Investment in Africa usually follows a simple path: money goes in search of cheap commodities, which are then shipped elsewhere to be turned into items of value. Now, the continent-wide boom in telecommunications is changing this pattern.
African leaders, economists and activists have long complained that overseas investors come only in search of raw materials, and leave behind nothing other than a hole in the ground. The real value in a tonne of iron ore that leaves Saldanha harbour on South Africa's west coast, for example, is not the US$170 (Dh625) per tonne it achieves on international markets, but in the shiny, $20,000 SUVs that roll off the docks at Cape Town, Dar es Salaam and Mombasa six months later.
Mobile phones are set to change this. For the first time, private investors have a stake in putting money into infrastructure that will have a direct benefit to the almost 1 billion people who call Africa home. Total investment is expected to reach $70 billion in the next two years, Hamadoun Toure, the head of the UN's International Telecommunications Union (ITU), said earlier this year. This is no great surprise. Africa lags the world in communications infrastructure, as in most things. Fewer than two people in 100 have a fixed-line telephone, according to the ITU. This is partly because of the cost of installing a copper wire network across a vast region where most people still live in isolated rural villages.
Mobile phone networks, however, require less infrastructure and are easier to install. A single mobile phone tower can be put up in the middle of a shanty town or suburb, or on a jungle hilltop, and serve thousands of consumers. As a result, the pent up need for communication and the relatively low cost of providing it has turned Africa into the world's fastest-growing mobile telephone market, the ITU says.
A recent study by Ernst & Young shows mobile penetration in Africa is about 37 per cent, far surpassing fixed-line phones, and that by 2012 it will be closer to 60 per cent. The effects on people's lives can be profound. Mobile phone banking, which has hardly featured in the West, is fast growing in Africa, where people routinely move money, pay bills and buy basic items using their handsets. For many Africans, this is their first experience of banking, just as using a mobile handset is also their first encounter with personal communication.
In Kenya, which has 15 million users, farmers use their mobiles to buy insurance for crops, while their counterparts in South Africa use them to tap into the market information that helps them get the best price for their crops. The effect has not just been felt by the man in the street. Corporate activity has also benefited. The acquisition of Zain Africa by the Indian company Bharti Airtel for $10.7bn earlier this year accounted for a third of all merger and acquisition activity on the continent over the past 12 months, according to Thompson Reuters.
Governments have also enjoyed a windfall from selling licences and further downstream from dividends and taxes. The Kenyan government must be pleased with the healthy 2.8bn Kenyan shilling (Dh127.7 million) dividend it received recently from its 35 per cent holding in Safricom, the UK-based provider. It is not all roses and sunshine, though. As Zain discovered, Africa is a notoriously challenging market. Poor infrastructure, price resistance from consumers and lack of electricity to keep networks running can cause corporate executives to have sleepless nights. But for the brave, opportunities await.
Nothing illustrates the coming of age of African telecommunications better than MTN's 450m rand (Dh219.8m) sponsorship of the FIFA World Cup tournament. This is the first time an African company has sponsored the event, beating established European and US rivals for the honour. business@thenational.ae
