You are currently browsing the daily archive for May 29th, 2008.
Falcon Family Fund manager Jim Leitner noted a few years ago that “Ghana is a good example of the value of reading The Economist. There were a few stories about their president–(John) Kufuor–detailing his economic views and policies. He was very impressive and the upshot was that I started looking at it favorably. Leitner, as usual, was early in the trend. The Ghana Investment Promotion Centre reported a total of $460.7 million in new investments in the first quarter of the 2008 fiscal year, according to Robert Ahomka Lindsay, its Chief Executive, and the country continues to be considered one of the continent’s most economically and politically stable.
But will this be a sustainable trend that leads to long-term economic stability and viability? A recent discovery of oil off of Ghana’s western coast has some analysts wondering. Because while Kufuor trumpeted the find and declared that oil would transform Ghana’s economy into an “African tiger,” other observers wonder whether or not the discovery by London-based Tullow Oil of up to 600 million barrels last June will turn out to be a curse for the now 51-year old nation. For instance, the continent’s leading oil producer, Nigeria, has received more than $400 billion since its own oil boom began back in the early 1970’s; yet Nigeria’s Gross National Income per capita is about 25 percent lower than the average for sub-Saharan Africa. Some call it the ‘oil curse.’ “What most people don’t understand about oil is that, not only does the money not filter through to the majority of the population, but it’s much worse than that,” says Nicholas Shaxson, an oil analyst at the London-based Chatham House. “It actively makes most people poorer.”
In an unrelated, but equally interesting development, it seems that African-Americans are fueling a large chunk of Ghana’s foreign investment. Per this August 2006 piece from TIME (“Ghana’s New Money):
Ghana, a major source of human cargo during the slave trade, has been a favored destination for African Americans since it won independence from Britain in 1957. Those who make the pilgrimage often talk of an epic search for their roots and a grand narrative of Pan-Africanism. But increasingly, it’s trade, investment and entrepreneurship anchoring those high ideals. . .in African Americans, [the government sees] investment possibilities and start-up capital that [the] country badly needs. Although Ghana is in much better shape than many other African countries, its GDP is $9.4 billion, or about $420 per capita, which ranks below most Asian countries. ‘The potential for economic impact is very significant,’ says Jake Obetsebi-Lamptey, Ghana’s Minister for Tourism and Diasporan Relations. ‘As you look around now, you see the role African Americans are playing in the corporate world, as mechanical engineers, architects, doctors–right across the gamut.’”
Finally, some news last January from Ghana’s chocolate industry, as Cadbury Schweppes Plc launched an investment program to help Ghana’s cocoa farmers improve their yields, hoping to create a sustainable supply chain. Cadbury has run similar programs already in India, Indonesia and the Caribbean, and stated that its investment followed a Cadbury-commissioned report from universities in England and Ghana that showed average crop production for a Ghanaian cocoa farmer had dropped to 40 percent of its potential yield. Cadbury gets roughly 70% of its cocoa beans from Ghana, which is Africa’s second cocoa producer, behind the Ivory Coast.
Orascom is an Egyptian company involved in such activities as telecommunications, tourism and computing, and according to Max King, a strategist at Investec Asset Management, which runs a pan-African mutual fund, it is an example of the country’s diverse investment opportunities. Orascom was the first Egyptian multinational, and is one of the core Orascom Group companies, and considered among the largest and most diversified network operators. It currently services subscribers in Algeria, Pakistan, Egypt, Tunisia, Bangladesh and Zimbabwe. The company also owns Wind Telecommunicazioni, Italy’s third-largest mobile phone operator, and Wind Hellas, a Greek mobile operator. And surprisingly, up until now it has faced very little competition from the Middle East’s three largest telecommunications operators: Saudi Telecom, the UAE’s Etisalat and Kuwait’s Zain. Orascom Telecom has shared its largest market, Egypt, with only one other operator, Vodafone Egypt, since 1998, when both companies paid $516m to operate mobile phone networks using second-generation (2G) technology.
Orascom’s story started back in 1997 and its growth since then has been nothing short of remarkable. BusinessWeek wrote two years ago, for example, that its chairman and ceo, Naguib Sawiris, is “a great advocate of operating in and from emerging markets, [and] while he has had near-disasters, such as getting financially overextended in 2003, it’s hard to argue with his success so far. He has strung together a telecom empire that stretches from North Africa to Iraq to Pakistan and Bangladesh.”
Recent news stems from another planned expansion. The company announced last month plans to launch a new company this year offering banking services to its 74 million customers (mobile banking is expected to become an important revenue source for telecoms companies such as Orascom in emerging markets). Sawiris told the Financial Times that the new company would be an Orascom subsidiary offering customers the chance to use their mobiles to access banking services, including money transfer.
Mobile banking services are expected to generate an additional $1 of revenue from each subscriber every month. Sawiris says that he plans to create another Orascom subsidiary to manage operations in smaller countries, and estimated that Orascom would look at acquisitions in markets with 5 million-20 million potential customers. “Orascom Telecom enters countries to win new business,” says Wael Ziada, telecommunications analyst at an Egyptian bank EFG-Hermes. “It is not interested in piling up cash.”
Even more recent is a report stating that Orascom is eyeing new investments in Africa and Asia, and that it has already set up a new unit called Telecel Globe to evaluate investment opportunities in the region. According to Sawiris, Telecel Globe will work as a separate unit, with the mother company only supporting “its procurement power and commercial know how.” The problem in Africa, he says, is taxation and regulatory burdens, and Sawiris called on African governments to do something about it so they could “maximize the positive impact of this investment.”
Sawiris is no stranger to such challenges however, and one might even say that he thrives on them. Analysts point out, for example, that the company is historically known for establishing businesses in challenging environments. This past January, for example, it launched the first commercial mobile service in North Korea, and last December it sold 100% of its Iraq unit, Iraqna, for $1.2 billion to the above-mentioned Zain out of Kuwait. Orascom is also reportedly eyeing Cuba, following the country’s lifting on restrictions of mobile phone usage.
But the biggest future challenge for Orascom may come from within the industry. Etisalat, the UAE-based operator, has already entered the Egyptian market. Although it only launched in May, the firm has already signed up 3 million customers. Orascom’s Egyptian subsidiary, Mobinil, has responded by slashing prices, causing massive growth in the number of customers. At the end of September, Mobinil had 13.7 million customers, 69% more than a year ago. And its Algerian business could also soon face greater competition. The Algerian government plans to sell off a strategic stake in Algerie Telecom by the end of 2008. Etisalat, Zain and Qatar’s Qtel have all expressed an interest.
For more close-up analysis of Orascom, check out this article.
