Postcard from Addis - A city on the move
Addis Ababa in Ethiopia viewed from a distant mountain in the morning
After returning from a week in Addis Ababa, Ethiopia we wanted to share some snippets of our most memorable sites and meetings. In our opinion, the statement that best describes what is happening in Addis is:
"Sometimes nothing happens for decades and sometimes in weeks decades happen...we are in the days when decades are happening in weeks.”
For detailed meeting notes, please feel free to reach out to us directly.
ESX, open
We met with the CEO of the Ethiopian Stock Exchange (ESX), where we learned that Ethiopians are natural savers (85% of adults save) and are big contributors to their pension pot (18% of gross salary). There are already over 400k shareholders of private companies, who are keen to upgrade to electronic registration and have a more transparent pricing mechanism. After the Ethio Telecom IPO, we know that all 29 private banks and 18 insurers will be listing on the ESX.
Ethio Telecom IPO
The offer for 10% of Ethio Telecom is restricted to domestic retail investors (with a max of 3,333 shares per investor) and the offer period will run for c80 trading days and close in January 2025. On valuation, this was done by Deloitte and the offer price was set at ETB300 per share, which valued the business at a trailing P/E of 15.8x and EV to trailing EBITDA of 7x. The trailing earnings and EBITDA are for the 12 months to June 2024 (i.e., before the July devaluation), so they are overstated. The ETB devalued from cETB58/USD in June 2024 to ETB118/USD currently.
Banks raising capital
This sector is an example of how fast things are changing in Ethiopia. After having a minimum capital requirement of ETB200mn for over 30 years, this was doubled in 2023 and now the banks have until June 2026 to hit a new minimum requirement of ETB5bn. The draft amendment to the banking act, which we saw, will allow foreign banks to set up wholly-owned subsidiaries and buy up to 49% of an existing bank. Foreign banks can buy up to 100% of distressed banks, from what we hear. Post the devaluation, the operating environment is tough, with real lending rates negative, liquidity tight and asset quality poor (stated NPL ratio c4%, but up to 35% of all loans are in the special mention bucket). Concentration levels are high, with c23% of all loans placed with only 10 companies and individuals. There are c80mn bank accounts in Ethiopia, but only 3,000 borrowers.
Safcom to breakeven
Post the devaluation, Safaricom Ethiopia expects to be EBITDA positive next year and profitable in one to two years. With Telebirr (Ethio Telecom) being the exclusive payment channel for utility bills and fuel, Mpesa is focused on international remittances (+5mn diaspora, with +1mn in the USA alone). Also focused on maintaining high data speed, which is now faster than Kenya and cheap. We paid cUSD10 for 100GB of data and 150mins of voice. On Ethio Telecom's IPO, it is a difficult benchmark at 7x trailing EV/EBITDA.
Roads being upgraded
Whilst the bulk of our time was in the CBD, the roads we did use were largely new and fitted with bicycle lanes and pedestrian walkways. In the last six months alone, we understand that city authorities have pushed ahead with works to build 385km of roads. This is a key priority of the PM Abiy, who has taken his inspiration from Dubai.
Electric cars, for real
When PM Abiy announced the ban on fuel-powered personal vehicles, we questioned its practicality. However, with one in three cars we saw being electric, it seems to be working. The reason behind this is that it is cheap to charge (< USD1 for a full charging, which is c250km, as per our driver for the week). Also, there are no duties on these electric cars, while the price of fuel-powered cars is high. A 2001 Toyota Vitz is slightly more expensive than a new electric car of similar specs (cETB1.5mn).
The meat
Lastly, what impressed us the most about Addis, was the meat. Ethiopians love their raw meat and eat it with great enthusiasm when they are not fasting :).
For those of you who did not know, there are seven designated fasting periods throughout the year for Orthadox Christians. In a full year, devoted adherents fast for around 165 to 250 days. This includes abstaining from all animal products – meat, dairy and eggs – every Wednesday and Friday.
Ethiopia also has a very large Muslim population. Depending on who you ask it is between 40-to-60% of the population (120mn).
