opinion


Bharti books its passage to Africa

africaroad

One era ends and another begins.

Last night Zain agreed to sell its Zain Africa unit to India’s Bharti Airtel, marking Zain’s departure from sub-Saharan Africa and Bharti’s arrival on the continent.

Zain (then MTC) made its debut in Africa in 2005 through the acquisition of pan-African operator Celtel, a move that made the Kuwaiti company one of the biggest players on the continent.

Zain put Africa at the heart of its ambitious growth plans, but Zain under-performed in key markets on the continent. Seven of the 15 operations in the Zain Africa stable made a loss in the nine months to end-3Q09.

Zain’s unit in Nigeria – the biggest mobile market on the continent – accounted for 16 per cent of Zain Group revenues in the nine months to end-3Q09, but recorded a net loss of $88.3m in the period. The large scale of the revenues demonstrated the opportunity on the continent, but the losses showed that Zain struggled to take advantage of those opportunities.

Bharti will be looking to reinvent Zain Africa by introducing the low-cost business model that it has pioneered successfully in India. Bharti will also be hoping to achieve economies of scale across its Asian and African operations, which together will make it the fifth-largest mobile operator in the world. But operating in Africa does present particular challenges, some of which will be new to Bharti, despite its credentials as an emerging-market operator.

The takeover of Zain Africa will give Bharti operations in 15 different countries, each of which has its own political and regulatory conditions, and some of which present some political risk. The diversity alone will be something new for Bharti, which only had mobile operations in India until it made recent moves into Sri Lanka and Bangladesh.

Many African markets have become crowded and increasingly competitive in the past couple of years, and price competition has forced down tariffs, which were typically quite high for emerging markets. In much of sub-Saharan Africa, the infrastructure is poor and distribution is difficult.

Nevertheless, the African mobile market remains one of the most important growth prospects in the industry. The mobile penetration on the continent was 44 per cent at end-2009, the lowest rate among major world regions.

For Bharti, the hard work needed to take advantage of that opportunity starts now.

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