Africa telcoms sector still growing

February 5, 2009
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, NAIROBI, Kenya, Feb 5 – A study into Africa’s telecommunications sector has revealed that the industry will continue to record significant growth in the next three to five years.

The findings of the study conducted by audit firm Ernst and Young’s Global Telecommunication Centre indicate that despite the current global recession, the sector, driven by the increasing number of mobile phone subscribers and data usage would continue to develop faster.

“There is still more growth and opportunity in the market. We hope that this report will help governments and existing operators to recognise the positive economic contribution that this sector can have on the development of Africa,” the Centre’s co-leader Julia Lamberth said.

The African telecoms market grew by 49.3 percent in 2002 compared to 7.5 percent and 28 percent recorded in France and Brazil respectively. This growth is believed to have been powered by a thriving economy driven by a commodities boom and increased liberalisation.

The report, released in Nairobi on Thursday, forecasted that voice services would remain the largest contributor to operators’ revenues in the medium term, as they would be striving to reach people without access to mobile phone services.

Later however, data could begin to contribute significantly towards the firms’ revenue streams as the operators would introduce value-added services, such as mobile banking, on their products.

The report further noted that broadband adoption would still be low in the short term due to the high cost of bandwidth. Africa has the lowest internet penetration in the world at 5.4 percent with only 12 countries having a (penetration) rate of over one percent.

The Centre’s co-leader Julia Lamberth pointed out that the laying of new submarine cables would result in the availability of affordable bandwidth that could open up the market for cheaper connectivity.

The growth in the telecoms, the findings showed, would have a direct influence on the economy. It is estimated that a 10 percent increase in telephone penetration results, a 1.2 percent increase in the emerging markets’ GDP and a 0.6 percent increase in developed economies.

The Francophone lead for the Centre, Serge Thiemele, predicted that the continent would see extensive mergers and acquisitions as both large and multi-national operators moved to consolidate their positions in the sector.

The market remains fragmented with less than 10 large operators and more than 80 percent smaller operations, and the mergers would involve operators buying into Internet Service Providers and other IT companies.

“Markets that have five or more operators are likely to see more consolidation, either as large regional players compete for access to lucrative markets or as the number of operators is cut down through in-country consolidation,” Mr Thiemele explained.

But despite the positive outlook for the sector, the officials acknowledged that Africa still has significant challenges such as inadequate regulatory frameworks and political instability to overcome.

“Other factors that inhibit the growth of the sector include poor infrastructure and unreliable electricity supply and high cost of energy in many countries. When those are addressed, we will see growth taking place,” Ms Lamberth said.

The pace of development in different countries varies. In 2008, for example, Libya became the first African country to pass the 100 percent mobile penetration mark while South Africa was at 98 percent. These are among the only six countries in the continent that have surpassed the 80 percent penetration rate.

Kenya on the other hand is among 24 emerging nations whose penetration level is between 20 and 49 percent.

The rest, which included Ethiopia, Somalia, Zimbabwe and Burkina Faso are considered virgin markets and present some of the greatest risks as well as the greatest opportunities in equal measure.

“The reasons for their slow development are varied. Some are characterised by slow liberalisation while others are marked by political uncertainty,” the report stated, adding that some had been neglected as operators and investors focused on more lucrative markets.

The report concluded by urging African governments to play their role in encouraging continued growth in the sector, while the regulators should create the foundation for business by laying a level playing field to ensure a competitive environment.

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