Safaricom eyes the prize of cross-border ecommerce

Safaricom, Kenya’s main mobile phone operator, is planning cross-border expansion for the first time, into the untapped market for ecommerce and mobile payments, according to its chief executive Bob Collymore.

Mr Collymore said Safaricom would initially target its east African neighbours, but was also considering west Africa.

The company’s market capitalisation reached $10.5bn on August 29 after its share price hit an all-time high of Ks27.25 but this has slipped by 9 percent in the stock market sell-off after the supreme court nullified the result of last month’s presidential election.

Analysts said the big prize would be to establish a foothold in Ethiopia, which this year overtook Kenya as the largest economy in the region and has a population of 100m. But they acknowledged that it would be hard, because foreign banks, telecom companies and retailers were banned from the country.

Other countries would see Safaricom as “a bit more of a threat if we come in as a mobile operator”, Mr Collymore told the Financial Times in an interview. “But . . . we want to go into white space . . . space that no one is in at the moment and no one is in ecommerce.”

Safaricom’s version of ecommerce, to be called Masoko, would aim to be more like China’s Alibaba and combine ecommerce and mobile payments, rather than Amazon, Mr Collymore said.

“Amazon has inventory and is managing logistics and we don’t want to hold inventory,” he said.

Safaricom wanted to create a marketplace that connected businesses to consumers but also businesses to other businesses, he said.

Several ecommerce companies already operate in Kenya – the largest being Nigeria-based Jumia. Others include Kili Mall and OLX. Most follow Amazon’s business model of holding inventory and the sector is still very small: sales are estimated at under 1 percent of mobile payments, according to the Communications Authority of Kenya. The expansion will be funded by Safaricom’s telecoms business in Kenya.

In the year to March 2017, it recorded a 27 percent increase in pre-tax profit to Ks70.6bn ($684m), helped in large part by a 32 percent growth in revenue from its M-Pesa mobile money platform to Ks55bn. Mr Collymore, who took over as chief executive in 2010 and had his contract renewed for two years in May, plans to roll out Masoko in Kenya later this year to “prove the concept”.

He said: “In two to three years’ time we will be in four to five African countries. I don’t think we’ll step out of Africa because that’s too far and you have lots of other challenges.”

Mr Collymore said the expansion had been made possible by the completion last month of the sale of 35 percent of the company by London-listed Vodafone to South Africa’s Vodacom, which is majority owned by Vodafone.

“This really unshackled us,” he said. “Until now anything outside of Kenya . . . was Vodacom’s territory as far as Vodafone as a shareholder was concerned. Now Safaricom can take . . . services like payments into other markets.”

Vodafone has retained a 5 percent direct stake in Safaricom. The Kenyan government also has a 35 percent stake, with the remainder of the shares being free float. Francis Mwangi, an analyst at Standard Investment Bank in Nairobi, said Safaricom’s overseas expansion was a “natural evolution”.

He said: “It’s now a platform operating business more than just a telco. The big question is will it succeed? Many of their initiatives have worked very well but not all.”

Ahmed Salim, of Teneo Intelligence, said entering the Ethiopian market would be “an intriguing proposition”.

He said: “If any company can do it, it would be Safaricom. There’s been a little softening of the [Ethiopian] government’s stance towards the private sector this year but it’s not going to happen overnight.”

Mr Collymore said Safaricom was also taking on specialist staff to analyse the 2 terabytes of customer data it generated every day. Until now, Safaricom had largely neglected that data, he said.

“At the moment it’s like a big library with all the books on the floor,” he said. “We don’t know how to find the stuff.”

A new team will be led by Kamal Bhattacharya, a former IBM Labs executive. Mr Mwangi said an easy way for Safaricom to start making money from customer data would be to offer information from its 19m Mpesa users to credit checking agencies. Safaricom’s expansion is still at risk from a pending report by the regulator, the Communications Authority of Kenya, into whether it abused its dominant position – it has a 71 percent market share of mobile phone users.

Mr Collymore said the worst-case scenarios were “regulated price control and forcing a break-up of retail and wholesale [operations]”.

But he added that he thought these were unlikely, partly because Joe Mucheru, the information and communications minister, “doesn’t support break-up for the sake of break-up”.

The regulator has yet to say when its report will be published.



By John Aglionby

Published on Sep 09,2017 [ Vol 18 ,No 906]



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