Wednesday, 29 May 2013

Assertive Africa: Can it be ignored?

African Heads of State: How Serious are they on ICC?
THE "AFRICA RISING" narrative is now firmly embedded in our vocabulary. The continent appears set to introduce another narrative: “assertive Africa.” And since this assertiveness appears directed mainly at the West, it had better sit up and take note. 

But how serious, one might ask, is Africa’s new narrative; what is its potential impact on global economy and politics? What are the potential risks and gains of misunderstanding Africa’s assertiveness? Can Africa sustain it?

To answer these questions we may ask; what are the causes of Africa’s change of fortunes from a hopeless continent to a rising one?  The major causes are in house, such as good housekeeping, end of wars, expanding domestic demand due to the growth of the middle class. Of course good commodity prices have also played their part. But by and large the causes of the progress are home brewed.

There is a growing body of evidence that Africa has learnt to make the right decisions and implement them:  It has put its house in order; wars in Africa are receding and economic growth has taken root.  The results are summarized in the “narrative of Africa rising.”

Africa has transformed itself from a “hopeless Case” to a potential growth pole:  Owing to robust economic growth the per capita domestic revenue mobilization has risen to U$441 shrinking foreign aid to $41 per capita. The continent is lifting an estimated 15 million people out of poverty a year. This means that so far an estimated 90 million have been lifted out of poverty. At this rate of growth, an estimated 120 million people will join the middle class by 2017.Africa has learnt to choose the right friends and make the policy-choices and implement them.

This takes us to the issue of Africa’s assertiveness. The recent AU heads of state summit in which Africa unanimously took a stand against the International Criminal Court, could be a first volley. Africa   will no longer take dictates from anyone, seems to be the message. And the West had better read the signs correctly.

Surprisingly, the West, with all its expertise, cannot read the signs of the times and correctly analyse the potential impact on its interests.  For this reason the west is panting in a bid to catch up with developments in Africa.  A good example is the 1980 and 1990s when the West abandoned Africa after dragging it through the painful structural adjustment programmes.  Africa was branded “the hopeless continent,” and abandoned.  Did the West realize that “street urchins” are adept survivors?

Like a street-urchin, Africa learnt to fend for itself and searched for new friends.  Out of the horizon, China emerged as an economic powerhouse and befriended the already- independent -street-urchin. Africa had learnt to make the right decisions.

The West again bungled on understanding the impact this friendship had on its influence in Africa until China was deep inside Africa. Previously, Africa could do with a lot of aid, some trade and a little investment. But now the order has been reversed to more trade and investment and some little aid.  Here the West bungled again: Rather than matching dollar for dollar Chinese investment and trade in Africa, the West took the moral high road: Ranting against corruption, democracy and human rights.

In the meantime, China was busy selling affordable goods to Africa; winning infrastructure construction contracts that it completes on time and buying African produce. In effect, China was busy providing solutions to Africa’s needs as defined by the street urchin. The west on the other hand was busy sloganeering.
Now Africa is the fastest growing continent in the world and, experts say, it is likely to remain in that position over the next five years. A growth of 5-6 per cent is considered robust.  Consequently, Africa is a potential growth pole- a region whose growth will lead to growth in other regions. Africa’s investment pattern demonstrates that it has every intention of being a growth pole soon.

 The continent is investing heavily in transport and energy infrastructure for which there is a backlog, in order to eliminate the bottlenecks to industrialisation. The backlog is partly blamed on the West which for years tried to make “Africa the biggest charity project in the world,” says the Foreign policy Journal. They made promises which they never fulfilled. Now Africa is in a hurry to expand and modernise her Sea Ports; Airports, roads, Railways and power generation capacity in order to increase trade.

Has the west read the signs of the times correctly? Not yet. Let us start here; a potential growth pole is a likely to be assertive in global politics. It is expected to make demand s that potential partners must meet or shop elsewhere.

Here is where the ICC comes in. The biggest bloc of signatories to the Rome statutes is in Africa. If Africa rejects the Court, its chances of success will be limited. And Africa has indicated that it wants out. In the past, the West would use aid to blackmail Africa into signing unfavourable agreements. It is possible aid was used as a carrot to bully Africa into signing the Rome statutes. Now it wants out. Would the world allow it?

Africa has demonstrated its assertiveness by rejecting the New Economic Partnership Agreements, which were to replace the Lome agreements to trade. EPAs are now six years overdue and there is no sign they would be endorsed anytime soon.  The reason is simple: the Eurozone is no longer Africa’s leading market. Africa’s exports to the Eurozone have declined by 11 per cent down to 33 per cent from 37 per cent over the 2010-1012. This is understandable as the Eurozone is going through a hard time. On the other hand Intra Africa trade is growing, rising from 9 per cent in 2009 to 11 per cent in 2011.

Which leads us to the next point: Africa’s assertiveness is coming at the wrong time for the West. It needs all help it can get to remain afloat, and exporting to Africa is one way of remaining afloat, can it afford to slight Africa?
Here we are talking about Africa asking that the ICC cases be taken back to Africa and Europe saying no. Who shall blink first, Africa or Europe? Could the West be misreading Africa’s seriousness-again? Can it afford an African backlash? Can Africa itself afford a  western backlash?

Was the presidential resolution just an empty threat by pampered autocrats afraid that their turn is coming?  Can they do more than just pass resolutions? My advice to the west is: treat these signs seriously. It is your best bet. Remember, opportunities once lost are difficult to find. We hope you’ve learnt something from your past blunders.

Monday, 20 May 2013

Kenya,Angola:Cheapest telephony Markets in Africa



KENYA AND ANGOLA ARE the cheapest phone call markets in Africa. Their tariff per minute is $0.04. At the other end of the spectrum is Liberia the most expensive telecoms market, a report by Mobile Africa Tariff tracker says. 

Its mobile call rate per minute is US$1.71, says the report. Perhaps the most expensive in the world, we dare say. The country is served by four operators namely; lonestar, Atlantic, comium and cellcom.

 The report focusing on 37 African countries shows that six countries have tariffs ranging between $0.04 and $0.09. These include Kenya and Angola. Others in this category are; Ghana $0.06, Nigeria and Rwanda $0.08 and Gambia $0.09.

In the middle tier are 15 countries whose tariff per minute range between US$0.10 and $0.19. Tanzania and Uganda in east Africa are the cheapest in this category charging $0.10 per minute followed by Benin, Namibia, Burundi, Mozambique and at $0.14 per minute.

Congo, South Africa, Guinea, Bissau and Bourkina Faso charge at $0.16. The rest are in the expensive category of between $0.17 and $0.42 In Lesotho.

From the report it emerges that larger markets are relatively cheap but a lot depends on the local regulatory authorities to push the price down. In Kenya for instance, the regulatory authority CCK, pushed the price down to$0.04 per minute.  In Kenya, almost 30 million of the 42 million people subscribe to a mobile operator. The largest operator Safaricom, which boasts of some 20 million subscribers, is also the most profitable company in east Africa.
Mobile Telephony: Cheap in East Africa dear in West Africa

 Tiny countries with small populations are the most expensive markets. Information on the industry in Liberia is scant.  It is difficult to gather information such as subscriber base of each operator, not even at the Liberia Telecoms Authority, the industry regulator. A visit to their websites drew a blank on subscriber numbers. However, according to CIA Fact book 2013, there are an estimated 2.01 million subscribers in a country of 3.8 million people.

It is unclear how the subscriptions are distributed among the four operators. The scant information available shows that, Lonestar, which is owned 60 per cent by the Africa communications giant, MTN, had 1.05 million subscribers in March 2012. It is the largest network operator in Liberia.  The only other operator for whom subscription data was once available is cellcom boasting of 50,000 subscribers.

Liberia’s per capita income is estimated at US$700 has a population of nearly 4 million. Of these an estimate 2.01 million subscribe to a mobile line giving a penetration rate of more than 50 per 100 people.

According to the TCL report, the interconnection rate is $0.15 meaning that at $1.71 per minute, the operators are literally ripping off their customers. Liberia’s closest rival in the high cost of making a call is Lesotho whose tariff stands at $0.42 per minute. Others in the high cost club include Cape Verde$0.34; Gabon $0.32, Madagascar $0.30’ Thad $0.25.

 According to other sources, the cheapest markets are among the most profitable. Kenya’s Safaricom for instance has been consistently profitable since it was launched in 2001. Last year, the largest Mobile telephony operator in east Africa posted a profit before tax of US$303 million. After paying US$94 million in corporate taxes, the company’s net profits stood at $209 million of which $148 million was declared as dividends to shareholders.

Meanwhile the Safaricom CEO, Bob Collymore has said that nothing stops the firm from spreading into east Africa. Responding to our story last week, Mr. Collymore explained that the Kenyan market is yet to be satiated with its services. Consequently the company is for the foreseeable future focusing on the domestic market.

 He dispute analysts view that the market has matured saying that a majority of the customers hold Multiple Sim cards. He argued that, although 1.4 million subscribers were de-registered last year, it had no effect on revenue. A total of when 1.4 million of its subscribers were de-registered for non- compliance with government regulations.

 The company, he said, employs 3500 people directly and more than 250,000 indirectly selling such services as M-PESA, top up and Sim cards, and handsets.

Monday, 13 May 2013

What Next for Kenya's telecoms industry?

1990s: Fixed line telecoms frustrated Kenyans
 who embraced Mobile telephony with a religious zeal
KENYA'S TELECOMS MARKET has reached maturity. This is the second market in Africa  to hit a plateau after South Africa. The driver of growth in the last decade, mobile telephony, has hit the plateau, meaning that from now on, vertical growth will be painfully slow.

There are 30 million subscribers in a country of 42 million people, meaning there are more mobile phone handsets than there are adults.  The result is a slowdown in growth of mobile penetration, which now hovers around 2.7 per cent quarter –on- quarter. This is not surprising as the telephone penetration rate now is 78 per cent, further dimming the prospects for future vertical growth in Kenya.

2013: This market is now saturated. 
What next for telecoms sector?
Vertical expansion is the acquisition of new customers thus expanding a company’s market share. In the early years of the last decade, this growth was rapid for there was latent demand for telecommunications services. That is no more. The days of growth rates above near 10 per cent quarter- on-quarter are gone.

Now growth is down to one per cent q-o-q, says the industry regulator, CCK, in quarterly report for the second quarter of 2012/2013.  

That Mobile telephony has reached it zenith is illustrated by the number of subscriber gains during the quarter. According to CCK, new subscriber gains declined by 59 per cent from 729,343 subscribers in the first quarter of 2012 to 298,072 in the second quarter. On a year to year basis, the decline was a staggering 81.2 per cent.

If we share the new addition among all players, this works out to about 33,219 first time applicant for each company that quarter. This is a 75 per cent dip compared to the second quarter of the year 2011. At that timer Mobile operators in Kenya gained, on average, 132,235 new subscribers each month.

With the vertical growth having reached a plateau, operators in the sector will grow the revenue streams by horizontal growth that is, introducing products that appeal to their customers.
 
So far such products are in the data/internet segment.  The regulator says that internet uptake posted 18.9 per cent growth over that period.  This segment is still growing posting some 0.9 million subscribers in the quarter to December 2012, an average of 0.3 million subscribers a month.

The number of mobile internet/data subscribers stood at 9.49 million in the quarter to December 2012, an 11.5 per cent growth over the previous quarter. However the population of users stands at 14.6 million and growing at 5.6 per cent a quarter. At this rate, it won’t be long before this segment also hits the plateau.

 This leaves mobile money transfer and mobile banking as the only outstanding sources of revenue growth for these companies. Mobile money transfer, or M-Pesa in whatever name, has reached 21 million subscribers, nearly 90 per cent of the adult population in Kenya. It moved some KES226.7 billion ($2.7billion) in the quarter to December 31, 2012. This is figure that would drive the local banking sector green with envy. At a growth rate of 10 per cent q-o-q, this segment is also looks headed for the plateau very soon.

Mshwari the Mobile banking segment is the latest addition to the menu of service rendered by the telecoms sector. But this segment which targets the unbanked Kenyans is facing stiff competition from the banking sector which has introduced agency banking, also targeting the same population. However, this one too is headed for the plateau, which leaves the question what next for the telecoms sector in Kenya?

 This is a question that should worry Safaricom, the largest mobile operator in the eastern Africa region. Safaricom controls 65 per cent of the telecoms sector in Kenya, the largest economy in the region.

Kenya is the second market in Africa to saturate after South Africa. And the experience of South Africa firms especially Vodacom is a motivation for Kenyans firms to widen out.

Being the largest player, the story of the telecoms sector in Kenya is more or less intertwined with the story of Safaricom. For her the question is what next? Does she continue with business as usual? Is it time for bare knuckled competition at home? This will not achieve much for a large segment of the population own more than on Sim cards and further, the tariffs have declined significantly.

 This, it seems, is the time to re-think strategy for the publicly quoted firm. Safaricom is owned 49 per cent by Vodafone, 23 per cent by the Government of Kenya and the other 28 per cent is listed at the Nairobi securities Exchange. This makes it a company under intense pressure to continue churning out large chunks of profits and pay large dividends.

Good old poaching of customers does not look attractive since there are few subscribers to poach anyway. Neither does repacking the old outfits, introducing new technologies and price wars.

Safaricom, it seems may have to adopt the MTN model of expanding out of Kenya into perhaps Ethiopia, Somalia, and South Sudan. She should even take the war to MTN in Uganda and Rwanda. She has the financial muscle to undertake such a venture and should start now.

 So why has she not flexed her muscles? Part of the reason was that she was consolidating her position at home. Another could she was cleaning her books having borrowed heavily in the 2000s.  It is also possible that has slowed down by Vodafone’s expansion trajectory in Africa. 

Vodafone UK is Safaricom’s part owner. In the late 1990s she zoned her expansion plans in Africa restricting her subsidiaries to certain regions.

This is why Vodacom of South Africa, is confined into the saturated market.  Vodacom is owned 50-50 by Telkom South Africa and Vodafone of UK. It is not clear whether Safaricom suffers such restriction since Vodafone does not operate in any other part of eastern Africa.  Time for Safaricom to expand in Eastern Africa is now!



Wednesday, 8 May 2013

AfDB funds Africa's largest wind power project

A section of the 40,000 Ha wind power farm in
 Samburu County
THE AFRICAN DEVELOPMENT BANK (AfDB), has approved a US$149.5 million to finance the Lake Turkana Wind power project in Kenya. 

This is part of a US$240.9 million  the Bank will invest in  the Project, Africa’s largest wind power farm.  In addition the Bank will carry out a road show in a bid to attract more lenders to the project.

 The move by the AfDB unlocks funding for the project which has been dogged by years of uncertainty and doubt.  Now with AfDB’s money and stamp of approval, the project is firmly on the path to implementation and completion.

 Lake Turkana wind power project is the largest wind power project in Africa. It will generate some 300MW for Kenya’s national grid. This is 40 per cent of Kenya’s e current electricity output standing at 1250 MW.  The project’s funding had been thrown off-balance by refusal by the World Bank to provide guarantees. The US$763 million project is the largest private sector investment in the country’s history. It is funded by both Debt and equity.

AfDB is the leader arranger. Other arrangers include are; Standard Bank of South Africa and Nedbank Capital of South Africa.  Apart from the debt financiers there are also equity financiers including by Aldywich International which owns a 51 per cent stake, South Africa’s IDB (25 per cent), Pan Africa Investment Development Fund and Vestas— the leading Danish manufacturer of wind turbines (12.5 per cent) and the six co-founders (6.5 per cent).

Already the special purpose vehicle, which will generate the power, Lake Turkana wind power limited, has signed a20-year Power Purchase agreement (PPA) at a fixed price of $0.12 per KWh with Kenya Power and Lighting Company (KPLC). KPLC is the sole distributor of electric power in Kenya.  

Although demand for power is estimated to grow a 8 per cent per year, that figure is misleading as there a huge latent demand for power that is yet to  be met. The eight per cent growth analysts say is probably what the power companies are able to meet per year. Kenya expects to increase its power generation Capacity by to 17000MW by 2030. Consequently there is currently a heightened activity in this sector. Go to http://eaers.blogspot.com/2013/04/kenyas-electricity-generation-hot.html

Based in Loiyangalani in Samburu County, the Lake Turkana wind power project includes installation of 385 wind Turbines on a 40,000 hectare piece of land, the associated overhead electric grid collection system and a high voltage substation

The Project also includes upgrading of the existing 204km road from Laisamis to the wind farm site, as well as an access road network in and around the162Km2 site for construction, operations and maintenance.  Already the first 31million (ksh3.2 billion) contract for the construction and upgrading of more than 300KM of was awarded to Civicon Kenya. See http://eaerb.blogspot.com/2012/07/lake-turkana-wind-power-laying-first.html

The Kenya Electricity Transmission Company Ltd (Ketraco) is constructing a double circuit 400kv, 428km transmission line to deliver the LTWP electricity to the national grid.  The line will also be used to transport the proposed power import from Ethiopia.

Wind power, coupled with geothermal and  hydro-electric power that already accounts for more than 70 per cent of Kenya’s electricity demand, will  make Kenya nearly 100 per cent dependent on environmentally-friendly energy sources and eliminate power  fluctuation. Currently, it uses Thermal power to smooth out fluctuations. See http://eaers.blogspot.com/2012/01/africas-largest-wind-power-farm-set-to.html

The Turkana project will engender a lot of benefits to the country in its 20-year life span, company officials say. Among these is cheap power at US$0.12 cents per Kwh. Further, being a green energy project, Lake Turkana wind power will enhance energy diversification and save 16million tons of CO2 emissions compared to a fossil fuel fired power plant. It will earn carbon credits at a rate of €10 million (US$130 million) a year for a total of€200 million ($262milion) over the life of the project.  The income is to be shared with the government and invested in the community.

It will save the country €120 million ($157 million ) a year in fossil fuel imports  as it will cut demand for  fossil fuel used in power generation. Other benefits include tax-revenue estimated at €22.7 million ($30 million) per year or €450 million ($589 million) over the life of the investment.

Thursday, 2 May 2013

Kenya Airways to dominate African Airspace?

KENYA AIRWAYS is headed for dominance of the African airspace as other African airlines collapse like dominoes. Kenya Airways is one of the two African airlines that are growing. At the current rate of expansion KQ will dominate the Africa airspace in under 10 years. 
KQ:Could dominate Africa in under 10 years

The only other strong airline in Sub Saharan Africa is Ethiopian Airlines. Therefore the contest for the dominance of the African airspace is between KQ and ET.

The South African Airways, which we had listed as among the major competitors in an earlier story is flying through a rough patch and therefore not ready for a fight. See http://eaers.blogspot.com/2012/03/the-battle-for-domination-africas-skies.html

 The airline has been on life support for close to a decade now and soon the government there will have to face the sad reality that the airline business model is unsustainable. The airline has suffered a high turnover of CEOs in the last decade- running to almost 20. In the last six months is has changed four CEOs. Consequently, SAA is no longer a factor in the African aviation industry. Read http://eaers.blogspot.com/2013/02/should-saa-be-laid-to-rest-or-sold.html

Apart from South African Airways, other airlines that have collapsed in the Southern Africa region include; Air Zimbabwe; Air Malawi, Zambian Airlines  and now with SAA in trouble, Kenya Airways is the only airline that can fill the gap. The airline has just be en allowed to fly to Malawi’s commercial city Blantyre in addition to the Capital Lilongwe. Kenya Airways has also been authorised to fly to Zambia’s Livingstone city in addition to the capital Lusaka.

And it is equipped for the job. With a US$150Million war chest, the airline is buying aircraft for cash. So far it has inflated its fleet by 11 Brazilian Made Embraer E-90 and expects to have reached 20 by first half of this year. The aircraft is said to be suitable for short haul routes especially in Africa. Kenya Airways is gunning for domination of the African Market which is the airline’s lifeline. With Markets in the West collapsing due to the economic crises in the West, Africa is the only growing aviation market. The hard times especially in Eurozone have seen tourist numbers decline occasioning Kenya Airways, the first loss in more than 10 years.

In addition to the Embraers, Kenya Airways has also ordered for 9 B787 dream liners. Indeed, in its 10 current year- development plan to 2021, the airline plans to raise its fleet to 119 aircraft  and expand its destinations to 110 from the current 50.Of Kenya Airways' 57 Destinations world wide, 47 are in Africa and still counting. ET on the other hand flies to 43 destinations in Africa.
Kenya Airways is the only successful privatised airline in Africa- and perhaps in the world. It is the youngest airline in Africa being only 36 years old but it is a major player in African aviation industry. It is owned 26 per cent by Air-France-KLM, 22 per cent by the Kenya Government and the rest by private investors. It competes for domination of the African skies with Ethiopian Airlines (ET) and South African Airways, SAA. Both SAA and ET are the oldest airlines in Africa. In fact SAA is among the oldest airlines in the world being 77 years old. .ET is 65. But Kenya Airways will have to be wary of Ethiopian airlines, its Northern neighbour.
ET:An equally aggressive and rapidly growing airline 


ET is the second largest airline in Africa boasting of 48 aircraft but could soon be neck-on-neck with SAA for she has a firm order of another 35 aircraft.  This would raise ET’s fleet to 83 in the next decade or so. Hot on the heels and even the most dramatic expansion is KQ’s who plans to increase its fleet from 34 to 107 in ten years. This means that KQ, as Kenya Airways in known, will be competing neck-and neck with ET on fleet expansion.(see www.flyethiopian.com)

 SAA boasts of 53 long haul passenger aircraft including 21 B737-800, 6 A340-300, 9 A340-600, 11 A319-100 and 6 A340-200.The Ethiopian boasts of;:5 B777-200LR;11 B767-300ER,& B757-200ER;5 B737-700 and 6B737-800ER. She also owns six are cargo freighters and another eight   Short Range aircraft meant for domestic and short range aircraft. Effectively then the Ethiopian has just about 34 long range passenger aircraft. However, she has another 35 aircraft on order including including10 ultra modern Boeing 777-800 Dream liners and other top of the range long range aircraft from both Airbus and Boeing.

Kenya Airways for its part boasts of: 4 B777-200ER; 6 B767-300ER; 5 B737-800; 4 B737-700; 6 B737-300; 5 Embraer 170 and 4 Embraer 190. The Embraers are short range while the Boeings are long haul aircraft. The airline has placed a firm order for 6 ultra-modern B787-800DL. It is not clear whether they form part of the 79 strong arsenal or they are a separate kit.

          

Apart from hardware advantages, physical location could also play a major role on determining who has the largest pie. Kenya Airways’ home base is Jomo Kenyatta international Airport in NairobiNairobi is a natural hub of the continent being located, as it were, in the middle of the continent.  Its location makes connections to and from other destinations in Africa convenient. It also makes connections from Africa to the rest of the world seamless. That location could be KQ’s selling point.

The Airport itself is undergoing massive expansion which includes the construction of a green field terminal that will raise its capacity to 20 million passengers. 

The Greenfield terminal to be developed in two phases will expand JKIA’s capacity by 12 million passengers to more than 20 million passengers a year in Phase I. It will have a parking capacity, including “remote parking” for 60 aircraft bringing the total number of available parking slots over hundred aircraft. 
This could give a larger Kenya Airways advantage over the competition.  The future for African Airspace is headed for interesting times. Will Kenya Airways dominate? Let’s keep watching this space. But the aviation industry in Africa will never be the same again.