Vodacom faces challenge because of U.S. sanctions against Ethiopia

Vodafone Group Plc’s plans to expand in Ethiopia have been complicated by the U.S. state development agency’s decision to pause investments in the country, according to people familiar with the matter.

A group including the U.K.’s Vodafone, Safaricom Ltd. and Vodacom Group Ltd. were awarded a new mobile-phone license by the Ethiopian government on Saturday, and had agreed to take a $500 million loan from the U.S. International Development Finance Corporation to help with acquisition and development costs.

That part of the financing has been thrown into doubt over U.S. economic sanctions against Ethiopia to end violence in the northern Tigray region, a conflict which has killed thousands of people and displaced many more. The state group is awaiting direction from the Joe Biden administration about how it should react in the longer term, said the people, who asked not to be identified as the information isn’t public.

Should that cash be permanently withdrawn by the DFC, the telecom companies will have to source the cash elsewhere and at greater cost, the people said. However, there’s no indication the license award is in jeopardy, they said, and the group expects to start services in 2022.

Vodafone declined to comment, while Vodacom and Safaricom didn’t immediately respond to requests for comment. The DFC didn’t respond to emails seeking comment.

The U.S. decision may also affects funding from the World Bank and the International Monetary Fund to the country, people familiar with the matter said earlier.

Ethiopia’s award of a new telecom license paves the way to open the market of more than 110 million people to international investors for the first time, a key part of Prime Minister Abiy Ahmed’s economic strategy. The group pledged to invest $8.5 billion in their network over the next 10 years, including the $850 million license fee. Other partners include the CDC Group, the U.K. equivalent of the DFC, and Sumitomo Corp.

The license has been awarded for an initial period of 15 years. Nairobi-based Safaricom, East Africa’s biggest company, owns a majority stake in the consortium.

Another partnership led by MTN Group Ltd., Vodacom’s Johannesburg rival, and the Silk Road Fund, a Chinese state investment group, was turned down after bidding $600 million. Ethiopia still intends to sell two licenses, and said it will invite a new round of offers from international carriers after some policy adjustments.

The government is also looking to sell a minority stake in Ethio Telecom, the state monopoly.

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Vodacom faces challenge because of U.S. sanctions against Ethiopia