Will mobile phone penetration maintain African momentum?

The sub-Saharan Africa (SSA) mobile phone market is expected to reach a compound annual growth rate of 4.6% – compared with 3% globally – between 2019 and 2025, according to analyst GSMA Intelligence. By the end of 2018, the SSA region had 456 million unique mobile subscribers, a number that is expected to jump by a further 167 million by 2025.

The main driver of the projected rise is demand picking up from a low base: the mobile phone penetration rate in SSA stood at 44% compared with 66% worldwide at the end of 2018. The region also lags behind other parts of the world in terms of mobile broadband adoption. In September 2019, 4G accounted for only 9% of total connections in the SSA region and 2G for 46%; by comparison, 4G made up 50% of total global connections while 2G made up less than 25%, according to GSMA Intelligence.

“In terms of subscriber growth, large, under-penetrated markets such as the Democratic Republic of Congo, Ethiopia, Kenya, Nigeria and Tanzania present the biggest opportunities,” says Kenechi Okeleke, senior manager at GSMA Intelligence. “These five countries will account for half of the total number of new subscribers over the period to 2025. SSA has a number of highly competitive markets, with several comprising five or more operators. However, there are outliers such as Ethiopia, where incumbent Ethio Telecom still has a monopoly.” 

Getting smarter

The smartphone market across Africa saw total shipments of 22.6 million units during the third quarter of 2019, an increase of 4% on the second quarter, according to market analyst International Data Corporation (IDC). Overall, mobile phone shipments to the continent amounted to 55.8 million units during the third quarter of 2019. Feature or basic mobile phones accounted for 59.4% of the total compared, with smartphones taking up the other 40.6%.

“The growth in the smartphone space was spurred by the strong performance of the three biggest markets in the whole of Africa: Nigeria, South Africa and Egypt,” says Ramazan Yavuz, a research manager at IDC. “This was largely driven by the huge influx of affordable models that have recently been launched in these markets, while the relative stability of the Nigerian naira and appreciation of the Egyptian pound also helped stir an increase in consumer demand.”

Smartphone sales in Africa made up 6.6% of the global smartphone market in 2019, compared with 6.3% in 2018 and 5.9% in 2017, according to IDC. The continent is expected to make up 7.1% of the worldwide market by 2023. South Africa made up 15.4% of the total African smartphone market during 2019, followed by Egypt at 11.6% and Nigeria at 11.1%.

Brands from Chinese producer Transsion – which include Tecno, Infinix and Itel – continued to lead the feature phone space in Africa during the third quarter of 2019, with a combined unit share of 64%, according to IDC. Nokia came next with a 10% share. In the smartphone space, Transsion (with 36.2% of the African market), Samsung (23.9%), and Huawei (11.4%) led the way in unit terms. However, in value terms, Samsung was the clear leader (with a 33.2% share), followed by Transsion (22.4%) and Huawei (15.6%).

“Tecno has a manufacturing plant in Ethiopia, while Samsung has assembly lines in north Africa,” says Mr Yavuz. “This helps them to cater to the local markets. The demand for mobile phones, including smartphones, should pick up in the future as operators establish networks in rural areas in the poorest African countries. However, it will happen within a five- to 10-year timeframe.”

Barriers to entry

Most of SSA’s main markets – South Africa, Kenya, Nigeria, the Democratic Republic of the Congo and Tanzania – are competitive, with three to four mobile operators, according to Renaissance Capital. Uganda and Côte d’Ivoire have five or six operators. However, Angola has just two main networks: Unitel (with an 80% market share) and Movicel (20%). The country's government plans to launch a new international public tender to grant a further mobile phone licence shortly.

“Ethiopia is the main topic of 2020,” says Alexander Vengranovich, telecoms analyst at Renaissance Capital. “The country has only one state-owned operator, Ethio Telecom, which will be privatised soon and two new licences will be issued.

“There are five top carriers on the continent: Vodacom, MTN, Tigo, Airtel and Orange. These are present across many African markets. Tigo, owned by Millicom, decided to leave the continent and has started to sell its regional operations or to merge them with other players. For new operators, the barriers to entry are very high. They need to get the frequencies, build the network and create distribution.”

Risks and returns

Experts say African markets used to be highly profitable for network operators, but this is no longer the case. Operators – with high sunk costs – also run the risk of state intervention. MTN, for example, has been fighting a battle against multibillion-dollar claims by the Nigerian authorities over taxes and fines.

“Previously, operators in the African markets would get a return on their capital expenditure investment within three years,” says Dobek Pater, director of business development at Africa Analysis. “Demand was just so great before. Today, it takes five to seven years to get a return. Operators – including MTN, Vodacom and Orange – with big economies of scale in Africa remain profitable but Airtel is struggling.

“However, international operators do want a presence in the African markets because of the region’s demographics. The continent has many young people who will grow up in the next 10 years and who will want to have constant connectivity and to take advantage of various apps enabled by mobile broadband services.”

According to the Brookings Institution, some 60% of SSA’s population of 1.25 billion people are aged under 25. “The size of the population and demographic structure makes SSA a very attractive market for operators and device vendors,” says Mr Okeleke of GSMA Intelligence. “However, income levels and consumer spending are generally low, which has an impact on margins. For device manufacturers, this often means distributing low-cost, low-margin products.”