MTN sets its sights on Ethiopia
• CFO says mobile phone group has begun taking part in privatisation process
As MTN makes plans to leave the Middle East, it has Ethiopia firmly in its view as the next frontier for growth as the company looks to beef up its Africa effort. Africa’s biggest mobile phone group by number of subscribers has unveiled plans to sell its businesses in Iran, Syria, Yemen and Afghanistan, in transactions that could be worth as much as R25bn.
As MTN makes plans to leave the Middle East, it has Ethiopia firmly in its sights as the next frontier for growth as the company looks to beef up its Africa effort.
Africa’s biggest mobile phone group by the number of subscribers has unveiled plans to sell its businesses in Iran, Syria, Yemen and Afghanistan, in transactions that could be worth as much as R25bn.
In an interview, MTN group CFO Ralph Mupita told Business Day the company has already begun taking part in the privatisation of the state-controlled telecoms sector in Ethiopia. The country has started a process for bids of two new licences to compete with Ethio Telecom, the monopoly player with about 45million subscribers.
Ethiopia’s GDP was $96.1bn in 2019, according to data from the World Bank.
With an estimated population of 115-million people, Ethiopia is one of the largest markets that has not yet privatised its telecommunications sector.
In addition to increasing MTN’s footprint on the continent and tapping into a fast-growing market, Ethiopia may give the operator a chance to offset lost revenues from the Middle East.
According to global telecoms industry body GSMA, SubSaharan Africa will remain one of the fastest-growing regions in Africa, with a compound annual growth rate of 4.6% and an additional 167-million subscribers by 2025. This will take the total subscriber base to just more than 600-million, representing about half the population. Nigeria and Ethiopia will record the fastest growth rates between now and 2025, at 19% and 11%, respectively, says GSMA.
Mupita said the company has formally shown its interest in securing an operating licence in Ethiopia. “We formally submitted our ‘expression of interest’ in June with an intent to participate in the licence auction process,” he said.
“Having said that, there’s quite a lot of information that is still outstanding for the participants interested in that privatisation process.
“There are 12 directives that are going to be necessary before a company will have all the information they need to be able to bid for the two licences.”
Without those directives, Mupita said, it was difficult to frame what the financial case would look like.
“But we’re still very involved. We have a team that is working just purely on this opportunity,” he said.
MTN is not the only SA player eyeing the Horn of Africa state. In 2019, Vodacom said it would partner with its affiliate, Kenya’s Safaricom, on a telecoms licence in Ethiopia, expecting to pay about $1bn.
After MTN announced its exit from the Middle East, the question is whether it makes sense for the company to invest in entering new markets at this point, or whether it should preserve cash.
David Lerche an analyst from Sanlam Private Wealth, said: “There is only one realistic new market that MTN could enter, being Ethiopia, where MTN plans to participate in the government’s opening up of the telecoms sector in an attractive market with a large population and low mobile penetration.”
Attractive as Ethiopia’s promise might be to boosting MTN’s revenues, some caution that holding on to cash might be a better move, given the times.
Peter Takaendesa, a portfolio manager at Mergence Investment Managers, says it is “best to repair the balance sheet first, given an uncertain operating environment, or at least avoid increasing balance sheet risk by only entering new African countries after realising proceeds from large disposals such as the IHS stake”.
MTN has a 29% holding in IHS Towers, which it may sell in the future. Its Nigeria business leases the majority of the towers and site space required for its network equipment from IHS. As of June, this stake was worth R30.7bn in MTN’s books.
Roy Mutooni, equity analyst at Absa Asset Management, says “the group is better served reducing its debt burden and extracting efficiencies in its operations”, while focusing on growing its digital and mobile money offerings, which are lower capital intensity but higher return businesses.
THE GROUP HAS FORMALLY SHOWN AN INTEREST IN SECURING ONE OF TWO NEW LICENCES THE COUNTRY IS AUCTIONING