Africa’s Telecommunications Market a Minefield for Foreign Firms

Charles Wachira

Despite major foreign players in the telecommunications sector making large investments in Sub-Saharan Africa, this market populated by 1.1 billion inhabitants remains a minefield. As regulatory inconsistencies including political interference from government functionaries linger on as intractable bogeymen, creating a disincentive allure for probable investors.

Telecom Expansion in Africa

Late this July Orange SA, France’s largest telecom operator with a footprint in 15 African countries launched mobile banking in Africa beginning in Côte d’Ivoire with plans to expand into Burkina Faso, Senegal and Mali. A month earlier the telco announced it was considering expansion opportunities in Nigeria and South Africa, the continent’s two biggest economies.

Meanwhile Africell Holding SAL, a Lebanese telecommunications company this March qualified to be licensed as the fourth telecommunications operator in Angola, another example proving how contagious the continent is for foreign telecom companies.

The Market is Not Stable

However peril lurks on the African horizon, making it more difficult for potential foreign firms interested in investing in one of the world’s fastest growing regions. Examples abound.

On June 18, 2018, Ethiopia, one of the remaining bastions in the world heading towards a command economy, unprecedentedly announced plans to off-load 30 to 40 percent stake in Ethio Telecom, a state-run monopolistic telco, to peer groups residing outside this federalist state. What is singularly enticing about the Ethiopian market is its subscriber base of 44 million people, making it the biggest single-country customer base of any operator in Africa.

By June 2020, Ethiopia — the continents’ fastest growing economy — had received 12 expressions of interest (EOI) from nine telecom and two non-telecom operators looking to secure a partial stake in Africa’s oldest telco.

Foreign firms involved included Etisalat from the Emirates, Orange S.A. from France, Saudi Telecom Company from Saudi Arabia and Vodafone Group plc. a British multinational, with the rest rooted in Africa. Then the unexpected happened mid this August.

The Ethiopian government suspended the entry of foreign telecom companies into the country, dampening the States privatization momentum spearheaded by Prime Minister Abiy Ahmed, a reformist Nobel prize laureate. Also it was not lost to global telecom watchers that the arbitrary nixing of the privatizing process, in big measure, encapsulates the capriciousness nature of the regulatory ecosystem in sub-Sahara Africa. This is a factor that understandably plays out as a major disincentive to generic foreign investors interested in dialing into Africa’s lucrative telco sector.

The Telkom Kenya Fiasco

Earlier in the neighboring state of Kenya — Sub-Saharan Africa’s third biggest economy — the local subsidiary of Bharti Airtel, an Indian global telecommunications firm, witnessed its merger plans with Telkom Kenya, a partly state-owned firm, collapse after the latter pulled of the plug sighting regulatory hurdles stretching back to February 2019.

Telkom Kenya CEO Mugo Kibati said his company was adopting an alternative strategic direction and would no longer be pursuing the proposed joint venture transaction.

“Considering the challenges experienced in getting all the approvals required to complete the transaction, the company has simultaneously been evaluating alternative strategic options to strengthen its position and offering within the market,” he said.

Regulatory Nightmare

Indeed, regulatory ambiguity is ubiquitous within Africa states, making it an unduly difficult market for foreign telco companies, long used to predictability. It’s a negative phenomenon that also denies the continent much needed revenue that ordinarily would accrue from licensing.

In addition, the standard technology transfer process that most African companies crave for routinely sputters away leaving consumers at the mercy of archaic technology. Furthermore, political interference, by African regimes in the running of telecom companies is also another dicey minefield that diminishes the appetite among foreign firms to invest in the sector.

For example, in November 2018, the Tanzanian government — which has a 40% stake in the local unit of Bharti Airtel called Airtel Tanzania — brazenly pooh-poohed IPO plans of the African unit saying it intended to enter into further negotiations with the parent company over the ownership structure.

To resolving the stand of, on January 2019, Bharti Airtel capitulated under pressure resolving to transfer a 9% stake in Airtel Tanzania to the Tanzanian government.

Further Telecom Troubles in Uganda

Also in neighboring Uganda, the government late the same year issued an order to telcos operating in the country, ordering them to list a minimum of 20% of their shares on the Ugandan Stock Exchange, ostensibly to promote local ownership of telecommunication companies.

It was noteworthy that all telcos operating in Uganda then and now were and are foreign-owned.

Uganda’s President Yoweri Museveni argued the order would conserve Uganda’s foreign exchange since a portion of the firms’ dividends payout would be retained in the country.

But Wim Vanhelleputte, CEO of MTN Uganda — the local unit of South Africa’s MTN Group, which is the largest telecom company operating in Africa’s biggest coffee exporting nation — argued the government’s move, requiring foreign-owned telecom firms to list on the local stock exchange as a panacea to boost local ownership.

“Going onto the stock exchange is not necessarily a guarantee that you have localized the shareholders … the best way to localize is a private placement,” Vanhelleputte told Reuters, adding that instead of the listing requirement, the government should allow foreign firms to sell stakes to vetted local investors via private placements.

Turns out the rebut was a telling indication the move by the septuagenarian President did not sit well with telco investors for it understandably involved a great deal of coercion.

South Sudan’s Situation

A worse scenario meanwhile had taken place March 20, 2018, in South Sudan, the world’s youngest state, which saw the government of President Salva Kiir — a testy character — shutter the operations of Vivacell, owned by Lebanon’s Fattouch Investment Group, then the country’s largest telecom operator.

The official reason given for carrying out the extreme act was that the company hand’t complied with regulations, failing to pay over $60 million taxes since its inception in 2008.

But in his comments Pagan Amum — the former secretary general (SG) of the Sudan People’s Liberation Movement (SPLM) — said that in fact the country’s ruling party Vivacell had already paid the prerequisite license fee.

“There is no way Vivacell can be required to pay for another license,” he told VOA.

Reportedly, as SG, Amum helped negotiate the original deal with Lebanon’s Fattouch Investment Group – Vivacell’s majority owner – giving the SPLM party a minority share in the telecom firm. Conveniently most of its shareholders were top government officials, creating an indelible perception the business was playing obeisance to the authorities there for survivals sake.

In business circles this is akin to playing the Russian roulette, particularly for professionally run outfits that abhor the slightest scent of corruption and skullduggery in a market.

Dogged by a lingering perception that in Africa the invisible hand in the telecom market is compromised by bad choices, the continent needs to redress the situation if positive momentum is to be regained.