The private sector has driven the expansion of information and communications technology in recent years. Figure 1 shows the rapid growth in investment with private participation in African telecommunications from 2000 to 2007. Resource scarce landlocked countries in Sub-Saharan Africa attract the lowest volume of investment. These countries have much lower levels of income, larger rural populations, and lower educational levels than other regions. Oil producer Nigeria has been increasing its dominance, and in 2007 accounted for well over half of total investment in resource-rich countries. South Africa’s contribution to the resource-scarce coastal total has been falling. Between 2000 and 2003, South Africa accounted for 60 percent of the average investment. From 2004 to 2007 this decreased to 22 percent. North African countries that have higher levels of income and a smaller rural population, accounted on average for 44 percent of investment in Africa from 2004 to 2007.
Overall investment with private involvement represented an average of 1.3 percent of Africa’s Gross Domestic Product (GDP) between 2004 and 2007. In absolute terms, in 2004-2007 Africa attracted on average 2004-2007 USD 11.5 billion, behind OECD and Central Asia with USD 19 billion and Latin America and the Caribbean with USD 13.3 billion, and slightly ahead of South Asia with USD 10.8 billion. East Asia and Pacific countries lagged behind on USD 5.3 billion. Most African countries have extremely low rates of access to ICT services, however, compared to other world regions. According to the Networked Readiness Index 2007-2008 developed by the World Economic Forum and L’Institut Européen d’Administration des Affaires (INSEAD), Sub-Saharan African countries came bottom of the worldwide rankings. North African countries ranked higher, particularly Tunisia with Egypt and Morocco improving their scores. South Africa and Mauritius led the Sub-Saharan rankings.
Access to information technology: Africa in the world rankings
Africa has the lowest internet penetration rate in the world (see Figure 2). In Sub-Saharan African countries, for internet users, the penetration rate is below 7 percent and for broadband, it is under
1 percent. In Latin America and the Caribbean, and East Asia and Pacific countries, the figure is around 20 percent for internet users. North African countries are relatively better-off than Sub-Saharan counterparts with a rate of 40.4 percent. However, even in North Africa, the penetration rate for broadband subscribers is only 2 percent. In Europe, in contrast, broadband penetration is about 15 percent. In Africa, most internet is by low-speed dial-up connections which are concentrated in Egypt, Kenya, and South Africa. Faster speed broadband connections through Asymmetric Digital Subscriber Lines (ADSL) are found in South Africa, Egypt, Morocco, and Algeria.
The penetration of fixed-line services varies significantly. In some North African countries, there is a penetration rate of up to 32 percent, while in Sub-Saharan Africa it can be as low as 3 percent and this is a major cause of the current difficulties of fixed-line operators. In other regions of the world, fixed-line operators had a strong base when mobile penetration arrived. In Africa, the low penetration rate and limited availability of fixed lines made it easier for new mobile entrants to make an impact.
Africa had the world’s fastest growth in new mobile phones in 2008. In some Sub-Saharan countries, there was a growth of about 40 percent yet overall penetration rates remain low. North African countries, on the other hand, are reaching mature levels with an average penetration rate of 93 percent, so their average annual growth rate is down to 19 percent. There are also significant differences between Sub-Saharan countries, with penetration rates in resource-rich and resource-scarce coastal countries at about 50 percent, compared to 15 percent in resource-scarce landlocked countries.
Among the big coastal African nations, Nigeria (60 million), South Africa (47 million), Egypt (37 million), Algeria (31 million) and Morocco (24 million) had the biggest number of subscribers in 2008. Among the landlocked countries, Sudan, Congo, and Uganda share the first three places with 10, 8 and 7 million subscribers respectively. With Tunisia’s market of 9 million subscribers, four North African countries are among the largest mobile markets in Africa.
But when using market penetration as the measure, Libya, Cape Verde, and Comoros have the highest coverage among coastal countries, having reached levels above 100 percent in 2008. Similar levels have also been reached by Gabon, Algeria, and Tunisia. In contrast, in the landlocked countries, the three best-performing nations, Lesotho, Sudan and Mali, barely average penetration rates of 25 percent. At the other end of the scale, Ethiopia, Eritrea, and Somalia with a combined population of 92 million people have a penetration rate of just 3.4 percent. Burundi, Central African Republic, and Rwanda have between 5 and 10 percent.
Operators have concentrated investment on second-generation networks in Africa and they will now probably recover this money before getting into third-generation high-speed networks, even if licenses are being granted. As of early 2009, there were only 5 million subscribers — 2.3 percent of the total subscribers in Africa — for services with Wideband Code Division Multiple Access (WCDMA) and WCDMA High-Speed Packet Access (HSPA). The heaviest investment has been in South Africa. The country has three WCDMA and two WCDMA HSPA networks that in 2008 accounted for 45 percent of third-generation network connections in Africa. South Africa, Libya, and Egypt make up to 82 percent of third-generation connections in Africa.
The second-generation Global System for Mobile (GSM) communications accounts for 96 percent of subscriptions. Code Division Multiple Access (CDMA) technology is only used by 1.5 percent, but some operators such as Expresso in Sudan have adopted CDMA because it requires fewer capital investments.
Connecting Africa to the World
Sub-Saharan Africa has the highest internet prices in the world. According to the International Telecommunication Union (ITU) and World Bank estimates, the average price of a broadband connection in Sub-Saharan Africa is about USD 110 for 100 kilobits per second. In Europe and Central Asia, the price was USD 20 while in Latin America and the Caribbean it was USD 7. The Middle East and North African countries also pay below USD 30.
But there is a huge potential demand. A 2006-2007 study of 16 Sub-Saharan countries found that in Cameroon, Kenya, Nigeria, Senegal, and South Africa more than 10 percent of the surveyed population use the internet. There is a large potential for growth since internet awareness remains very low. In Burkina Faso, Tanzania, Ethiopia, Rwanda, Uganda and Mozambique, less than 10 percent of the surveyed population knew what internet is. In Namibia, Ghana, Botswana, Benin, and Côte d’Ivoire, less than 30 percent knew what internet is. The telecommunications industry is investing in international bandwidth to meet this potential demand and has currently reached annual growth rates of 96 percent, compared to a global average of 51 percent, according to the Telegeography 2008 survey.
The low internet penetration rates and high tariffs stem mainly from a lack of high-capacity international networks (see Figure 4). This allows operators to charge prices far above the marginal cost of the service. There is currently only one submarine fiber optic cable off the West Africa coast, SAT-3, that provides high-quality international service and access is limited to members of the consortium which built the link in 2002. Since mid-2007 operators can purchase capacity at tariffs that have been as high as USD 25 000 per megabit per second (MBPS) each month and now range between USD 2 000 and USD 10 000 MBPS per month as the cable operators anticipate new competition. Depending on the volume of traffic, South Africa´s wholesale prices are lower while Cameroon and Gabon pay the highest tariffs. Except for Ghana and Benin, it is often impossible to buy a link to SAT-3 and so it has unused capacity.
Africa relies on satellites and Very Small Aperture Terminal (VSAT) earth stations for most of its connectivity. This results in high prices — though tariffs often of USD 3 000 – USD 5 000 are often lower than SAT-3 — and the applications are slow compared to other technologies. A web page request can take up to 16 seconds to complete. Intelsat, the world’s largest commercial satellite service provider, provides full coverage in Africa. Thuraya, which has the Middle East and North African telecommunications and investment companies as shareholders, gives coverage to North and Central Africa.
Moves are being made in west, east and southern Africa to increase the international networks (see Figure 5). But for now, East and Southern Africa rely on satellites and have just 0.07 percent of the world’s international bandwidth capacity. The 10 000 kilometers long East Africa Submarine Cable System (EASSy) was to connect 21 countries from South Africa to Sudan by 2008. Prices were expected to fall to USD 500 – USD 1 500 per Mbps/month under an open-access scheme where every service provider could purchase at the same price, whether or not they were investors. The USD 263 million project has suffered delays largely due to disagreements over the management of the consortium.
While EASSy has been delayed, other projects have advanced. Seacom is a 17 000 kilometer submarine fiber optic cable costing USD 650 million scheduled to launch in June 2009 and link South Africa with Mumbai in India, Marseille in France and London via Kenya, Tanzania, Mozambique, and Madagascar. Kenya is also working with Etisalat to connect its coastal city of Mombasa to Fujairah in the United Arab Emirates. Alcatel-Lucent has been awarded USD 82 million to lay the 4 500 km fiber-optic cable for the East African Marine System (TEAMS). SEACOM and TEAMS will begin operations in Kenya in the second quarter of 2009 with an open access policy and prices of USD 500 -USD 1 000 per MBPS/month.
The World Bank has allotted USD 424 million to boosting regional networks in eastern and southern Africa under the Regional Communications Infrastructure Programme (RCIP) which it hopes will increase traffic by at least 36 percent a year and cut bandwidth costs by one-tenth. Kenya, Burundi, and Madagascar are involved in the first phase of RCIP, involving USD 164.5 million. By the end of the program, it is expected that all capitals and major cities in eastern and southern Africa would be linked to competitively priced high bandwidth. The RCIP accounts for more than 10 percent of total World Bank support to Africa. The African Development Bank (AfDB) is also helping infrastructure development.
On the West Coast, Ghana, Nigeria, and Senegal have the most significant potential demand for international capacity. Up to seven investment groups have said they would add international capacity in the region but only a few will succeed. Globacom, the second oldest operator in Nigeria, is expected to lay a 9 500 km fiber optic link to Lagos in 2009 later going to Accra, Ghana, and Dakar, Senegal. The GL01 project, costing USD 150 million, is risky as the operator’s current traffic volume in Nigeria, Benin and Ghana do not justify the investment. MaIN One is another Nigerian project implemented by Mainstreet Technologies to link Portugal with Lagos and Accra by May 2010 with USD 200 MBPS/month wholesale prices. The link is ultimately expected to go on to South Africa and cost USD 865 million. The West African Cable System (WACS) is supported by the largest operators in South Africa, MTN, Neotel, Telkom, and Vodacom, which have traffic along the West coast. Only landing stations in Lagos and Accra are planned.
The Africa Coast to Europe (ACE) project supported by France Telecom and 14 African operators is expected to connect France to Gabon by 2011. The cable will be built by a France Telecom-managed consortium. The Other Three billion (O3b) satellite, costing USD 750 million, is expected to be in service by 2010 with prices around USD 700 MBPS/month. It will be able to download web pages in 4 seconds. NEPAD’s Uhurunet plan for an undersea fiber-optic link around Africa does not have much support. Finally, Thales Alenia Space is constructing the first pan-African telecommunications satellite, Raycom. Originally planned for the 1990s, it is now only expected to provide services after 2010. The West African Festoon System (WAFS) aims to connect countries along the west coast from Nigeria to Namibia. It is expected to have the same governance structure as the SAT-3 cable and also be managed by Telkom SA so WAFS might not offer open access.
Some alternative networks operate with mixed success. More than six electricity companies have received a license to sell capacity directly or through another company. A 2 000 km fiber optic cable is owned by Société Nationale d’Electricité (SNEL) in the Democratic Republic of Congo. These have been badly hit by the country’s war. The World Bank is spending USD 315 million in the Democratic Republic of Congo, including USD 33 million on a fiber-optic cable network. This could be expanded to other members of a proposed Southern African Energy Pool. Escom in Malawi will soon have fiber-optic cable links to Mozambique and the Tanzania Electric Supply Company (Tanesco) says it will build a new national grid with spare capacity used for telecommunications.
Africa telecoms attract investors despite the financial crisis
The financial crisis is likely to speed up the consolidation of telecommunications markets in Africa. While small operators struggle to finance network expansion, large cash-flush operators such as South Africa’s MTN, Egypt’s Orascom Telecom, Kuwait’s Zain, France’s Orange and UK’s Vodafone will be able to move into African markets. Zain has increased its capital by USD 4.49 billion and says it will spend up to USD 4 billion in Africa before 2010. Business is still being done despite the crisis such as the sale of Ghana Telecom in August 2008, ONATEL in Burkina Faso in December 2008 and SOTELMA in Mali in January 2009. Millicom’s new license in Rwanda was awarded in November 2008; Orange’s new license in Togo in November 2008 and in Uganda in October 2008, and Orascom Telecom purchased Cell One Namibia in January 2009.
Prospects for the future are uncertain, however. The share price of mobile operators in Africa has fallen heavily: MTN by 20 percent this year and Millicom by 66 percent. With growth slowing for the past three years, price competition will increase, reducing the high profits that have sustained capital investment. This means third-generation networks will be probably delayed.
Foreign Direct Investment (FDI) inflows into African telecommunications were not greatly affected by the internet bubble burst in 2000-2001, though only a small number of firms account for a large share of investment. Between 1996 and 2006 France’s Vivendi injected USD 6.1 billion, France Telecom USD 4.9 billion and Vodafone of the UK USD 3.4 billion. South-South investments came from Kuwait’s Mobile Telecommunications Co. with USD 4.9 billion, South Africa’s MTN with USD 4.5 billion and Egypt’s Orascom with USD 3.7 billion. More recently, China has offered soft loans to state-owned telecommunications operators. Chinese equipment suppliers such as Huawei and ZTE are probably going to increase their presence in Africa.
The current crisis will probably have less impact on FDI for telecommunications because of Africa’s large potential market and the relatively low impact of the crisis on consumers.