Safaricom’s Profits Jump As Ethiopia Losses Shrink

Safaricom, East Africa's dominant telecommunications operator, reported a significant profit surge in its latest financial results, even as losses from its troubled Ethiopia subsidiary continued to narrow. The Nairobi-listed carrier's consolidated earnings growth masks a deeper story: how regional telecom giants navigate political instability, currency depreciation, and competitive pressure across fragmented markets.

## Why is Safaricom's Ethiopia operation still unprofitable?

Safaricom entered Ethiopia's liberalised telecom market in 2022 amid considerable optimism. The operator secured one of two new licences in Africa's second-largest economy, competing against state-owned Ethio Telecom. However, the venture has struggled with persistent losses. Ethiopia's macroeconomic crisis—including the birr's near-total collapse against hard currencies—has compressed operating margins and deterred foreign investment. Additionally, Ethio Telecom's entrenched market position and state subsidies created a steep competitive hill. Safaricom's Ethiopia unit reported operating losses of over KES 2 billion annually through 2023, though the latest quarter shows sequential improvement.

The narrowing losses signal operational progress. Safaricom has cut costs, optimized its network footprint, and grown subscriber numbers to approximately 5 million by mid-2024. Yet profitability remains elusive. Ethiopia's restrictive forex regulations limit the repatriation of dividends, a concern for Safaricom's shareholders already frustrated by the investment's underperformance.

## How is Kenya's market driving group profitability?

Safaricom's Kenyan core business remains a cash machine. The operator holds 68% of Kenya's mobile subscriber base and commands pricing power in voice, SMS, and data services. Q3 2024 results showed Kenya segment revenue growth of 12.4% year-on-year, driven by data monetization and enterprise services. The introduction of 5G services, now available in major urban centres, has attracted premium-tier customers willing to pay higher ARPUs (average revenue per user).

Safaricom's dividend per share increased, rewarding long-suffering shareholders after years of Ethiopia-related writedowns. This validates management's strategy: grow the core, absorb losses in expansion markets, and deliver returns where the company dominates.

## What does this mean for East African telecom investors?

The Safaricom trajectory illustrates a critical tension in African telecom expansion. First-mover advantages in saturated markets (Kenya, Tanzania) generate reliable cash flows, but new-market entry (Ethiopia, potentially Rwanda) carries execution risks that can take 3–5 years to resolve. For institutional investors, Safaricom remains a defensive play in East Africa's telecom sector—stable dividends, predictable regulation in Kenya, and upside optionality if Ethiopia stabilizes under a new political administration post-conflict.

Competitors like Airtel Africa and Vodacom face similar dynamics but lack Safaricom's scale. The lesson: in African telecoms, geographic diversification is essential for growth, but concentrated profitability in core markets is non-negotiable for shareholder returns.

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