Safaricom Plc, Kenya’s largest company by market value, reported an 18% decline in its half-year profit due to the devaluation of the Ethiopian currency, the birr. This depreciation has impacted Safaricom’s operations and bottom line in Ethiopia, resulting in a net income drop to $218 million for the period ending in September 2024, down from $265 million in the same period last year.
The Ethiopian birr’s sharp depreciation—by 106.3% year-on-year—has posed substantial challenges for Safaricom. The currency hit necessitated revaluation of liabilities, including foreign currency borrowings and lease obligations, contributing to a $135 million loss in Safaricom’s financials. Nevertheless, the company’s underlying operations, particularly in Kenya, provided some relief, with service revenues growing by 12.9% to $1.38 billion, indicating strong performance in its core markets despite the Ethiopian setback.
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M-Pesa, the company’s mobile money service, continues to be a key revenue driver, now accounting for approximately 43% of Safaricom’s service income. This underscores Safaricom’s growing reliance on digital financial services amid regional expansion efforts.
Safaricom’s challenges are not new; the company has been grappling with profitability issues partly due to the heavy investments required to establish a foothold in Ethiopia, alongside Kenya’s tax changes, and adjustments in mobile termination rates intended to support interoperability. For the financial year ending March 2023, Safaricom’s profit had already fallen by 22.2% to $408 million, marking the third consecutive annual decline.
As Safaricom navigates complex market dynamics, its strategic expansion into Ethiopia remains pivotal. However, balancing these growth ambitions with the volatility of currency and regulatory shifts will continue to be key challenges in the short term.
Source: Bloomberg
