🗣️ Word On The Street

PLUS: Setting the Stage for your Business

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ፍራንክ Digest
October 29, 2024

Welcome to the latest edition of ፍራንክ Digest!

Your weekly brief on all things Finance and Investing. Quick, enjoyable reads for busy professionals in 5 minutes or less.

Here’s what’s coming your way:

  • 🔏 Telecom Tales: To Share or Not to Share with Ethio Telecom?

  • 💼 Sole, PLC, S.C: What’s the best structure for your new business?

  • 🗝️ The Key Takeaways

Thanks for reading!

Dive or Dip in the Telecom Pool?

scrooge mcduck pool GIF

Investing

Ahh, the telecom industry—the ጀርባ አጥንት of a digitally connected society. With Ethio Telecom's 10% share offer being the Talk of The Town & making waves, it’s time to weigh the risks and rewards of diving headfirst into this telecom pool.

Key Risks to Keep an Eye On:

  • Competition: The telecom race is heating up! While Ethio Telecom holds a cozy 94.5% market share, Safaricom's entry has stirred the pot, leading to aggressive marketing and a potential price war. With the potential for other international telecom providers entering the market, more players on the field could mean a less profitable game for everyone.

  • Technological Changes: Keeping up with tech isn’t just a hobby; it’s a necessity! Ethio Telecom faces stiff competition from Safaricom and data-driven services like Zoom and Telegram. Plus, with innovations like Starlink providing satellite internet, the competition is no longer just local—it's global!

  • Economic Conditions: The Ethiopian Birr has seen some wild times, floating and depreciating over 100%. This doesn’t just squeeze consumers; it also tightens the grip on Ethio Telecom’s expenses. The company has loans totaling USD 639 million and JPY 18 million to repay, and those are in foreign currencies.

  • Cybersecurity Threats: With great data comes great responsibility! Telecoms are prime targets for cyberattacks, and any breach can lead to a loss of customer trust. Ethio Telecom isn’t alone; major companies like Ethiopian Airlines have had their share of cyber woes.

  • Customer Churn: Subscribers are like fickle friends—they can leave if they find a better deal! Ethio Telecom's prepaid customers can easily switch to competitors like Safaricom if they offer more attractive pricing. Smart use of data analytics and AI can help keep those subscribers loyal.

  • Supply Chain Disruptions: The pandemic reminded us all how fragile supply chains can be. Ethio Telecom relies on foreign suppliers for network equipment, making it vulnerable to disruptions.

  • Regional Trends: Political and economic instability can make or break business continuity. A peaceful and economically tied region allows Ethio Telecom to thrive, while instability can hinder growth.

Opportunities Awaiting Exploration:

While risks abound, so do opportunities!

  • Mobile Data: With 76% of subscribers not using mobile data due to high costs, there's a treasure trove waiting to be unlocked once smartphones and data packages become more affordable.

  • Internet of Things (IoT): The rollout of faster networks opens doors for smart homes, connected cars, and even healthcare devices—new revenue streams just waiting to be tapped!

  • Rural Connectivity: Bridging the digital divide in underserved areas isn’t just good karma; it’s good business! Government services, mobile money, and crop insurance can flourish, with the telecom sector contributing ETB 700 billion to GDP in 2023 and expected to reach ETB 1.3 trillion by 2028.

In this ever-evolving telecom landscape, it’s crucial to weigh the risks against the opportunities. Whether a seasoned investor or a curious onlooker, understanding these dynamics can significantly influence your investment decisions.

Key Takeaways

  1. Watch out for intense competition from new entrants, especially with Safaricom shaking things up.

  2. Stay alert for technological advancements and the potential threats they pose, including satellite internet services.

  3. Opportunities in mobile data and rural connectivity can lead to significant growth as Ethiopia embraces digital transformation.

ፍራንክ Picks 

🗞️ In the news: Heineken acquires Arada

Business Basics: Which Structure Suits You Best?

Business Finance

So you’re excited about starting a business.

You know what you’ll sell, who to sell it to and how much for. 

That’s great! You’ve covered the basics of the what, who and how much, now it’s time to get down to business 😉

But hold on, you don’t know how to set up a business! How much money is needed? Whether you need to borrow or use your own savings? 

In a previous article, we covered the difference between debt and equity, helping our readers understand how to fund a business.

Here, we break down the three most popular business types in Ethiopia.

  1. Sole Proprietorship (SOLE)

A sole business is the most common business structure in Ethiopia. As you can imagine, micro and small businesses dominate the market but some morph into large businesses. The majority is your local ህንፃ መሳሪያ ሱቅ or professionals like accountants. 

Sole, as its name suggests, requires only one member who shall be named as owner and general manager of the business. He/she puts up the equity investment and may hire employees.

Despite sole businesses expected to have relatively small yearly turnover, they are still required to obtain a TIN, much like the other business types and pay an income tax of 35%. Sole traders have unlimited liability and the owner is personally responsible for the debts of the business.

  1. Private Limited Company (PLC)

A business structure that has gained a lot of traction is a Private Limited Company (PLC). A PLC previously required at least 2 members, although most recently a one person PLC has been approved. (Still need to appoint a boss - a general manager - to function)

Capital contribution is divided between the members. PLCs can take out debt as well, provided that loan requests are approved by all members. 

The main advantage for picking PLC over Sole ownership is the limited liability for the owner(s) as asset recovery in case of bankruptcy don’t go beyond company assets/equity.

TIN and VAT registration aside, there are more tax related obligations as you have to have an external accountant prepare your annual audited statement. But at least the income tax is only 30%, as opposed to 35%. 

Minimum capital required: 15,000 ETB

Examples of PLC companies:

This type of business structure is typically seen in financial services or heavy industries.

This is because most businesses within those industries require high upfront investment. Banks for example start selling shares (Partial ownership of the business) before they start operations: you might have seen those ‘ሼር ግዙ!’ campaigns.

Typically, share companies require at least 5 members. In addition, the authorities insist on showing a deposit slip of the capital commitment and usually includes stricter governance procedures—has to have a board of directors to oversee the business’ activities on behalf of shareholders and disclosure procedures (audited financial statements and shareholders meetings). This in turn gives it an advantage over PLCs when seeking additional finance through share capital.

The annual income tax is the same as PLCs at 30%.

Minimum capital to be put up for most S.C: 50,000 ETB

Examples of S.C:

BIG PICTURE: Starting a business with 0 birr is almost impossible. You either need to put up some of your own cash or see if you can get some financing.

But whatever approach you take, you’ll need to be aware of the business structure you’re going to pick. 

As a general rule of thumb, a company with a good financial backing will most probably have a high rate of success! Although money is not the only spicy ingredient in the mix.

For all you dreamers turned go getters, here’s a great place to start your business journey here 

Key Takeaways

  1. Know Your Structure: Sole Proprietorships, PLCs, & Share Companies (S.C.), each have unique perks and requirements.

  2. Cash Matters: Start small with a Sole Proprietorship (low costs) or aim higher with a PLC (15,000 ETB) or S.C. (50,000 ETB) for bigger ambitions.

Thanks for sticking with us, ፍራንክ family! Keep those wallets smart and your inbox open - we’ll be sliding in next week!

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