The Africa conundrum

Reports that Bahrain’s Batelco and Kuwaiti operator Wataniya are keeping a close eye on potential acquisition targets in Africa came as little surprise. Telecom operators in the Middle East including Etisalat and Zain, have been expanding their reach in Africa in recent years

Tags: ARPUBahrain Telecommunications CompanyEconomic crisisEmirates Telecommunications CorporationInvestmentUnited Arab EmiratesZain - Kuwait
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By  Roger Field Published  July 9, 2009

Reports that Bahrain’s Batelco and Kuwaiti operator Wataniya are keeping a close eye on potential acquisition targets in Africa came as little surprise. Telecom operators in the Middle East including Etisalat and Zain, have been expanding their reach in Africa in recent years.

Furthermore, the global economic slowdown has served to reduce the value of assets, leading operators to consider bargain hunting in a region where most countries tend to have large, young populations and among the lowest mobile penetration rates in the world.

Batelco Group could spend much as $2bn on acquisitions in North Africa over the next twelve months, the company’s CEO told Arabian Business, while Wataniya CEO Scott Gegenheimer said recently that he is interested in expanding his company’s operations further in North Africa.

Indian operators are also circling Africa. Reliance Communications, one of India’s leading telecom operators, is pushing ahead with a plan to establish WiMAX operations in Africa, and has even established a new division, Reliance WiMAX World, to pursue the strategy, a source told CommsMEA recently.

Reliance is not alone, with rival Bharti Airtel, India’s largest mobile operator, rumoured to be in talks with South Africa’s MTN Group regarding a potential merger of the two operations.

Amid this activity and renewed interest in Africa, reports that Kuwait’s Zain Group is interested in selling the majority of its African operations, with the notable exception of Sudan, raised eyebrows among the region’s telecoms professionals.

Zain, which has a presence in 23 countries in the Middle East and Africa, has been the most bullish Middle East operator in terms of expansion in Africa. Indeed, in the past few years, the company has gained a presence in 16 African nations including markets with huge potential such as Nigeria, Sudan, Kenya and Tanzania.

According to news agency Reuters, Zain has spent more than $12 billion in Africa since 2005, including nearly $3 billion in Nigeria, and the company also said it planned to spend up to $2 billion more on the continent this year.

Zain has remained quiet on the rumoured sale plan, which has fueled speculation as to why the operator, which has invested so much in gaining a presence across Africa and rebranding its operations, would want to walk away from markets that appear to have such huge growth potential. Nigeria alone has a population of some 150 million people and a mobile penetration rate of about 35%.

Some analysts have suggested that the day-to-day business case of operating in Africa might not be as clear cut as the large populations and low mobile penetration rates suggest, and the already low ARPU rates of many African countries are likely to remain that way as the recession dents growth in developing markets.

Even a cursory glance at Zain’s 2008 results reveals a wide gap between the earnings and capital expenditure from most of its Middle East operations, and those in Africa. For example, in 2008, Zain posted a net profit of KD171.7 million ($596.5 million) for its Kuwaiti operation, with total capital expenditure standing at about KD23.8 million for the year. Meanwhile, the combined net profit for the operations in Sub Saharan Africa was just KD28.6 million, a sum dwarfed by the huge capital expenditure of KD487.2 million for the area.

In this light, Zain may simply want to place its effort and capital elsewhere, in countries that offer a better return on investment in the short and medium term.

But while analysts speculate about the reasons for Zain’s apparent change of heart on Africa, the reports do leave a question mark over the business case – particularly in the short to medium term – for foreign telecom operators in Africa.

Other operators could be well advised to take a clear look at the needs of local markets, the level of competition and projected return on investment before entering challenging new geographies.

3543 days ago
Aly-Khan Satchu

The Mobile Phone is the Communication Tool for Africa. There is no other option. The Pipe is set to include the Mobile Internet and Mobile Wallet. Look at MPESA in Kenya. The Zain problem was very poor execution. Aly-Khan Satchu www.rich.co.ke Twitter alykhansatchu

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