When investors from countries as far flung as South Korea, Qatar and the United Arab Emirates clamoured to stake a claim in Maroc Telecom in April, the discord brought about by widespread protests in Morocco in 2011 and 2012 was far from investors’ minds. The flurry of bids from telecoms operators was sparked when France’s media conglomerate, Vivendi, announced the sale of its 53% stake in the Moroccan telecoms firm, drawing interest from South Korea’s KT Corp, Qatar’s Ooredoo and the UAE’s Etisalat. Such events show that as the threat of political upheaval recedes in north Africa, investor interest across the region is rising.
Not to be ignored
“Everyone is looking for growth and north Africa is one of the few regions that has a high potential,” says Colin Brooks, managing director of consulting and services at consultancy Hot Telecom. “Is there any guarantee that you will be able to get your money back out? Not at the moment. Yet investors cannot ignore it.”
While events such as Algeria’s In Amenas hostage crisis in January 2013, where militants held 800 people hostage in a gas facility for four days, was a sobering reminder of the region’s fragile security, the crisis in FDI caused by such bouts of instability has been short lived.
Moreover, the decisions made by some governments across the Maghreb, which encompasses Algeria, Libya, Mauritania, Morocco and Tunisia, to open up their information and communications technology (ICT) sector to FDI by launching targeted national development plans has further catalysed investment in north Africa’s broadband market.
Investment into Morocco’s main telecommunications operator, Maroc Telecoms, was boosted by the fact that it was in line with the government’s 10-year National Broadband Plan to ensure the country’s population had access to ICT services by 2022. Key to this was encouraging private companies to develop the country’s wi-fi and fourth-generation networks. Similarly, in Egypt, one of the first decisions by the elected government of Mohammed Morsi was to launch the eMisr National Broadband Plan in 2011, aimed at expanding the country’s broadband infrastructure.
Widespread unemployment and declining productivity are attributed in part to the Arab Spring political upheavals in 2011, and it is for this reason that Isabelle Paradis, director of Hot Telecom, believes broadband capacity will feature as a government priority. “These countries want to be part of the global ecosystem and broadband will be key,” says Ms Paradis. “They will work to entice more companies to come in.”
Upward trajectory
Certainly, government-led efforts to open the region’s ICT sector to investment have caused broadband capacity across north Africa to increase. Although broadband is a nascent market in the region, it will be one of the main drivers of growth in the ICT sector. According to data from Hot Telecom, broadband subscription rates across all five countries in the Maghreb region have been rising consistently. The number of broadband subscribers rose from 2309 in 2008 to 8959 in 2012. The company estimates broadband subscriptions will be in excess of 10,000 in 2013 and by 2016 there will be more than 16,500 people with access to broadband in north Africa.
“The internet and broadband segments will be the main drivers of growth over the next five years,” says Ms Paradis. “In 2013 we expect broadband to account for more than 75% of total internet connections made and there is a lot of growth potential.”
The development and widespread use of mobile telephony critically established the requisite network infrastructure for broadband, meaning operators will find basic ICT infrastructure available for them to build on and develop broadband capacity. Thus, the ability to purchase capacity from existing mobile telephone networks will encourage foreign companies to invest in developing more sophisticated broadband facilities.
“Broadband capacity is increasing all over north Africa in different ways. A lot of mobile operators are expanding their reach and upgrading their networks throughout the region. For example, one of the operators in Tunisia – called Tunisiana – is announcing a major expansion. It offers broadband and it is expanding and upgrading it to reach more destinations within the country,” says Mr Brooks.
Limitations remain
Yet commentators contend that the performance of the broadband market in the region has been variable at best, as each country in north Africa continues to face a unique set of challenges. According to Business Monitor International, the growth of fixed-line and broadband connections has varied as traditional fixed telephone line networks is patchy, and affordability has hampered broadband adoption more generally across the region.
Furthermore, pointing to the case of Libya, Gavin Jones, managing partner of advisory Upper Quartile, maintains that it would be a mistake to assume that broadband capacity sits at the top of the hierarchy of needs for all of the region’s policymakers. “Broadband capacity, although important and sought after, is not critical to needs in most places in north Africa,” he says. “There are primary things that are critical for medium-term growth, such as security, capabilities within the government to manage their money in a transparent way, as well as support systems that will build the next generation of the private sector. These are critical.”
While investor interest in broadband has been increasing, FDI is still relatively low. Investment into the ICT sector was on the rise prior to 2011, but the Arab Spring uprisings significantly decreased capital expenditure in greenfield projects and the region is yet to witness an FDI recovery. According to greenfield investment monitor fDi Markets, in 2010 FDI into the communications, ICT and internet infrastructure industries peaked, with the region attracting three greenfield projects worth $1.8bn. This dropped to just one project worth $290m in 2012, and there have been no greenfield projects announced this year.
For now, broadband capacity will largely be limited to the region’s capital and major cities, all of which are located close to the coast where Africa’s network of undersea cables passes. As a result, FDI from major operators into ICT structure will still benefit the region’s cities, rather than spanning the region as a whole.
Urban focus
“In large urban centres, broadband coverage usually looks after itself,” says Mr Jones. “However, when you start moving out of the primary urban centres, it is patchy and usually with low bandwidth. Libya, for example, is vast. Once you get away from the coast, bandwidth is poor and this isolates substantial parts of the [country]. However, this is also true of all infrastructure, such as roads.”
While the immediate connectivity, political and security challenges that continue to blight north Africa are considerable, Mr Brooks maintains that broadband will remain a key performer in a region that is growing at a rate that is well above the world average.
With broadband penetration rates reaching saturation in developed countries across North America and Europe, telecommunications companies now face the additional pressure of their profit margins being squeezed in these economies, many of which are flatlining. As governments in north Africa consolidate their presence, it is likely that they will support foreign enterprises that develop their broadband capacities as a way to increase locals’ employability and decrease the likelihood of internal discontent.
“North Africa will be of interest because it is one of the few areas in the world that has such high levels of activity both in terms of growth and reconstruction,” says Mr Brooks. “Private investment, at the moment, particularly equity funds and large corporates, cannot ignore it. Western Europe and North America’s growth is flat, Asia is fairly saturated and sub-Saharan Africa’s markets are difficult. Investment into north Africa will come mainly from Europe, the Gulf states, as well as China. Companies are facing huge financial pressures in Europe, so they will be bidding hard for other licences in these environments.”
