Safaricom: On a Tear in Africa

Wednesday, August 29, 2007

Visitors to the headquarters of Safaricom in Nairobi must first face the scrutiny of a pair of imposing uniformed guards who peer sternly at vehicle occupants before lowering a hydraulically operated metal roadblock that looks strong enough to stop a speeding truck. The tight security is a reminder that Kenya, though relatively prosperous and stable by African standards, is still a difficult place to run a mobile-phone company.

Safaricom, a 60-40 joint venture of the Kenyan government and London-based Vodafone (VOD), wrecks an average of one maintenance vehicle a month on the country’s abysmal rural roads. Even in urban areas, cellular base stations require diesel-powered generators to compensate for unreliable or nonexistent electrical power. And Safaricom must surround the base stations with electrified fences and alarm systems to discourage theft of fuel, as well as the generators themselves.

Yet despite challenges like those, not to mention a customer base that is still largely poor, Safaricom is a huge success story. It commands 70% market share in Kenya and booked sales growth last year of 36% — a rate its London co-parent can only dream of — plus solid 25% profit margins. From just 17,000 subscribers in 2000, Safaricom now has 7.4 million, exceeding even the most optimistic forecasts. Profit in the fiscal year ended Mar. 31 was $188 million on sales of $741 million. “Nobody understood the pent-up demand,” says Safaricom CEO Michael Joseph, a Vodafone veteran originally from South Africa.

Going Public in Nairobi
Now Safaricom is planning an initial public offering on the Nairobi Stock Exchange, an event that will help call attention to the potential of Africa as a market for mobile phones — and other products. The November IPO of a 25% stake is expected to value the company at $2 billion, and possibly much more.

Safaricom is one of a host of lesser-known mobile-phone companies that are proving there is money to be made in the African mobile market for operators who tailor their offering to local needs. Other leading carriers include South Africa’s MTN (MTNJ.DE), Netherlands-based Celtel [which competes with Safaricom in Kenya], and Luxembourg-based Millicom (MICC), which operates in seven African countries from Chad to Mauritius. “There are many years of growth ahead of us in Africa,” says Marc Beuls, CEO of Millicom. He notes that his company has learned how to manage in places like the Democratic Republic of the Congo, which is still recovering from years of civil war.

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Source: Yahoo Asia News (link opens in a new window)