Investing in Africa

MTN: Investing in Africa

Around the 1980's mobile telephones started showing up for commercial use. They were analog style, cumbersome and expensive to purchase. In the 1990's digital technology was born and mobile phones became readily available to everyone and less expensive than the previous ten years. By 1998 over 30% of the world population within the areas of Europe, Asia, and North America had mobile telephones.

With this type of usage of mobile telephones, Mobile Telephone Network plc (MTN) was born in 1993 attempting to earn their share in the South Africa market for mobile telephones. By 1999 MTN had over 1.3 million subscribes in South Africa. MTN is only one of three in the southern hemisphere to receive the ISO 9001 Certification for Highly Qualified Service. MTN is also one of only two mobile phone operator services in South Africa. The competition is a company called Vodacom.

A meeting was held in Johannesburg in 1999 to decide if MTN should go global. Globalization refers to markets and production. Globalization also refers to the merging of separate national markets into one global marketplace. Most global markets products are now industrial goods and materials that serve a universal need the world over. As companies grow beyond domestic to international areas they bring many of the assets that served them well. Such as the product, operating and marketing strategies, and brand name. With this in mind MTN's key issues to be discussed included:

 Should MTN attempt additional foreign entries?

 How should MTN assess the eleven countries open for bid in the next year? Along with which countries are the more promising?

 What should MTN do to prepare for successful international growth?

MTN, in late 1999, was already in the process of securing a license in Nigeria. After securing the license, MTN planned to go live in Nigeria in a 6 month period. 20 to 30 expatriates had already been selected and were prepared to begin roll-out of business and services as soon as the license was in place. There were a number of reasons for the urgency of this operation. The population of 129 million plus, this was a single license for MTN, Nigeria has a costal port attracting new ventures and Nigeria has a great amount of natural resources, which would indicate that the country has much growth potential, regardless of the corruption in government at the present time. Phone services could possibly be the trigger to help that country and that economy explode.

A SWOT analysis will show the strengths, weaknesses, opportunities and threats of MTN as they are related to MTN moving into market globalization.

STRENGTHS:
• MTN has had success in all it's current ventures domestically and with a few countries in Africa as well.
• MTN has competed for licenses and been the corporation to win the bid for licenses against larger corporations
• MTN has the technical expertise to start up new services and support those services
• MTN has established excellent training practices and become aligned with ISO 9001.
• MTN has been able to supply services consistently under less than ideal circumstances
• MTN has been very profitable in its initial ventures.

WEAKNESSES:
• MTN must be able to retain current employees, while training new employees. While other competitors are attempting to recruit.
• MTN must control all costs to insure international success.
• MTN must choose countries which are more likely to succeed, based on barriers of language, culture, economics and geography.
• MTN must be able to assess quickly a country's rules of engagement and respond appropriately.

OPPORTUNITIES:
• Other countries of Africa are virtually an open market where MTN will be the first phone system there.
• MTN can establish brand loyalty from the first phone having reliable and economical services.
• As MTN successfully establishes their corporate reputation in each country, it makes entry into the next country much easier.

THREATS:
• Each new country entered will present new challenges of entry such as different languages, tribal laws or politics, and local geography.
• Difficulties with installation and maintenance of new stations and equipment.
• Unknown quantities of resources may be depleted with each country added, over and above the normal or planned cost of the project.
• MTN must train enough people to provide services and be able to retain those individuals.
• Competitors may undercut pricing to gain market share.

Following Nigeria the countries that MTN are interested in are Cameroon, Ethiopia, Gabon, Ghana, Kenya, Malawi, Mauritius, Mozambique, Senegal, Zambia, and Zimbabwe. MTN's first key issue holds many facets in determining entry into the other foreign countries. The main areas of concern include, but certainly not limited to, cost, culture and ethics.

Cost
To determine if a country will be profitable in the long run, MTN must review all benefits, costs and risks involved. The eleven African countries MTN's is investigating are considered to have a relatively small economic market because of their low living standards and small purchasing power.

However, 6 of the 11 countries, Gabon, Mauritius, Senegal, Cameroon, Mozambique and Ghana, are on a coast or have a costal port. Geography in these countries insures they have markets and access to export goods through out the world. Telephone services would only help that type of industry take hold.

The other 5 countries, Ethiopia, Kenya, Malawi, Zambia and Zimbabwe, are either directly connected to South Africa physically, or are connected with a country that has already been in MTN developing business plan. This would mean that MTN has already established ties with the cultures and people of these counties making entry access less of an unknown.

• Need to establish a marketing plan to roll out to all potential customers. This can determine how strong the market is.
• Plan to centralize the head office or corporate functions. This will ensure that the South African Bank will let MTN have the benefit of the larger amount of money earmarked for the companies expanding in the local region. MTN would be able to use the $43 million on their centralized expansion.
• Training new employees will pose a serious difficulty and cost per person.
• Equipment is a large capital outlay for a new venture.

If MTN makes solid and swift decisions to move into these other eleven countries, the brand of MTN will become know and established early on promoting brand loyalty.

Culture
Gert Hofstede, expert on cross-cultural differences and management defines culture as, "the collective programming of the mind which distinguishes the members of one human group from another…this includes systems of value; and values are among the building blocks of culture." Values include what a group believes to be right. Norms are social rules and guidelines for appropriate behavior of a society.

Many African nations have multiple cultures therefore causing difference between tribal groups. Rwanda disrupted into a civil war because of two powerful tribes, the Tutsis and Hutus.

With brand loyalty MTN will also discover each country's business practices. The culture of a foreign country can vary tremendously; therefore, it is very important that MTN complete a thorough research in all areas of the countries. MTN also must understand some cultures may be more sensitive than others.

Elimination of cross-border barriers makes it easier for companies to enter into the international trade market. Differences will still exist between national markets along with preferences, distribution channels, culture value systems, business systems, and legal regulations. In countries where collective goals are given preeminence, the government may have control over many of the enterprises and therefore likely to restrict companies attempting to enter that countries' trade market.

Cultural barriers may include religion, education, language, social culture, political philosophy, and economic philosophy. Religion as it relates to culture is important in the African countries that MTN wants to expand into because each society may have a different set of moral principles or values differing from what MTN is accustomed to. Many different religions shape the attitudes toward business and the degree of costs of doing business in a country.

Africa countries are divided between two main factions of religion, Animism (tribal) and Islam (Sunni), with a few exceptions. One exception is that South Africa is mainly Protestant, and along the west coast of Africa religion has mixed sects.

The spoken language is another culture barrier that MTN must face in moving to new countries. To help define cultures in each country languages help shape the way societies perceive the world. English is considered the most widely used form of language in the world, although many countries in Africa speak in their own tribal tongue. MTN must be sure to investigate what each society speaks in order to reduce costly advertisement errors and taboos. Unspoken language is an important behavior that must be understood because different mannerisms in a society may be interpreted differently in other societies. Therefore it is very important that MTN review all cultural areas of concern before entering the trade market.

With the advances of transportation and communication technologies globalization trade are creating conditions for the merging of cultures allowing it easier for companies to expand into other countries.

Ethics
Should MTN be involved with countries where human rights are non-existent, or near non-existent?

Tribal totalitarianism exists when a tribe with a political party represents the tribe's interest and monopolizes power. Tribal totalitarianism still exists in many African countries such as Zimbabwe, Tanzania, Uganda, and Kenya. In 1996 MTN entered the Uganda market that exists as a tribal totalitarianism country. This could not have been accomplished without the help of certain investors connected politically to the state of Uganda. Zimbabwe and Kenya are two other countries that MTN is seriously considering entering into the mobile phone market.

With political power comes much corruption in many countries, according to the Transparency International "Global Corruption Report 2003," Nigeria is considered the second largest corrupt country, following only Bangladesh, out of 102 countries.

Nigeria is the most populous country in the entire Africa continent, with oil as a natural resource that is abundant in Nigeria. Because the corruption rate is so high even though Nigeria made $300 billion between 1970 and 200, they still remain one of the poorest countries in the entire world. Most of Nigeria's problems are due to competitive tribes whose ethic and religions are in constant conflict.

According to Freedom House's "Freedom of the World 2003: The Annual Survey of Political Right and Civil Liberties," South Africa is the only state within the African continent that is rated as having the most freedom of political power. Political freedom is import for these countries in Africa to be become stabilized and rid itself of corruption, or at least to minimize the corruption.

Within the countries that MTN is investigating to enter, and again according to the Freedom House's survey, Cameroon, Ethiopia, Gabon, and Zimbabwe are listed as poor in political freedom; whereas, Ghana, Kenya, Malawi, Mauritius, Mozambique, Senegal, and Zambia are all listed as half way or more for having political freedom. In the countries that MTN has already entered, Rwanda is the only one with political freedom, with Swaziland and Uganda listed as poor.

Should MTN be involved with countries where human rights are non-existent, or near non-existent? In 1994 South Africa's apartheid system was eliminated mostly due to economic sanctions by Western nations who boycotted by not investing in South Africa. The argument continues whether sanctions work in obliterating countries non-existence of human rights.

Since human rights are near or non-existent in third world countries the Ethics Institute of South Africa (EthicSA) was incorporated in September 1999. They are an independent, nonpartisan nonprofit organization headquartered in Pretoria, South Africa. The Ethics Resource Center (ERC) assisted the people of South Africa in its establishment with generous support from The Merck Company Foundation to an ethics institute.

EthicSA's mission is to promote and advance ethical practices in South Africa - in the profession, business, and public policy and among individuals. To this end EthicSA serves as resources, facilitates ethics initiatives and works in partnership with private and public institutions as well as individuals.

EthicSA is comprised of leading business, healthcare and civic figures. Initiated and developed by South Africans with a view to local requirements and conditions, EthicSA's operational and substantial activities are guided by values such as honesty, integrity, responsibility, excellence, equity and fairness.

Business ethics activities include:
• Business Ethics Direct, an e-mail based newsletter published twice a week, focusing on business ethics and corporate governance
• Business Ethics South Africa survey, serving as a benchmark of business ethics in South Africa
• South African Business Ethics Information Service, a database on the ethical performance of South African companies, available to consumers and investors
• Ethics/compliance officer accreditation
• Capacity building presentations, workshops and training sessions

What about the safety for both product and workers along with environment protection? Should MTN invest where there are no regulations? In many countries it is customary to pay bribes to various officials; even though a country may have laws forbidding such actions. These are some of the areas that MTN must investigate and face when looking at new countries to enter for trade market. MTN must have a good understanding of what they are getting into when they enter a new country. Otherwise, major problems will arise.

To help encourage economic activity it is important to show a strong level of faith and honor when MTN does business agreements with the various societies of each country. To break or weaken the agreement would dishonor MTN, therefore possibly costing economic hardship to MTN. A fine line of gift vs. bribe exists because it is an ethical decision which also must be thoroughly investigated. In one country a gift may be required while in another country a gift may be perceived as a bribe. Therefore practiced customs should be adopted for each country as it is accustomed to. Because customs have a sensitivity in its approach, MTN must be well prepared if they want to expand globally. This is still a hotly debated ethical issue.

Now in the year 2005 MTN has more than met its goal as predicted in 1999. The company already operates networks in six African countries that collectively service the needs of more than 9.5 million subscribers. MTN is a growing multi-national company that is still seeking to expand throughout Africa and now into the Middle East. The following excerpt is from the www.mtn.co.za opening page.
"As a major communications company, MTN is focused on the African continent. We believe that through access to communication comes economic empowerment. The MTN Group operates three business divisions: MTN-SA (South Africa), MTN International, and Strategic Investments."

MTN's website also states their challenges that lay ahead will be to continue exploring opportunities on the African continent in line with its vision of being the leading provider of communications services in Africa.

MTN has changed and continues to help change the fortunes of economies and people across Africa through the quality of the operations it has established. With its philosophy of Africans solving Africa's problems, MTN has demonstrated its commitment to the continent with positive results – even though the environment is characterized by challenges such as geographic expanse, population densities, varying GDP-per-capita figures and relatively poor infrastructure. As MTN Chairman Cyril Ramaphosa says, "The company's success across diverse markets has shown what African business can achieve – not only in terms of ownership, but also in exploding the myth that black people cannot do highly skilled and senior management tasks. MTN will continue to explore opportunities on the continent in line with its vision of being a leader in telecommunications in developing markets."

RECOMMENDATIONS
1. Make Nigeria the first priority. This is a country along the coast that has access to shipping goods.

2. Centralize all corporate functions in the South African Head Office. This will qualify MTN for the 43 million loan money that can be used in South Africa, but the can be used to support functions of the international operations.

3. Create a training program establishing a chain of continuous training. A. Train the trainer programs establish a line of communication and continuous training of new employees.

4. Double the head office staff to be able to handle the influx of new paperwork and transactions. Increase the numbers of the office as new countries are brought on board.

5. After establishing Nigeria, the target should be the countries closest to South Africa. The closer the country the least resistance to business establishment and the greater ease of maintaining the network.

6. Keep the stance that MTN will retain the controlling rights over the company. If there is a new investor or venture capitalist that wants to invest in this project, be sure that their decision making is limited. This insures MTN of decision control.

AFRICAN COUNTRIES STATISTICS
African Country Region Population Square miles
Western Sahara Coastal 256,000 97,344
Djibouti Interior 473,000 8,880
Equatorial Guineas Interior 498,000 10,831
Swaziland Interior 1,124,000 6,704
Gabon Coastal 1,233,000 103,347
Guinea Bissau Coastal 1,345,600 13,948
Gambia Coastal 1,418,000 4,127
Botswana Interior 1,679,000 219,916
Lesotho Interior 2,208,000 11,720
Mauritania Coastal 2,656,000 398,000
Dem. Rep. of Congo Interior 2,899,000 132,047
Liberia Coastal 3,288,000 38,250
Eritrea Interior 3,981,000 46,770 357,000 refugees included
Sierra Leone Coastal 4,823,000 27,699
Libya Interior 5,368,000 678,400
Central African Rep. Interior 6,343,000 240,376
Burundi Interior 6,373,000 10,759
Benin Interior 6,788,000 43,483
Rwanda Interior 7,398,000 9,757
Somalia Coastal 7,753,000 246,000
Guinea Interior 7,775,000 94,926 700,000 refugees included
Chad Interior 8,997,000 495,752
Tunisia Interior 9,764,000 63,378
Senegal Coastal 9,905,000 75,951
Zambia Interior 9,959,000 290,586
Malawi Interior 10,520,000 45,747
Angola Interior 10,593,000 481,354
Niger Interior 10,640,000 459,073
Mali Coastal 11,340,000 482,077
Zimbabwe Interior 11,377,000 150,873
Cameroon Coastal 16,185,000 183,591
Madagascar Coastal 16,473,000 226,658
Ivory Coast Coastal 16,805,000 124,504
Mozambique Coastal 18,082,000 297,846
Ghana Coastal 20,244,000 92,098
Uganda Interior 23,301,000 93,070
Morocco Coastal 29,632,000 177,117
Kenya Interior 31,139,000 224,961
Algeria Interior 31,261,000 919,595
Sudan Interior 37,090,000 966,757
Tanzania Interior 37,188,000 364,881
South Africa Coastal 45,172,000 470,693
Congo Interior 46,674,000 905,356
Egypt Interior 66,341,000 385,210
Ethiopia Interior 67,673,000 437,794
Nigeria Coastal 129,935,000 356,669
Namibia Interior No information No information
Four countries in red are already in MTN Phone Network and making a profit.

Country Location Population Square Miles
South Africa Coastal 46,172,000 470,693
Uganda Interior 23,301,000 93,070
Rwanda Interior 7,398,000 9,757
Swaziland Interior 1,124,000 6,704 TOTAL 77,995,000 580,224
2,267 employees servicing original venture.

Priority Venture: Twice as many people, but less area to place towers.
Single License
Country Location Population Square Miles
Nigeria Coastal 129,935,000 356,669
4,534 recommended employees for new venture.

Countries in blue most towers would be set already.

Eleven new countries on planning table: 2-1/2 times the number of people as the original venture, with four times the area.
Third or fourth licensing opportunity
Country Location Population Square Miles
Gabon Coastal 1,233,000 103,347
Mauritania Coastal 2.656,000 398,000
Senegal Coastal 9,905,000 75,951
Zambia Interior 9,958,000 290,586
Malawi Interior 10,520,000 45,747
Zimbabwe Interior 11,377,000 150,873
Cameroon Coastal 16,185,000 183,591
Mozambique Coastal 18,082,000 297,846
Ghana Coastal 20,244,000 92,098
Kenya Interior 31,139,000 224,961
Ethiopia Interior 67,673,000 437,794 TOTAL 198,972,000 2,300,794 9,068 recommended employees for further globalization.
13,602 new employees to train.

It has been stated that upon start-up, it is probable that costs could be 1 million dollars per customer.

MTN Company Timeline
1993
• MTN South Africa awarded National GSM 900 licence
1994
• MTN Group incorporated in South Africa
• MTN South Africa commercial launch
1995
• M-Cell converted to a public company with investments that include a 25% shareholding in MTN Holdings and a 60% shareholding in M-Tel (now MTN Service Provider)
• MTN Holdings acquired Service Provider M-Tel
1996
• MTN South Africa launched pre-paid platform
1997-1998
• MTN expanded into Africa, acquiring licenses in Uganda, Rwanda and Swaziland
• MTN South Africa awarded ISO 9001 accreditation for network
1999
• M-Cell acquired 100% of Orbicom for the issue of new shares
• MTN South Africa awarded ISO 14001 accreditation for environmental management
• M-Cell acquired up to 72% in MTN Holdings
2000
• MTN acquired a National GSM 900 license in Cameroon
• MTN ICE launched - MTN's innovative mobile portal for information, commerce and entertainment
• M-Cell acquired the remaining shareholding in MTN Holdings from Transtel for the issue of new shares and now holds 100% interest in MTN Holdings
• MTN announced a South African cellular industry first with the launch of High-Speed Circuit Switched Data (HSCSD) services
• MTN launched the first office application site for General Packet Radio Services (GPRS)
2001
• MTN acquired National GSM 900 and GSM 1800 licenses in Nigeria at the cost of US$285 million, and launched operations in August 2001
• MTN and Johnnic Holdings acquired 40% of eBucks.com
• M-Cell acquired CiTEC, a tier-one Internet Service Provider (renamed MTN Network Solutions in May 2002), to increase the range of data services provided to corporate customers and to position the group for data and voice services over the Internet
• Launch of MTN's social investment vehicle, the MTN Foundation, which strives to improve the quality of life in the communities in which MTN operates
2002
• The Ministry of Public Enterprises announced the sale of Transnet's 20% stake in M-Cell to Ice Finance BV, an unlisted passive investment company incorporated in the Netherlands
• MTN South Africa launched MTN Business Solutions, a unit focused on delivering innovative services and products solely to the business market
• M-Tel - MTN South Africa's Service Provider - changed its name to MTN Service Provider (MTN SP). The change was aimed at creating an efficient organizational structure and achieving brand consistency within the MTN Group
• M-Cell was renamed MTN Group Limited to reinforce African presence and awareness of the brand
• MTN Nigeria commenced with construction of Y'helloBahn, a 3 400 kilometers-long countrywide microwave radio transmission backbone
• MTN South Africa provided logistical and financial support to the organizers of the World Summit on Sustainable Development, held in Johannesburg in August 2002
• MTN Management acquired an 18,7% interest in MTN Group from ICE Finance BV/Transnet, the shares in which are held in trust by Newshelf 664
2003
• Johnnic unbundled a 31,9% stake in MTN Group
• MTN Nigeria secured a US$395 million loan to fund the further expansion of its infrastructure in the country
• MTN Group recorded revenue of R11,2 billion as at 30 September 2003
2004
• MTN celebrates 10 years of operations
• MTN records almost 9 million subscribers in its operations across the Group
• MTN CEO Phuthuma Nhleko is rated the most powerful black director by Empowerdex in its report - Pioneers, Powers and Pundits: Influential and Powerful Black Directors on the JSE