyed by the increased adoption of its mobile wallet Telebirr, Ethio Telecom reported a first half year revenue of $633million in January. But the most significant news came from Telebirr, only two years in operation as of May 2023, which grew to 27.2million users out of a record 70million total mobile subscribers. With full fiscal year results to be announced, Ethio Telecom is also expected to surpass the $1.2billion record of revenues this fiscal year with the number of Telebirr users expected to eclipse the number of mobile data subscribers in the country.

And in another evidence of the country’s rapid evolution of its digital payments ecosystem, financial transactions conducted through Commercial Bank of Ethiopia’s (CBE) digital channels surpassed those via tellers, accounting for 64 percent of the total as of June 17, 2023. Until mid-June, the bank had successfully completed 750 million transactions. CBE announced its annual digital transactions reached ETB 3.02 trillion birr ($54billion). Of this, 2.4 trillion birr ($32.9billion) were mobile banking and ETB 19billion ($345million) came through its mobile wallet CBE birr.