China’s Ethiopian ambitions suffer setback with telecoms decision

Ethiopia

(Source:South China Morning Post) – 

  • The African country’s drive to open up its telecoms market saw a US-backed international consortium beating a Chinese-supported bid for a mobile licence
  • Ethiopia says it does not want to become a forum for a ‘proxy war’ between the two powers and is open to everyone for business

Ethiopia’s recent decision to open its telecoms market saw a Chinese-backed bid for a mobile licence lose out to a consortium that had US support, but the east African country is likely to remain an important market for Chinese companies.

Last weekend, a consortium backed by the US International Development Finance Corporation and UK sovereign investment fund CDC Group and led by Britain’s Vodafone, Kenya’s Safaricom, South Africa’s Vodacom and Japan’s Sumitomo Corporation won the deal after bidding US$850 million to secure a 15-year licence in Africa’s second biggest country.

The companies plan to invest more than US$8 billion over the next decade, making it the single largest foreign direct investment in Ethiopia to date, Prime Minister Abiy Ahmed said.

The other biggest contender, Africa’s largest mobile phone operator MTN, which was backed by the Chinese state-owned Silk Road Fund, lost after bidding US$600 million.

Ethiopia has rejected the assessment of some observers, such as Zemedeneh Negatu, the chairman of US-based investment firm Fairfax Africa Fund LLC , that the bids represented a “proxy war” between the US and China for influence.

“We do not want Africa to be in another form of proxy war, but of cooperation and development,” Fitsum Arega, Ethiopia’s ambassador to the US, said. “Africa in general and Ethiopia has the potential to attract investments from all countries. All are welcome.”

David Shinn, a professor at George Washington University’s Elliott School of International Affairs, said the award may have been strictly on merit. “Ethiopia tends to be a tough negotiator and accepts what it believes is the best deal that it can get. I doubt that global politics had much to do with it,” he said.

Seifudein Adem, a professor of global studies at Doshisha University in Kyoto, said from the point of view of Ethiopia’s policymakers, “it is an economic calculation that led to the decision”.

But whether the policymakers like it or not, the decision does also carry some geopolitical implications, according to Adem, a native of Ethiopia.

“It is likely to disappoint China not just because it lost the bidding but also because of who won. Beijing must be wondering: is this the beginning of the end of the preferential treatment it used to enjoy in Ethiopia?” he said.

China is a major investor in Ethiopia, which is its second biggest borrower on the continent after Angola. Chinese loans worth US$13.8 billion up to 2018 have helped fund major infrastructure projects such as roads, railways, power plants and industrial facilities, but have also raised concerns about the risk of debt distress.

The broader politics of the US-China rivalry also intruded into the Ethiopian bidding process. The US International Development Finance Corporation agreed to pump US$500 million into the Safaricom consortium to finance Ethiopia’s 5G-ready network, but only condition that the money would not be used to buy equipment from Huawei Technologies Co or ZTE, two Chinese companies that have been blacklisted by the US.

But this does not mean Huawei is out of business in Ethiopia. It has been a key network and equipment supplier for government-owned Ethio Telecom, which formerly held a monopoly over the country’s telecoms market.

Ethiopia is ending Ethio’s telecoms monopoly and opening up to foreign companies. Photo: Reuters
Ethiopia is ending Ethio’s telecoms monopoly and opening up to foreign companies. Photo: Reuters

This month, Ethio also launched the country’s first mobile money platform, TeleBirr, which was developed by Huawei.

Adem said it was also a geopolitically meaningful move for Ethiopia to award Huawei a telecoms contract to expand 4G for Ethio Telecom shortly before it awarded a mainly Western conglomerate another licence for 5G.

“But to suggest that this is a part of the tech Cold War between China and the US is, I think, to read too much into a single pair of major transactions, however symbolically significant it may be,” he said.

Despite growing pressure from the US for countries to stop using Chinese 5G technology, Huawei is the largest telecoms equipment and technology provider in Africa. Its technology is currently powering 5G in Kenya and South Africa.

A recent study by the CSIS Reconnecting Asia Project said developing economies are still welcoming the Chinese tech giant and identified 70 deals in 41 countries for cloud infrastructure and e-government services.

It found that most deals (57 per cent) are in middle-income countries and over a third are in Africa.

 

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