Burkina Faso, Chad and Niger offer strong expansion opportunities for independent tower firms considering the level of mobile competition and the prospect of subscriptions growth in each of the countries. But are the risks worth the efforts and investment? BMI highlights some risks that tower firms and their suppliers must consider in their bids to enter those countries.
Generating Interest
Before the second half of 2013, Africa-focused tower firms and their suppliers took a long-term view of possible expansion into Burkina Faso, Chad and Niger. That view changed significantly in the months following the announcements by Airtel and Etisalat that they planned to outsource the management of mobile towers owned by their respective subsidiaries across Africa, including the three landlocked West African nations. Airtel is present in all three markets while Etisalat operates in Burkina Faso and Niger through Atlantique Telecom.
The markets also play host to at least one other international operator. Orange and Tigo, both of which have adopted tower sharing services in other African markets, operate in Niger and Chad respectively, while Maroc Telecom is active in Burkina Faso. Maroc Telecom is set to take over the operations of Atlantique Telecom on the back of Etisalat’s acquisition of Vivendi’s 53% stake in the Moroccan incumbent.
The risks are high...
An assessment of the risks associated with operating in either or all of the three markets under consideration underscore the seeming reluctance of tower firms to enter the markets just yet. But as operators give serious thought to tower sharing services, we believe the time is right for tower firms and their suppliers to identify these risks and formulate strategies to manage them if they are to take advantage of the long term growth opportunities in the entire sub-region.
Access to power - With less than 15% electrification rate in all three countries, according to the World Bank, tower firms will have to rely on alternative sources of electricity to power cell sites, especially those in rural areas where the majority of the population live. Network operators have largely relied on diesel generators, but these assets are expensive to maintain and are partially responsible for thin operating margins and sluggish expansion of network coverage to underserved areas. BMI believes that renewable and potentially cheaper sources such solar will receive strong attention as new towers are built in more remote areas. The three countries are located in the Sahel and benefit from year round sunshine.
Population density - This is another factor weighing on universal access in the three countries. Burkina Faso fares better than its neighbours in this regard with a population per square kilometre of 61.8 at YE13, according to BMI data, compared to Chad and Niger at 10 and 14.1, respectively. Although this factor increases the likelihood that tower firms will be obligated to deploy new, strategically located towers for optimum network coverage, we also highlight the fact that it makes a strong case for tower sharing by operators in order to avoid unnecessary duplications.
ARPUs - Mobile ARPUs in the three countries are low by regional standards at less than US$5. We forecast ARPUs to trend further downwards as operators extend services to rural areas. This will be a major consideration in the negotiation of tenancy rates on independent tower sites. That said, this risk can be mitigated by potentially high tenancy ratios, especially for tower firms operating as a monopoly or with significant first mover advantage.
Security - The three countries lie in a volatile region, with terrorist threats from Islamist groups such as Al- Qaeda in the Maghreb in north and Boko Haram from the south. The war in Mali in 2013, when French and Nigerien troops helped the Bamako government to recapture the north from Islamist and separatist elements, spilled over into Niger, with terror attacks taking place in the military town of Agadez, and another targeting the Areva uranium mine at Arlit, as direct reprisals for its involvement in the conflict. The threat of terrorism in the north is extremely costly, not only to the Nigerien government, but also firms operating there.
Niger and Chad share a border with north-east Nigeria, where the increasingly violent Boko Haram group operates. Boko Haram’s terrorist activities are causing floods of refugees to cross into the south of Niger and Chad, and although the terrorist group appears not to be interested in widening its aims to encompass its neighbours as well, authorities in the region are worried that it could soon broaden its remit. Should Boko Haram begin to operate in Niger and Chad, we believe the local authorities in those countries would be hard-pressed to contain the insurgents. Regional powerhouse economy Nigeria has thus far failed to curb the violence, and Niger and Chad’s security services have limited capacity to do so.
Politics - The next presidential elections in Burkina Faso are scheduled to take place in November 2015. Political tensions are already rising as it looks increasingly likely that President Blaise Compaoré will attempt to amend the constitution in order to serve another term in office, possibly through the holding of a referendum on the matter. Public protests against this move have intensified across the country. However, Burkina Faso lies in an extremely volatile region politically, and many will be happy for the known Compaoré to continue in office. The president won more than 80% of the vote in 2010.
In Niger, the current government under President Mahamadou Issoufou was elected in 2011 elections deemed by international observers to have been free and fair. However, the country is prone to military coups, a trait in common with the rest of the region. Issoufou’s election came after a year-long military junta ousted President Mamaduo Tandja in 2010, and any perceived failure to produce inclusive growth could lead to an overthrow of the government by either the people or the army.
Domestic politics in Chad are equally volatile as highlighted by a revolt within the ruling party in November 2013, which cut short Joseph Djimrangar Dadnadji’s troubled premiership. BMI believes that the transition was managed by long-serving President Idriss Déby Itno, and we expect little change in policy from the new government, which will be headed by Kalzeubet Pahimi Deubet.
However, we doubt that the appointment of Deubet will meaningfully address popular or opposition concerns. The structural threats to Chad’s economic system are growing, and the new prime minister will face the challenge of managing an increasingly restive governing party. Real power in Chad rests with President Déby, meaning that the overall direction of policy is unlikely to change.
...But could be worth the effort
The presence of multiple operators and relatively high level of competition between them in each of the three markets is arguably the most important factor stimulating investor interest. A pioneer tower firm with first mover advantage in one or more of these markets is almost certain to record strong tenancy and site revenue ratios.
Other notable factors include the expected endorsement of tower sharing services by the respective telecoms regulators, especially if it promises to extend network coverage to underserved areas, and the potential for sustained subscriptions growth in those markets over the medium to long term. In Niger, the telecoms regulator, Multisectoral Regulatory Authority (ARM), has sponsored a decree to harmonise infrastructure sharing (passive and active), although this is awaiting ratification.
In terms of subscriptions growth, Chad and Niger’s mobile penetration rates are among the lowest in Africa, at 36.8% and 34.8% respectively at YE13, according to BMI data. Although Burkina Faso has a much higher penetration rate of 72.1% at the end of the same period, we project it to rise to 96% by 2018, equivalent to net addition of around 6.5mn subscriptions over our five-year forecast period.
Beyond the telecoms market dynamics, the macroeconomic outlook for Burkina Faso, Chad and Niger is encouraging, at least in terms of headline growth and potential for increased economic activities. Burkina Faso has been the fastest-growing economy in the five-member Union Economique et Monétaire Ouest- Africaine (UEMOA) currency bloc over the past five years. From 2009 to 2013, annual real GDP growth in Burkina Faso averaged 6.3%. The closest any of the other five members came to matching this was Niger, where growth averaged 5.4% over the same period. Over the next decade we expect Burkina Faso to remain a regional outperformer in terms of economic expansion, with real GDP growth averaging 6.9% between 2014 and 2018.
The growth of Niger’s extractive industries will be one of the primary forces behind GDP growth, which we forecast to average 6.3% between 2014 and 2018. The country is a major uranium exporter, and investment into new mines, and continued uranium exports, will support growth despite a fall in global uranium prices. For its part, Chad’s headline growth will reach 9.6% in 2014, according to BMI data, owing to a brief increase in oil production, but we predict that economic expansion will subsequently slow as oil production stagnates and lack of reforms hold up new investments.
