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Sub-Saharan telecoms deals are happening. But as Egypt and South Africa struggle for domination of the continent's markets how much heed to political risk should project financiers give and are there new ways of hedging? By James Burke.
The standard telecoms project finance equation is reversing. While high profile first tier market deals like Iridium and ICO suffocate under unsustainable debt burdens and outdated technology, Africa's telecoms sector has the potential for enormous growth where tried and tested technology will suffice.
Africa is a telecoms market overshadowed and undercapitalised by western deals and western investors. State telcos do not have the balance sheet to sustain much debt and foreign investors have tended to shy clear of massive cash input - too politically risky.
But says Richard Addington, telecoms project financier at Standard Bank in London, "the scope for technological leapfrogging and the use of pre-pay technology," mitigate many of the normal risk associated with deals in both first and second tier markets.
Sub-Saharan Africa has a teledensity of 1.7% which is under-representative of the real potential. The international Telecommunications Union claims that teledensity in Africa in those countries where annual incomes are $350 should be 2%. Take out the richer economies of Botswana and South Africa where density is 10%, and that original 1.7% becomes minuscule.
In the past five years some $95 billion has been raised in global telecoms privatization, but only $1.7bn came from Africa and again most of that was raised in South Africa, Ghana, Guinea, Senegal and the Ivory Coast.
The geosociological map dictates that the growth markets will be in cell phones and wireless technology as technology becomes affordable to populations in remote areas. State telecom operators in Kenya, Uganda and Tanzania, for example, are regarded as more valuable because of their licences than their existing physical assets.
Data transmission, internet and other peripheral licences (payphones, VSAT transmission, or teletrade centres) will provide another opportunity for project finance. Already 44 of the 56 countries in Africa have full Internet access.
A number of projects signed in 1998. Egypt Telecom announced a $555m upgrade and Telekom South Africa has awarded a contract worth $15 million to Gilat Satellite Networks. More projects are in the pipeline. Telkom South Africa is...