Africa Telconomics

Africa Mobile Market Outlook - Recession, What Recession?

"Liduduma lidlule", the Xhosa say. The thunder shall pass. This maxim would be apt to describe the medium term impact of a global economic downturn on African mobile markets. With global financial markets remaining jittery, we have reviewed the possible implications of an economic downturn on African mobile markets over the next 6-12 months. We make the following points:

# African economic growth prospects have deteriorated somewhat owing to the uncertainty of the global macro-economic outlook - as per the International Monetary Fund. The IMF expects sub-Saharan African economic growth to decline slightly to 6% in 2008 and 2009 - from 6.5% in 2007. Governments have to review their budget assumptions.

# African mobile demand has proved resilient; we are less concerned about demand today than we were early this year when foodstuff prices peaked.

# Our argument isn't that a global recession would have no impact. To be sure, the combination of an economic downturn with price-based competition doesn't make for a good dynamic.  We believe the probability of declining margins has increased.

# Our mobile revenue projections remain moderate at 15%-20%. Our Opex outlook is positive and we have revised our Capex projections downwards. We remain positive but cautious on mobile broadband and expect to see more downward pressure on current mobile valuations.

Download the Research Note:

Download 10_21_08_rn_market_outlook.pdf

US Liquidity Crunch and African TMT Markets – The Demise of the Decoupling Theory

With the current US liquidity crisis threatening to take global financial markets into a downwards tailspin, we conducted an informal –and unscientific- survey of a small number of Africa-focused fund managers and other others directly involved in African project finance to get their assessment of the impact of the crisis on the African TMT space. We asked three questions:

(1) How does the US liquidity crunch impact the availability of equity (or debt) capital for African transactions?

(2) What do you see as the impact of the current crisis on African TMT deal-flow over the next 6 months?

(3) Do you see the African TMT space as insulated from a potential global economic downturn?

 

It should be noted that we expect the US Congress to eventually pass a “rescue plan”. This should help alleviate some of the crunch, but the bank failures of the past few weeks will have some lingering effects. Below are some extracts of a client research note summarizing some of the views we gathered, mixed in with some of our own analysis.

• The fundamentals of the African TMT space remain strong: From a pure fundamentals standpoint, the African TMT market is perceived as largely impervious to a major global economic downturn. Demand for basic voice services remain strong – “inelastic”, some argue- , and most projects remain bankable.
• This, however, may be one of those instances where fundamentals matter little. With regards to the availability of debt financing, two-thirds of the respondents to our survey agreed that the US liquidity crisis would have a direct impact on African TMT markets. For one, all the world’s large commercial banks are in the process of cleansing their balance sheets of any loans than are either toxic or perceived as too exotic. There is the perennial “flight to quality” that typically accompanies market volatility and rarely, if ever favors African markets. African banks with credit lines in Western markets may see them tightened, if not frozen. A number of markets (e.g. Nigeria, Kenya) are already facing their own liquidity issues, though those appear only remotely linked to the US crunch.
• Bring back the DFIs: as lenders become more risk adverse, the cost of capital will rise. Banks will lend to service providers that are sure bets and hold back on everybody else. First tier players (e.g. Safaricom, MTN) will have no issues getting financing. WiMAX providers and other fixed or mobile third tier players will have to look for alternative options; the most notable outcome of the liquidity crunch may well be the resurgence of vendor financing and Development Finance Institutions (DFIs).    
• The market is set to see fewer highly-leveraged transactions. Nonetheless, equity investments originating in the Middle East should be affected only marginally.

 

Extracted from An AfricaNext Research Note:  The US Liquidity Crisis, African TMT markets and the Demise of the Decoupling Theory