Facilitating Telecoms Investment into Challenging Markets
October 13, 2009—The commercial viability of telecoms investments in emerging markets is indisputable. According to the World Bank, developing countries account for three quarters of the world’s four billion mobile phones. “From taxi drivers to construction firms to farmers, access to a mobile phone is now a pure business necessity and a key driver of economic growth. A case in point is a farmer who receives text messages with the latest market prices—having access to this information increases his ability to negotiate fair prices when he sells his harvest,” explains Olivier Lambert, MIGA’s sector leader for the telecom sector. “Mobile phones can also serve as a platform for bringing a country’s citizens into the formal financial system. Financial institutions are now offering mobile banking systems allowing customers to transfer funds to businesses and families,
But in many of the countries where mobile technology has had a meteoric rise, there may be political risks that can deter even the most intrepid investors. These concerns can encompass adverse regulatory decisions, including the revocation or modification of licenses and decisions related to frequency allocations, or breach of contract issues, such as performance-related clauses and termination payments. Countries that are heavily dependent on foreign aid may impose currency conversion and transfer restrictions in the event that aid flows decrease suddenly. Expensive infrastructure may come under threat in countries affected by conflict.
MIGA has been very active in facilitating investment in the telecoms sector by providing political risk insurance that addresses these very concerns. In the agency’s 21 year history, it has provided guarantees totaling $1.5 billion in support of 33 projects in the sector. Many of these projects have been in countries that otherwise see very little foreign direct investment.
In 2007, MIGA issued a guarantee to Senegalese telecommunications operator Sonatel for its $25.8 million equity investment in, and shareholder loans to, its subsidiary in Guinea Bissau, “Orange Bissau.” MIGA is providing coverage to Sonatel against the risks of transfer restriction, expropriation, war and civil disturbance, and breach of contract.
Sonatel’s investment involved the installation, operation and maintenance of a 900/1800 GSM cellular network, as well as public pay phones and internet services—critical to Guinea-Bissau, a country which has long suffered from low levels of investment. When the service was launched in May 2007, Orange Bissau became the second major cellular service provider in Guinea-Bissau to operate on 100 percent digital GSM technology. As of December 31, 2008, the service had signed up 60,000 subscribers.
In the Central African Republic (CAR), which ranked 180 out of 181 countries on the ease of doing business by the World Bank’s 2009 Doing Business report, attracting foreign investment has been difficult. In 2008, MIGA facilitated foreign direct investment into a state-of-the-art telecommunications network in the country by issuing a guarantee of $37.9 million to Orange Participations S.A. of France. The project involves the installation, operation and maintenance of a telecommunications network operating on 100 percent digital GSM technology. MIGA’s guarantee covers 90 percent of the investor’s equity investment, protecting it against the risks of transfer restriction, expropriation, war and civil disturbance, and breach of contract for a period of up to 20 years.
The project—Orange Centrafrique S.A.—is critical to the economic development of the land-locked country, where fixed-line connections are not even available to one in 100 persons. Subscribers are now benefiting from access, reliable service, and reduced costs due to increased competition and diverse product offerings. In less than a year, Orange Centrafrique had reached 127,000 subscribers in the country, indicating an eager consumer base.
According to Justin Kouakou, IFC’s representative in CAR, the country’s cellular service provider market is currently a tight race between Telecel and Orange Centrafrique, allowing the quality of customer service to become a key area of competition. “Clearly, the presence of Orange in CAR has had a positive impact on the sector. The company has played a leadership role in the market, with wireless connections working well and customers experiencing fewer dropped calls.”
“This was the first project guaranteed by MIGA in the Central African Republic,” says Lambert. “We hope that MIGA’s support will help boost investor confidence and catalyze further investment and development in the country.”