Big spenders: Vodacom says it will invest R800 million in its network in KwaZulu-Natal, including rolling out full fibre broadband, expanding its coverage in deep rural areas. (Waldo Swiegers/Bloomberg via Getty Images)
Vodacom’s earnings slumped by more than 10% in the year ended March when the telecoms company was hit by a currency devaluation in Egypt in the same way peer MTN’s earnings were gobbled up by the naira devaluation.
But Vodacom’s revenue climbed about 26% to R150 billion, driven by its acquisition in Egypt. In 2022, Vodacom acquired a 55% stake of Vodafone Egypt, and the North African country is now the company’s second-biggest market after South Africa.
Earlier this year Egypt devalued its pound by more than 38% as the central bank attempted to rectify a shortage of foreign currency and curb higher black market foreign exchange rates as well as rampant inflation.
Had it not been for the devaluation, Vodacom’s revenue growth would have been up by 41% instead of 26%, said Peter Takaendesa, an investment analyst at Mergence Investment Managers who noted that “Egypt is growing very fast”.
According to Vodacom’s financials for the year, Egypt delivered service revenue of R30.2 billion, which contributed 25% to the group. In the fourth quarter, service revenue was up 40.5% in local currency, accelerating from 29.1% in the third quarter.
The telecom said growth was supported by strong customer engagement in connectivity, mobile and fixed price adjustments, and growth in Vodafone Cash. Vodacom has 48.3 million subscribers in Egypt.
MTN, faced with its own currency devaluation in Nigeria, can only wish for Vodacom’s numbers in Egypt. On Tuesday, MTN reported that its revenue fell nearly 19% to about R43 billion in its first quarter ending in March.
“The macro-environment in the first quarter of 2024 remained challenging, with ongoing high inflation, as well as local currency devaluations in some of our key markets,” MTN group chief executive Ralph Mupita said in a statement.
MTN Nigeria fell into an insolvent state by the end of last year, following foreign exchange losses caused by the steep weakening of the naira.
“MTN Nigeria has negative equity meaning it cannot take out money from the country and pay dividends, for example,” Takaendesa said.
“The Egyptian regulator has not stopped Vodacom from pricing up to recover some of the costs of the currency devaluation. Whereas Nigeria has prevented MTN from pricing up and sharing some of the pain with the consumer,” Takaendesa said.
MTN was also hurt by the sharp rise in fuel prices after the Nigerian government removed subsidies. MTN uses fuel to power its network infrastructure during Nigeria’s frequent blackouts.
“The MTN situation is fairly complicated and MTN really needs help from the Nigerian government, Takaendesa said, noting that the company was doing well in terms of operational performance but was vulnerable to the economic and regulatory environment.
“Vodacom is not entirely immune to that but it is in a better position when comparing the two,” he added.
MTN has 288 million subscribers connected in its 18 markets including its biggest market Nigeria, Ghana and Sudan. The company has been operating in Nigeria since 2001. Vodacom has more than 200 million subscribers and its biggest market is still South Africa.
Vodacom’s strategy of not going out to the “world stage” worked for the company because it was not exposed to currency volatilities, but now that it has gone to Egypt there is no running away from that, independent analyst Simon Brown said.
“The risk of operating in an emerging market is always going to be a currency risk. It’s unavoidable. We’ve seen currency collapses in Turkey, Latin America as well as the continent of Africa,” he said. “We could wake up tomorrow and our currency has collapsed, we are an emerging market after all.”
If companies cannot go into emerging markets to grow market share and the business, where else can they go?
Takaendesa said MTN and Vodacom are best placed operating in the areas they are already familiar with, because there is no growth for them elsewhere, with competition being extreme in Europe and Asia.
In 2020, MTN embarked on a strategy to exit the Middle East in a bid to simplify its portfolio and focus on core operations. The company also had an acrimonious relationship with some regulators.
The only solution for MTN and Vodacom is to improve performance where they operate and ensure that they are not exposed, Takaendesa said.
“They need to choose their markets carefully, some markets are more aggressive than others which are difficult to operate independently because there is an aggressive regulator who keeps intervening and interfering,” he said.
“MTN’s adventure into Nigeria all those years ago was not the wrong move because at the time it was a good market and good markets tend to change decades later,” Brown said.
“So, instead of going into mega-markets like Egypt and Nigeria you want to go to smaller markets like Botswana so that if something happens in your key market there is less impact on the overall result.”