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Mark Mobius sees mobile frontier in Kenya

  • By: Jonathan Boyd
  • 12 Sep 2012
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Mark Mobius, executive chairman, Templeton Emerging Markets Group, says that he is looking to Kenya as one of the more dynamic markets in Africa.

When we first started out in the emerging markets space more than two decades ago, we were in "frontier" territory as we entered markets such as Indonesia, Thailand, Turkey and Brazil that were previously closed to foreign investors. Today, as those markets grow and mature, new frontier markets are opening up to us, including many countries in Africa. In our view, Kenya is one of the more dynamic markets in Africa, and we recently visited the country to explore opportunities there.

Kenya has a population of approximately 43 million, of which around four million live in Nairobi. Nairobi is Kenya's capital, founded in 1899 as a rail depot in the Mombasa-to-Uganda railway. It became the capital of British East Africa in 1907 and finally the capital of the new Republic of Kenya. Kenya's population is young, with a median age of around 18 years and more than 40% of the population below the age of 14.1

Tourism is the country's main source of foreign exchange, followed by exports of flowers, tea and coffee. Although tourism and agriculture may be the big export earners for the country, we were interested in companies whose shares could be bought on the Nairobi Securities Exchange, the fourth largest in Africa.

Communications technology has hit Kenya in a big way. While in Nairobi, we took the opportunity to visit one of the country's leading telecommunications providers. As one of Kenya's most profitable companies, it has a majority share of the mobile phone market, with more than four times the subscriber base of its next-largest competitor. The company's cellular network covers 50% of the country's geographical area, with approximately one-third of all its base stations located in Nairobi.

We learned that expansion has continued apace, with the company adding about 7,000 new subscribers every day. We found it interesting to discover that on paper, market penetration appeared to be 60% (based on the number of SIM cards in issue), but a penetration rate of 45% was a more realistic number as, according to the company, many subscribers use two different SIM cards to take advantage of lower tariffs on different networks.

The company has been hard-pressed to keep up with the increase in mobile traffic, but equipment costs have come down since the entry of Chinese manufacturers, easing this pressure a little. Operating costs have also been decreasing as new equipment is more energy efficient. As an example, with the modernisation of the core network, the firm was able to halve the number of communications switches but triple total capacity.

Perhaps the company's most successful innovation has been the introduction of a mobile phone money transfer service-a feature we noticed was widespread as we travelled around Kenya's biggest cities, Mombasa and Nairobi. The company told us that almost 15 million people use the service, with 40,000 agents across the country. These agents accept money deposits for transfer using a code transmitted over the mobile phone network to the receiver, who then collects the money at another agent outlet in another part of the country. Total transactions generally amount to more than US$600 million per month for person-to-person transfers, with the average transaction value at around US$25. This service recently accounted for about 16% of the company's revenues.

In general, we are quite positive about Kenya despite its challenges because we have seen how capable and hard-working Kenyans are. In addition, we think the Kenyan government is committed to premarket reforms, including deregulation, privatisation and trade liberalisation. We look forward to seeing more innovation and investment opportunities in this new African frontier market.

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