kuwait: The Kuwaiti telecoms operator faces uphill battle

The Kuwaiti telecoms operator faces uphill battle as currency fluctuation and political turmoil hamper Sudan and its southern neighbour.

The Kuwaiti telecoms operator Zain operates in some tough markets, where hopes of bright new dawns have given way to cloudier realities. In Iraq, violence reached its highest level in five years in 2013 - with fears of sectarian clashes ahead of parliamentary elections due in April. Zain is still “months off” from its planned listing there, and has been fined $11.3m for the delay.

In Africa, the company sold most of its business to Bharti Airtel in 2010 in a lucrative $9bn, 15-country transaction, leaving behind promising markets such as Nigeria to focus on its “highly cash generative” north Africa and Middle East operations. In the years since, increase below the Sahara has quickened, while nations above it struggle.

Both of the two sub-Saharan African nations that Zain remained in - Sudan and South Sudan - are struggling In the former, currency troubles have hit the company’s bottom line. Before this week it announced disappointing fourth quarter performance due to the 30 % devaluation of the Sudanese pound in November, which made a significant contribution to the $149m wiped from its full year profit.

The same happened in early 2013, at the same time as Zain posted a 14 % drop in profits following a continued post-partition devaluation; the currency fell 51 % against the dollar over 12 months. Morgan Stanley issued a warning about the company’s vulnerability to such fluctuations, as Sudan’s central bank struggled with currency shortages and tried to bridge the gap between official and black market rates.

Not all the news is bad. A 2.5 % levy on operators was introduced for three years in 2013, replacing the 30 % corporate gain tax, which may help. And Zain has completed increased data revenues from its Sudan business. It is familiar with the challenges of frontier telecoms - it was born, in 1983, as Kuwait’s initial regional mobile operator, but the question is whether Sudan’s currency troubles will negate the company’s gains or undermine its own initiatives. The market is too large for Zain to ignore, accounting for 27 % of its customer contribution. Only Iraq contributes a higher share.

Meanwhile South Sudan, which became independent in 2011, has turned from a hopeful new country to a near-failed national. This week Zain appointed a new CEO for the local business, which - at around 800,000 customers - accounts for 2 % of its world customer base. It remains unclear how far the company can go given the country’s political trouble and lack of development. Around 3 % of the people have access to either public or private electricity and less than 1 % of the country’s road network is paved.

Zain has faced a tough task from the start. It before received orders to split its operations and staff from any link to Sudan, despite the fact that Zain’s operations initially spanned both regions. As a landlocked country, broadband is expensive as it relies on undersea cables from either Sudan, with whom relations are fractious, or Kenya.

Again, the company has made evolution despite all this and seems committed, expanding its 3G network to cover all regions of the country and increasing market share from 38 % in 2012 to 41 % in Q3 2013. It will be hoping conflict settles so it can get on with the business of growth