When, in early June, insurgents overran Mosul, northern Iraq’s largest city, the country’s escalating security crisis made painfully obvious the challenges of doing business in the Middle East and north Africa (Mena). Yet Scott Gegenheimer, the CEO of the Kuwaiti telecommunications firm Zain Group, remains undaunted. Although such bouts of insecurity are a concern for him, he maintains that this should not detract investors from what is otherwise a region with a vibrant telecommunications industry.
“The security situation in Iraq remains something of a concern,” says Mr Gegenheimer. “However, Zain is located in a prime region for growth, both in terms of customers and their spending patterns on communications.”
Serving the underserved
With operations spanning eight countries across the Mena region, including Bahrain, Morocco, Sudan and South Sudan, Zain has in recent years experienced stellar growth, and by 2013 it was ranked as the eighth largest telecommunications operator in the Middle East by the digital content provider CommsMEA. According to Mr Gegenheimer, the company’s approach to investing in long-term projects, including infrastructure and providing third-generation (3G) networks to underserved countries, caused Zain to grow by 8% last year.
“The company added almost 3.5 million new customers to its networks during 2013,” says Mr Gegenheimer. “Much of the region is also consuming mobile data services at a significant rate.”
In addition, rather than being deterred by security challenges in its core markets, some of which have been affected by the overspill of the Syrian civil conflict, Mr Gegenheimer believes that Zain’s focus on providing traditional communications services to underserved cities across these countries will enable the company to maintain its growth. “Zain is looking forward to attaining the 3G spectrum in Iraq as the country is hungry for such services,” he says. “We expect exponential growth in this area, and combined with our recent expansion to the more affluent northern region of Iraq, we are confident that Iraq will shine.”
The next generation
While mobile penetration rates across the Middle East are among the world’s highest, at 96% according to online statistics portal Statista, Mr Gegenheimer says that newer forms of digital services present the largest growth opportunities in Mena’s high-income countries. Pointing to Zain’s move in April this year to purchase a facility worth $250m as part of its efforts to expand in Saudi Arabia, Mr Gegenheimer maintains that telecommunications firms must take an innovative approach to addressing local demand.
Although 4G networks are providing a key opportunity for telecommunications firms in Saudi Arabia, Zain’s new facility will also be geared to serve the spike in digital data demand from religious visitors engaging in the Hajj and Umrah pilgrimages to Mecca. Mr Gegenheimer maintains that the company’s sensitivity to local trends makes it a key player in the country. “Zain Saudi Arabia is implementing a rigorous transformation strategy, and we foresee significant growth opportunities in 4G data services,” he says. “We plan to exploit the huge influx of business and holy visitors that visit Saudi Arabia throughout the year.”
Although Zain Group continues to experience considerable success – indeed its data revenue in Saudi Arabia increased by 73% in 2013 according to the company's official report – its presence in economically uncertain countries remains a challenge. For example, in 2013 South Sudan’s partition from Sudan led the Sudanese pound to fall by 51% against the dollar, causing Zain Group’s profits to drop by 14%, and a subsequent devaluation of the Sudanese pound in November 2013 caused the company to wipe $149m from its full-year profit at the start of 2014. Yet Mr Gegenheimer is confident that Zain’s long-term approach to investment will ultimately enable it to reap rewards when the two countries’ economies stabilise.
“Sudan and South Sudan have the potential to continue adding new subscribers at a rapid rate, yet it is coincidentally these two markets that pose the largest challenge in the Zain portfolio,” says Mr Gegenheimer. “However the thing that sets us apart in any country is that we are there for the long-term. We remain confident that the situation will improve and growth will [resume] in the not-too-distant future.”