about us
  areas of expertise
  our projects
  ideas & resources


  Index of Articles          Index of Perspectives            Next Article


Airtel's Africa Play

Omkar Goswami


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


                 Index of Articles          Index of Perspectives            Next Article