Bharti has been looking at Africa
longer than what most people believe. In the second
half of the 1990s, when mobile telephony for the
islands of Seychelles was controlled by the British
company, Cable and Wireless, which charged
astronomical prices per minute of use, Sunil Mittal
made an audacious offer to the then President France
Albert Renee. If Bharti took over the business,
Mittal promised to significantly reduce the call
charges and widen the reach. The base was small: a
population of around 80,000 then. Renee agreed.
Telecom Seychelles was born. Today, the brand Airtel
is ubiquitous in the islands, and offers every
service under the sun. At profit rates far higher
than in India.
For the next ten years, Sunil Mittal and his closest
business associate, Akhil Gupta, focused entirely on
India, building the largest GSM mobile subscriber
base in the country: 124.6 million as on February
2010, or over 30 per cent of the country’s GSM
market. But as the duo built the business, daringly
hived off anything that was remotely non-core, and
focused on offering newer services, they kept
thinking on and off about an Africa play.
For good reasons. They are among the few business
houses in India who understand the explosive growth
potential of sub-Saharan Africa. The others that I
can think of are the Tatas and Godrej. Let me share
some facts to underscore the century of Africa.
See the chart carefully. In 2010, Africa’s
population of people the age group of 20-44 years
will be 356 million. By 2025, it will have risen to
512 million, overtaking China. By 2035, it will be
624 million, overtaking India. And by 2050, when it
starts descending, Africa’s population will be 769
million. In simple terms, Africa will have the
largest number of people of 20-44 years — an age
group from which comes the younger work force. Not
too many people in India, or even the world, are
aware of this.
Now consider the continent’s resources. Hydrocarbons
in Nigeria, Angola, the Sudan, Libya, Algeria,
Cameroon, Congo, and now Uganda. Minerals in South
Africa, Botswana, Namibia, Zimbabwe, Zambia, Zaire,
Angola, Liberia, Guinea, Gabon and Mauritania. Great
agricultural prospects in Zimbabwe (once ridden of
President Mugabe), South Africa, West Africa, Kenya,
Uganda. The most conservative estimate of per capita
real income growth in sub-Saharan Africa is 2.5 per
cent per annum. Add to that an annual population
growth of 2.5 per cent, and you are looking at a
significant — and steady — growth of real income.
With considerable upsides. Therefore, one shouldn’t
be surprised at sub-Saharan Africa’s increasing
demand for consumer goods, education, banking
services and telephony.
The Bharti acquisition involves getting Zain’s
network in 15 African nations. In 2008, their
aggregate GDP measured in terms of purchasing power
parity (PPP) stood at $653 billion, or more than
half of sub-Saharan Africa excluding South Africa.
That’s a telecom acquisition over an economic
territory which is a fifth of India’s size in PPP.
Without the dog-eat-dog competition that
characterises mobile telephony in India.
Here’s my guess about what Bharti will do. On a
selective basis, it will drop outgoing and incoming
rates and thus lift the average revenue per user (ARPU)
and bring in new users in the net. But because these
markets are far more protected, Bharti won’t face
the intense price war that characterises India. So,
it will earn significantly higher margins per call —
and higher still on other services — than it does
here. And it will use all the company’s skills to
reduce unit costs. My bet is that in the next decade
Bharti will earn more money per dollar of investment
in Africa than in India.
Sunil Mittal and Akhil Gupta are extremely shrewd
businessmen, who haven’t made too many wrong moves
in their careers. Analysts can say what they like.
I’m more than convinced that their Africa play will
return them cash in spades. Maybe not immediately.
But sooner than what the great gurus think.
Published: Business World, April 2010