July 21, 2011
Welcome to the Republic of South Sudan! Following January
2011 referendum in which 98.83 percent of the population of the previously Southern
Sudan Autonomous Region voted for independence, on July 9, 2011 the Republic of
South Sudan became an independent state from Sudan. And then, five days later the
new country was admitted to the United Nations (U.N.). South Sudan seceded from
Sudan after decades of civil war (First Sudanese Civil War 1955-72 and Second
Sudanese Civil War 1983-2005). South Sudan’s population is estimated at
eight million people while the country gets almost all its revenues from
oil.
A few days after
the independence, the new country received by the Geneva-based International
Telecommunications Union (I.T.U.) a new international country calling code, which
is +211 (before it used Sudan’s international code +249).
The
telecommunications era started in Sudan before the end of the nineteenth
century. Since then the telecommunications sector had been divided until twenty years ago between
several government-owned small entities with scarce operational and financial
autonomy. Notwithstanding a myriad of development efforts until the beginning
of the 1990s, the telecoms sector remained very poor.
Only with the
Government’s Three-Year Economic Salvation Program (1990-93) the role of
telecoms sector was incentivized. At that time, telecommunications were
recognized as a primary tool for the socio-economic development of Sudan. The
program required the abolition of the monopolistic structure of Sudan’s telecoms
sector and it called for admitting local and foreign private sector investments.
Summing up, important investments were required in order to build the lacking
infrastructure.
The system is now
based on three different subjects: the Ministry of Information &
Communications, the National Telecommunication Corporation (N.T.C.), which is the
regulator, and the licensed operators. In relations to mobile
telecommunications the licensed operators are three: Zain Sudan (57 percent of market share in Q1 2011, license released in August 1996), Sudan’s Sudani (24 percent,
license since February 2006) and South Africa’s M.T.N. (19 percent, license since October 2003). Sheer numbers
explain that the most important player in the Sudanese theater is with no doubt
Zain Sudan.
Zain Group is currently operating in seven countries of
which six are located in the Middle East (Bahrain, Iraq, Jordan, Kuwait,
Lebanon and Saudi Arabia) and one in Africa (Sudan). Before selling Zain Africa
B.V. (which was present in 15 African countries) to Bharti Airtel in June 2010 for $10.7
billion, Zain was operating in 22 countries. Now Zain in Africa has operations only
in Sudan, which is indeed a very relevant market with an interesting potential yet to
be developed.
In February 2006, Zain purchased the remaining 61 percent stake of
Mobitel, which was Sudan’s first mobile operator. This deal was valued $ 1.332
billion and thanks to this operation Zain obtained 100 percent ownership. Later, in
September 2007, the company was rebranded to Zain Sudan and subsequently it
renewed its license for a period of 20 years. Zain’s operations started in
April 2008.
Q1-2011 data — the latest published — confirm potential of the
Sudanese market. The company was able to increase by over 20 percent its customer base
from Q1-2010 and to remain consistently the market leader with a market
share of 57 percent. Notwithstanding the fact that Q1-2011 was one of the more problematic
period of Sudan’s history because of the political instability (January 2011 referendum
decided for the independence of South Sudan), Zain Sudan reported in local
currency (Sudanese pound) a 13 percent increase in revenues and an 11 percent increase
in Ebitda in comparison to Q1-2011. In U.S. dollars the results are not as
positive as with the local currency because of a more-than-13-percent devaluation of
the Sudanese pound versus the U.S. dollar between the beginning of January 2011
and the end of March 2011. The graph below by ExchangeRate.com shows this
trend.
In specific, on January 3, 2011,
2.5 Sudanese pounds were required for $1 while on March 29, 2011, (around the end of
Q1-2011) 2.87 Sudanese pounds were required for $1. This translates into an almost 13 percent
devaluation in just three months. As a matter of fact, Zain Sudan’s net profit
was impacted by currency variance. Zain Sudan’s operation reported in Q1-2011
a foreign exchange loss (F.X. loss) of $52 million while in Q1-2010 there had been an F.X. gain of $32 million. Another factor impacting its operations was a 12 percent tax increase on
the operations as of February 2011. This tax in 2011 reached 15 percent while in 2010
it was just 3 percent. All this said, Zain Sudan aims at increasing its market share
through an acquisition and retention strategy.
Zain Sudan is currently in
negotiations with the new country to pay a fee aimed at extending its Sudan
license and being entitled to operate in South Sudan. Elfatih Erwa, Zain Sudan’s managing
director (previously a Sudanese state minister and Sudan’s permanent
representative to the U.N.) pointed out that Zain Sudan would continue operating
in South Sudan as it had done during the last three years (Zain started its
operation in Sudan in April 2008) when this territory was not yet an
independent country. Things may change once a new specific license is agreed
upon.
It’s interesting to underline
that although the fee to be paid to South Sudan, Zain Sudan excluded the
possibility of demanding a reimbursement to Khartoum’s government in order to
compensate the new costs required for operating in South Sudan The reason is that
Zain Sudan’s plan is to split the companies into two entities: one operating in
North Sudan and one operating in South Sudan.
While in the last three years,
the company has invested $1.2 billion in the whole Sudan, in the last five
years it has invested around $300 million for what is now South Sudan. But, according to Elfatih Erwa, Zain is devoted to expanding its 3G services in
South Sudan and the company is investing in 2011 around $110 million in fiber
and its core network. In fact, the company is ready to roll out a fiber network
to the Red Sea. Being a landlocked country, this fiber network will incur high
costs because it necessarily has to be rolled out through North Sudan or Kenya
for access to undersea cables. In South Sudan 3G services are already offered,
but internet access is via satellite and for this reason the capacity is quite
limited. A fiber network could really be a sea change.
In dealing with the poor South
Sudan the real challenge for Zain Group will be to balance the possibility of
an untapped, although poor, market with the high costs required for providing
telecom services. What is positive now is that with a stabilized political
environment companies deciding to do investments in South Sudan may base their
strategic plans on a sounder basis.