Operations in the rest of Africa are the best hedge for a declining rand a company could hope for, Vodacom CEO Alan Knott-Craig said yesterday.
Speaking at a Gordon Institute of Business Science (GIBS) forum last nigh, Knott-Craig sang the praises of markets like Tanzania.
"We were the fifth [cellular] network in Tanzania," he said. "We moved from number five to number one in twelve months. Now we have 51% of the market and everybody wants us to buy their businesses. We don`t want to buy their businesses."
He generally disapproves of buying any business, also when entering new markets on the continent, as it takes "one year to figure out what it is you actually bought, another year to fix it and another year to wish you hadn`t bought it in the first place".
Despite being determined to go it alone in new markets, Vodacom has a policy of not entering any market where it cannot make a profit and be the market leader within 12 months of its launch, he said.
"I don`t tell our guys this to discourage them from going into a country, but it focuses their minds very well."
In the near future the company is likely to look at Mozambique, Ghana and Botswana, he said, but definitely not Nigeria.
"The guys there are very good at taking your money; I think they are smarter than we are here," he joked, referring to Nigeria`s reputation as a focal point for scam artists. "I don`t like going where people are smarter than we are."
He also admitted to being scared of the South African company floundering if the Nigerian operation proved unsuccessful. The Nigerian population is around three times that of SA and the cost of rolling out infrastructure there is significantly higher than locally.
Knott-Craig does see one positive side to Nigeria. "MTN is very busy there, which leaves the rest [of the continent] open for us."
This includes the Democratic Republic of the Congo. Despite an ongoing war in the north of that country, Knott-Craig has no fears about doing business there.
"We forget how big the country is," he said. "It would be like not investing in Cape Town because of problems in the north of Zimbabwe."
The EBITDA pyramid
Expansion is a given for Vodacom. Much like a pyramid scheme, the company must constantly search for new markets.
Knott-Craig said he is determined to maintain a 25% year-on-year growth in earnings before interest, tax, depreciation and amortisation (EBITDA). To do so, Vodacom must exploit the good margins the African markets offer while business slows down in SA.
While he would not reveal the company`s revenue per user figures, he says that figure is about six times larger for Tanzania than it is for SA, something he attributes to the relative immaturity of that market.
"In all new markets you get about six good years before all the good money is wrapped up," he says.
While Vodacom has looked at opportunities in South America, he says the state of regulation on that continent is simply not conducive to investment. Regulation is also problematic in SA, but not further north.
"In the rest of Africa, the governments actually go out of their way to make it easy to invest," he noted.
Related stories:
Lucrative African telecoms market fraught with obstacles for SA investors
Share