World’s ma­jor mo­bile op­er­a­tors re­assess African in­vest­ments

The Star Early Edition - - NEWS - Loni Prinsloo and Jan­ice Kew

BACK when African coun­tries were auc­tion­ing off mo­bile li­cences by the boat­load to serve the re­gion’s young, tech-savvy pop­u­la­tion, in­vest­ing in the con­ti­nent’s fast-grow­ing economies seemed like a no-brainer.

Some of the world’s big­gest wire­less car­ri­ers rushed in. Now they are won­der­ing if they made a mis­take. In­creas­ing gov­ern­ment and reg­u­la­tory scru­tiny, as well as a lack of ex­pan­sion op­por­tu­ni­ties in sub-Sa­ha­ran Africa, are mak­ing it harder for op­er­a­tors such as Voda­fone, Orange and Bharti Air­tel to grow. Their choice: Pull back or dou­ble down.

Two com­pa­nies beat­ing at least a par­tial re­treat are Mil­li­com In­ter­na­tional Cel­lu­lar, which dis­posed of its Sene­gal and Demo­cratic Repub­lic of Congo units, and In­dia’s Air­tel, which sold busi­nesses in Burk­ina Faso and Sierra Leone to Orange ear­lier this year.

Re­duc­ing its ex­po­sure to Kenya, Voda­fone trans­ferred most of its $3.6 bil­lion (R48.14bn) stake in Nairobi-based Sa­fari­com to ma­jor­ity-owned South African unit Vodacom in May, and may pare fur­ther. That leaves Voda­fone Ghana as the UK com­pany’s sole own-branded African op­er­a­tion.

“At this point it is be­com­ing clear who has a chance of mak­ing it in Africa and who does not, and it es­sen­tially boils down to scale, as well as gov­ern­ment sway,” said Baha Makarem, an an­a­lyst at Arqaam Cap­i­tal.


“It’s just a ques­tion of who is ready to weather the storm.” The shift in sen­ti­ment comes as gov­ern­ments across sub-Sa­ha­ran Africa are los­ing favour with in­vestors.

The fall in com­mod­ity prices has re­duced tax rev­enue in many coun­tries, and av­er­age eco­nomic growth slumped to 1.4 per­cent last year from 3.4 per­cent in 2015, ac­cord­ing to the In­ter­na­tional Mon­e­tary Fund.

That has en­cour­aged law­mak­ers in coun­tries in­clud­ing Tan­za­nia and Ghana to look to in­ter­na­tional com­pa­nies for rev­enue op­por­tu­ni­ties – both have ordered for­eign wire­less car­ri­ers to cede shares to lo­cal in­vestors.

“The reg­u­la­tory chal­lenges are top of our mind at all times,” MTN chair­per­son Phuthuma Nh­leko said at the an­nual meet­ing of Africa’s big­gest wire­less car­rier in May. “It’s just part of the en­vi­ron­ment in which we op­er­ate.”

Nh­leko has first-hand ex­pe­ri­ence with that. A Nige­rian watch­dog fined the car­rier $5.2bn in 2015 for miss­ing a dead­line to dis­con­nect un­reg­is­tered sub­scribers, lead­ing to a slump in the share price that is yet to turn around.

The penalty was re­duced to $1bn af­ter months of ne­go­ti­a­tions and Nh­leko has since over­hauled man­age­ment and cor­po­rate gov­er­nance.

Even so, MTN was fined $8.5 mil­lion in Rwanda in May for non-com­pli­ance with its li­cence obli­ga­tions. The com­pany has not yet de­liv­ered on a prom­ise to list its Nige­rian unit in La­gos.

Vodacom, 70 per­cent owned by Voda­fone, has com­plied with Tan­za­nia’s de­mand to sell shares on the Dar es Salaam stock ex­change.

It had to de­lay the list­ing when a surge in de­mand from re­tail in­vestors slowed the pro­cess­ing of ap­pli­ca­tions from out­side the coun­try.

IPOs are the only way to force the wire­less car­ri­ers to share their prof­its with lo­cal in­vestors in the East African coun­try, Tan­za­nian Pres­i­dent John Magu­fuli said last month, adding that li­cences could be with­drawn if they refuse the or­der.


Not ev­ery­one is down on Africa, where GSMA In­tel­li­gence ex­pects mo­bile rev­enue will reach $43bn in 2020. Orange, France’s mar­ket leader, in Fe­bru­ary called Africa a pri­or­ity re­gion and has fo­cused most of its in­vest­ment in French-speak­ing mar­kets such as Cameroon and Ivory Coast.

That is partly to off­set stag­nat­ing growth in Europe and to take ad­van­tage of a younger pop­u­la­tion de­mand­ing faster and cheaper data, ac­cord­ing to Bruno Met­tling, the Paris­based com­pany’s head of operations on the con­ti­nent.

A lack of ob­so­lete in­fra­struc­ture that would need to be re­moved or up­graded is also un­der­ly­ing the busi­ness case, he said.

Some op­er­a­tors “are with­draw­ing from Africa in the face of the enor­mous in­vest­ments to be made – 3G, 4G, but also in the fi­bre to con­nect the an­ten­nas to each other,” Met­tling said. “At Orange, we in­vest an av­er­age of €1bn (R15.24bn) in Africa each year.”

Ar­eas of ex­pan­sion for Orange in­clude mo­bile bank­ing, where Nairobi-based Sa­fari­com blazed a trail with its M-Pesa prod­uct in Kenya. Orange Money re­ported a 74 per­cent in­crease in cus­tomers, to more than 30 mil­lion, in the first quar­ter, and plans to ex­tend the ser­vice into its home mar­ket this year.

Orange’s fran­co­phone mar­kets have so far stopped short of or­der­ing share sales to lo­cal in­vestors. Vodacom is another con­sid­er­ing fur­ther ex­pan­sion fol­low­ing the Sa­fari­com deal.

Lower prices

The tougher mar­ket and in­creas­ing will­ing­ness of some ri­vals to sell may have brought down prices, chief ex­ec­u­tive Shameel Joosub said at the com­pany’s re­sults pre­sen­ta­tion in May.

“The days of you go­ing in with a new green­field li­cence are gone,” Joosub said. The price of po­ten­tial ac­qui­si­tion tar­gets is, how­ever, “be­com­ing more rea­son­able,” and there “are not that many buy­ers.”

The first wave of se­cond-gen­er­a­tion dig­i­tal mo­bile li­cences in Africa started in the late 1990s, with Nige­ria be­ing one of the last coun­tries to is­sue its first per­mit in 2001.

While those mar­kets have since been grow­ing – more than half the con­ti­nent’s pop­u­la­tion is seen own­ing a smart­phone by 2020 – the only coun­try yet to auc­tion li­cences is Ethiopia.

“Africa is a mar­ket of growth, but also a very dif­fi­cult en­vi­ron­ment to op­er­ate,” said Dobek Pater, man­ag­ing di­rec­tor of Pre­to­ria-based Africa Analysis. “Costs of op­er­a­tion are of­ten high, dis­pos­able in­come lev­els of large seg­ments of the so­ci­ety low, and the reg­u­la­tory en­vi­ron­ment not al­ways pre­dictable. Only com­pa­nies with “in­creas­ing economies of scale will suc­ceed.”


MTN chief ex­ec­u­tive Phuthuma Nh­leko pre­sent­ing their in­terim re­sults in May at Fair­lands, Rood­e­poort.

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