Africa’s telecommunications sector has delivered a remarkable performance over the past decade. Sub-Saharan Africa is the fastest growing mobile market in the world, with mobile penetration rates rising from below 5% of the continent’s population in 2002 to 27% in 2008, according to Kenyan mobile operator Safaricom. Between 2000 and 2009 mobile network coverage among Africa’s urban population rose from 16% to 90%, and in 2010 the World Bank estimated 40 million new mobile cellular subscriptions were added across the continent. 

Considering that increasing access to mobile telephone networks by 1% is widely recognised as adding 0.5% increase to a country's real GDP per capita, the telecommunications sector has been one of the key drivers of Africa’s economy.

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“Telecommunications is an emerging and booming industry in Africa,” says Francois-Xavier Roger, the chief financial officer of emerging markets mobile phone group Millicom International Cellular. “In the past 10 years, we witnessed an explosion of demand for mobile telephony, and this is essentially driven with the need for usage, as well as its accessibility and affordability. In the telecommunications industry today, the cost of entry is basically $1, which means one sim card. Many of our customers do not have a handset – they just have a sim card and they borrow or rent a phone whenever they need to use it. So the cost of access is extremely low, and this is quite often the only access that many people have [today].”

Rising prospects

Following a raft of institutional reforms across Africa that led to the liberalisation of the continent’s telecommunications sector, the private sector has driven its rapid expansion as the resulting increase in FDI has been spurred on primarily by the increased competition among telecommunications companies. Moreover, an examination of FDI patterns reveals that Africa’s telecommunications industry is poised for further growth.

According to greenfield investor monitor fDi Markets, between 2003 and mid-2012 there were 330 telecommunications investment projects in Africa from 147 companies. A closer look at the figures reveals that investments into the communications sector have become more intensive in recent years. Between 2009 and 2010, fDi Markets found that investments into Africa’s communications sector grew by 27.5% and between 2010 and 2011 it grew by a further 35.3%. fDi Markets also found that 2011 was its best year yet, as investment projects increased from a low of 10 projects in 2003 to 69 projects in 2011, with 40 projects announced to take place in 2012. There exists a consensus among investors that FDI into Africa’s telecommunications sector is set to increase.

“[This] FDI trend will definitely continue, and very likely increase, as Africa is seen as one of the last available places for high growth,” says Andy Doyle, development director of technology and communications consulting at engineering company Mott MacDonald. “Even though penetration levels for mobile are getting high, there seems to be a lot of room for growth. Take Nigeria, for example. It is probably the largest market for subscribers, but it has still not [reached] 50% penetration, so there is a massive potential for growth.”

On-the-ground strategy

While the growth in mobile penetration in most regions around the world may be nearing a peak, Africa’s limited global connectivity has led foreign investors to establish a presence within the continent in order to capture a share in the telecommunications sector. With gaps in the market ranging from low internet and broadband infrastructure to a limited availability of fixed lines, fDi Magazine found that investors were deliberate in their strategy to develop on-the-ground customised services, to exploit the opportunities available in the telecommunications industry.

“NEC Africa is a wholly owned subsidiary from NEC Europe, and the strategy for finding ourselves [in Africa] is to be closer to the local markets, to localise the solutions NEC has developed internationally,” says Eugene le Roux, deputy managing director of NEC Africa. “[For example,] in South Africa you would need to be here if you are going to be successful as a supplier in this region.”

“Until two and a half years ago, we used to operate in a very remote manner, running Africa from Europe,” says Sherif Hamoudah, executive vice-president of sales and marketing at global provider in mobile messaging company Acision. “We created a Middle East and Africa [division], hiring local Africans, and we focused on large economies such as Algeria, Egypt, Kenya, Nigeria and Morocco, and it has worked very well.”

Growth potential

Telecommunications seems set to remain one of the top recipients of FDI in Africa, and governments have taken further steps to attract investors through improving their regulatory environments.

For example, in 2011 operating licences were granted to new entrants in the telecommunications sector in the Republic of Congo, Ghana, Liberia, Malawi and Mozambique, and network charges by regulators were reduced, according to the World Bank. Furthermore the arrival of high-speed undersea fibre-optic broadband cables on Africa’s coast is expected to provide a boost for the telecommunications sector, as well as its host countries’ general economies, due to the fact that it will likely generate significant productivity spillovers. In fact, investors were unanimous in maintaining that investments into telecommunications will also entail investment into both the wider infrastructure and technical training of Africa’s workforce.

“We believe several [developments] will happen in the information and communications technology [ICT] space, especially [in] content infrastructure development,” says Mark Simpson, CEO of cable company Seacom. “We are coming off a small base and there will be strong growth [into] the telecommunications infrastructure, such as the grids and the servers. When you look at the ICT sector in Africa from an investment perspective, you cannot just deal with infrastructure. You have to deal with all the things that go [with] that environment – being able to educate people, and getting them to be part of the ICT sector.”

Lowering risk

As levels of FDI are increasing, the perception of Africa’s risk landscape is concurrently decreasing, and in the near term it appears that FDI into telecommunications will predominantly focus on Africa’s largest and most populous economies. “Most fund managers are comfortable with African risk as opposed to 10 years ago where Africa was more challenging for them,” says Issam Darwish, CEO of African telecommunications infrastructure company IHS.

“In terms of hot-spots, investments in Ghana, Kenya, Nigeria, South Africa, and other populous places will likely increase,” says Mr Doyle at Mott MacDonald. “While the markets look reasonably saturated from a voice subscriber perspective, in places such as Kenya and Ghana, their use of telecommunications services is starting to become more sophisticated, especially their appetite for broadband.”

With a rapidly urbanising population and an expanding middle class, the demand for telecommunications continues to outstrip supply. It appears that Africa’s low penetration rates, which was once a weakness, is now a boon, both for investors searching for high-growth markets and a continent looking to increase its global connectivity.

“There is a fantastic business opportunity in Africa but there is a fairly big shift in the industry, between where the growth was coming from in the past and where the growth will be in the future,” says Millicom's Mr Roger. “We will need to find new growth opportunities beyond traditional voice, and diversify our portfolio of services so as to grab the best opportunities, which will be 3G and 4G data services, access to the internet and mobile financial services.”