Economic Commentary: Ethiopia’s Digital Economy: Boom, bang 

As a result of this budding digital takeover, names such as Hope Music, M-Birr, Deliver Addis, RIDE, and Events Ethiopia have all become household names.

Getachew T. Alemu, For Addis Standard

Addis Abeba, April 18/2019 – A flourishing digital economy is a new feature in the dynamics of the new Ethiopia. Slower as this explosion might be compared to the case in other countries, marked by competitive telecom market, its growth and disruptive impact in the traditional markets identified with hierarchy, clientelism and collusion is certainly radical.

Traditional frontiers of the markets, such as music recording and distribution, financial transaction, eating out, taking a taxi and booking a seat at the cinema have all been taken to the cloud, thanks to the new techprenours of the nation. As a result of this budding digital takeover, names such as Hope Music, M-Birr, Deliver Addis, RIDE, and Events Ethiopia have all become household names. Unlike their brick and mortar peers, underpinned with highly bureaucratic enterprise machineries, these new businesses are flat structures of small teams operating with small capital and all the more living in the shadows of the Internet.

It is not only the superstructure of the private enterprise as we know it that is being disrupted by the new digital organisms, but also the traits and instituted culture that it has been working with for centuries. As such, the era of enterprise seclusion and passivity is ending. It is now being replaced with an interactive, increasingly responsive, open, flexible and engaging digital enterprises.

The breeds of disruptive tech enterprises that our market is witnessing vary. A small stocktaking exercise would help to show their diversity and economic reach.

Let me start by my favorite – Hope Music Ethiopia, a YouTube music channel, with 846,000 subscribers and 1,600 music videos. The channel, which generates revenue through Google’s AdSense service by way of pay-per click basis, has shifted the ground of the rather traditional music recording and distribution market. Of course, Hope is not the only channel engaged in such endeavor. There are others like Minew Shewa Tube and Dire Tube doing similar stuff.

With the coming of Hope and other digital music distributors, the way music is produced, marketed, distributed and consumed has changed. Along with that, the way musicians are contracted and paid for their talent has also changed. So have also the way to target audience, analyze preferred genres, collect feedback, guide production and direct decisions have changed. The old days where record labels are treated like gods and musicians are forced to suffer from the biases of account executives have ended. Thanks to the openness of the new internet-based music market, the wall of executive bias has been torn down, giving every other aspiring musician a chance to take her talent to the audience.

Gone are also the days that musicians are burdened with all costs of music production. Under the era of tubes, flexible cost sharing agreements are the norm. What has changed along with the cost sharing arrangement is the division of labor in terms of production. There now are specializations within the production, wherein separate entities are responsible for producing the music, the video clip and the final outcome (the music video). This specialization has not only improved the quality of music videos, but also enhanced the outreach of Ethiopian music, in terms of both tones and themes.

Whereas Hope disrupted the entertainment market, the likes of M-Birr are fighting with the powerful traditional capitalists of the country. M-Birr, a mobile based financial transaction and electronic payment platform, provides subscribers the opportunity to save, send and receive payments through a digital means. A decentralized agency-based solution, M-Birr attempts to change the traditional banking system, which is based on rolling out physical branches and creating hierarchic lines of settlement approval. Wholly digital electronic payment platforms, such as Yene Pay, Jamii-Pay and DirectPay, are also positioning themselves to concur the market, although their current engagement is limited by lack of a guiding policy and law as well as supporting infrastructure.

The attempt and partial success of these enterprises relates to pushing the ground of financial inclusion to shift. They are leveraging the increasing attachment of people with mobile phones and inclination to live hassle-free life. Through the use of the powers of the internet, they have not only reduced the cost of financial transaction, but also cut the settlement risk to insignificant level.  Their continuous innovation in terms of making themselves simple and friendly for utilization by illiterate users means that they are slowly crumbling that long overdue stereotype saying, “banks are for the educated”.

What is amazing of this trend is that it has grown so powerful even to push the brick and mortar banks to devise their own channels of competing with this landslide, happening under their foot. They seem to have realized that the cost of failing to catch up will be enormous.

The slowly growing Ethiopian digital economic space is not limited to new entertainment and financial services. A whole new sort of transaction space is also happening in the form of Facebook pages, Telegram Channels, and WhatsApp and Viber groups. By way of creating dedicated pages (in the case of Facebook) and Channels (for all the others), individuals or groups with tradable commodities will be advertising products. Consumers could, then, look for the type of commodities they would like to buy and communicate the buyer. While payment will be settled either through a bank account or cash, good will be delivered by the seller to an agreed up on place.

True, this may be Ethiopians’ way of adapting to an environment with no integrated e-commerce service, pertaining to a regulatory hindrance for e-payment. But they are playing their part in changing the market landscape for commodity transaction. On the one hand, they are slowly shifting consumer behavior toward digital transactions. This entails an entirely digital way of marketing, price comparison, communication and rating of service provision.  On the other hand, these activities are influencing traditional traders shift their market approaches. Many of them are employing these new mediums as integral parts of their sells strategy. 

Although no consolidated numbers for the size of transactions being mediated by these agencies, estimates conducted by some agencies show that their size is growing. A recent estimate by Reliable-et, a research and strategic consulting firm, shows that annual transaction through these mediums could amount to 10 to 15 million Br, growing at annual average rate of 23%.

Furthering the digital economic space in Ethiopia are services such as Deliver Addis, Ride, Zay Ride and others. Whereas Deliver Addis is a digital food delivery service, Ride and Zay Ride are taxi hailing services. In all cases, however, the service provision is integrated, facilitated, made easy, became accessible and proven efficient through the involvement of technology products bridging that huge gulf between suppliers and consumers. In all cases, the technology service providers generate revenue by either taking commissions from the service fee or tagging defined price for their mediation.

These are not the only players in the national digital economy, however. New media outlets, online gaming services, online betting, digital job boards, freelance professional matching and many other services catered for Ethiopians are growing in the digital space.

The booming digital economy in the country is underpinned with economic fundamentals and emerging opportunities.  

Ethiopia’s growing population, standing at a little over 100 million and growing at an average of 2.5% per annum, is the underlying incentive for the booming digital economy. Further, the huge public investment made in the terms of enhancing the national telecom infrastructure backbone has made the rolling of the services all the more possible. In a matter of 12 years, the national telecom monopoly has invested over 3.1 billion dollars to enhance the national telecom infrastructure.

As a result of the investment made by the national monopoly, the number of mobile subscribers in the country has gone upwards of 60 million, while the number of mobile data service users has surged beyond 20 million.

Public institutions are graduating thousands of ICT degree holders each year, while lower level trainings are also being provided by TVETs. There also is an increasing interest from donors to support this human resource development effort, for they see this as an opportunity to create jobs for the bulging youth population of the nation.

Underpinning this growing momentum are innovation and acceleration labs affiliated with private enterprises and donor agencies. ICE Addis, Bluemoon and I-Cog Lab are just few of these agencies facilitating the inculcation of new ideas, business plans, products and solutions.

Occasional events, such as competitions, networking sessions, tailored trainings and fund raising, also support aspiring techprenours join the growing digital economy of the country. This, of course, is not to mention what established ICT human development businesses, such as Gebya Inc, are doing.

All these developments in the digital space show that the trajectory for the digital economy of the nation is nothing but positive. Estimates by Reliable-et show that the contribution of ICT to the GDP of the nation could grow to 10% by 2030, from its current state of 2%.

Certainly, the story is not all positive. There are challenges that hinder the growth of the digital economy in the nation. And if these challenges are not to be addressed in a thoughtful and strategic manner, then, the emerging digital economy of the nation could die before it even matures.

The utmost challenge for the digital economy comes from the policy space. Lack of comprehensive, flexible and adaptive digital economic policy is the major hindrance for the efforts that the young aspiring techies are exerting. For Ethiopian policymakers, ICT is perceived just as tool to do traditional economic activities. It is not conceived as an enabler of a whole new economic space. Less is also there in the form of understanding the digital ecosystem as an environment of its own, with intricate sets of relationships.

This dearth of understanding has precipitated in the the form of traditional regulatory frameworks and unresponsive bureaucracy. It is dismaying to see how much mechanical our regulatory system, from business registration to tax compliance, has continued to be, while the digital ecosystem is playing with upbeat innovations, such as Artificial Intelligence (AI), block chain and crypto currency. By now, it should have been clear for Ethiopian policymakers that their regulatory system is insufficient and obsolete to manage such new frontiers of the economy.

The recent skirmish between RIDE and Addis Abeba transport authorities rightly shows how much backward, passive and annoyingly inflexible the regulatory regime in this regard remains. 

Although things might be changing soon, the telecom service provision of the country stays under a state monopoly (see the table below from ITU). As such, lack of competition has imposed huge marginal cost on services, and hence basic services remain costly. And this hinders innovation, skills development, knowledge exchange and business development.

A regulation from the central bank that attaches e-payment services with financial institutions also limits the outreach, activity, revenue, capitalization and development of service providers in the digital economy.

Outdated and largely dysfunctional curriculum, high taxation on ICT equipment, undeveloped and risk sensitive credit market, shortage of tailored skills development programs, narrow base of investors and traditional consumer behavior are all factors that the emerging digital economy of the country grapples with.

Sustaining the positive trajectory of Ethiopia’s digital economy requires active learning from all stakeholders. Whereas policymakers ought to learn to craft flexible policy frameworks that enable innovation and digital service provision, service providers and technology developers ought to learn to effectively push policymakers adopt to the changing reality. At the same time, both the public and private sectors have to join hands in the efforts meant to improve the context of the digital economy, from improving curriculum to changing consumer behavior.

But one thing is certain. Now is the time to give due attention to Ethiopia’s digital economy. And as the saying goes, “it is better late than never”.  AS


­Editor’s Note: Getachew T. Alemu is an investment and public policy analyst. He has recently conducted a research on Ethiopia’s Digital Economy – Outlook 2019 under the banner of Reliable-et, a research and strategic consulting firm. He can be contacted This article does not reflect the views of any organization that the writer is affiliated with.

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