SA’s mobile operators are expected to benefit from a better macroeconomic picture at home and abroad this year after a tough year.
Operators have had to deal with an unfavourable cocktail of macroeconomic and geopolitical headwinds that have had a negative effect on their financial performance lately.
In SA, GDP growth is expected to rise in 2025, helped by political stability brought on by the formation of the government of national unity (GNU) and an end to rolling blackouts.
“While still a concern 2% is an achievable target in terms of economic growth in SA in light of the prevailing conditions. The question becomes, how do we undergo a step change, a 2% [rate] to 5%?,” KH Equity Partners chief economist Ndumiso Kubheka recently told Business Day.
The first two weeks of the year have seen the rand weaken, with it falling through R19/$ for the first time since late May on Friday, after a stronger-than-expected US jobs report, which suggested the US Federal Reserve may pause its interest rate-cutting cycle.
A weaker rand often spells disaster for operators when they have foreign debt obligations or bills that have to be paid in other currencies.
This issue has tended to plague MTN most in the sector, given its geographic spread and high foreign debt levels. The group has been working to reduce its foreign exchange exposure, paying down its eurobonds and renegotiating tower leases in Nigeria, among other cost-cutting activities.
Vodacom and Telkom have tended to have rand-denominated debt. Cell C recently had a mix of local and foreign debt recapitalised by its biggest shareholder, Blue Label Telecoms.
Disposable incomes
While communication has become an essential part of daily life, ongoing demand for such services tends to be affected by how much disposable income people have. This is especially true for less essential activities such as browsing social media or streaming videos online, both of which require high data usage.
In its latest interim earnings report, Telkom boss Serame Taukobong said: “While we face challenges such as high unemployment rates and the need for economic growth to support our connectivity businesses, we are encouraged by positive signs in SA, including lowering interest rates and moderating inflation.”
MTN head Ralph Mupita, at close of the third quarter, said: “The macroeconomic landscape is showing signs of stabilising and there is general optimism around the GNU following the elections in May. However, consumers still face significant challenges, including the ongoing pressure on disposable income as well as the elevated rate of unemployment.”
Outside SA, Vodacom and MTN each have to contend with different economic outlooks, though particular attention will be on Egypt and Nigeria.
Vodacom, traditionally the safe investor bet for the sector, has become exposed to some of the same volatility as MTN since taking over Vodafone’s operations in Egypt. The Egyptian pound has lost about 40% against the dollar over the past year, taking a toll on Vodacom’s earnings.
It has come as good news then that the Egyptian economy expanded by a better-than-expected 3.5% year on year during the third quarter of last year.
“Economic growth has been improving quarter by quarter, suggesting that several economic reforms introduced in March last year are bearing fruit and will continue to do so over the near term,” said Jacques Nel of Oxford Economics Africa.
This may explain Vodacom CEO Shameel Joosub’s optimism at the end of last year.
“It is pleasing that our markets continue to deliver strong operational momentum, despite the material currency devaluations in Egypt and Ethiopia. While we remain mindful of an evolving macroeconomic environment across our footprint, including foreign exchange rate risk, I believe that the group is well positioned to capitalise on opportunities once the global economy shifts from its current cautious optimism to sustainable growth,” he said.
Nigeria
Nigeria is another country to keep an eye on. As the market accounts for a third of MTN’s earnings, swings up or down in the West African nation tend to have an outsize effect on the group’s performance.
As many other companies operating in Africa’s largest economy, MTN has been a casualty of the devastation caused by the Nigerian naira’s more than 90% plunge since mid-2023.
The group dipped into the red at the halfway stage of its financial year, the first time the telecom major has reported a loss since 2016, as the weak naira and conflict in Sudan weighed on its operations.
The African Development Bank says economic growth in Nigeria will accelerate to 3.2% in 2024 and 3.4% in 2025, due to improved security, higher oil production and stronger consumer demand.
The IMF also expects growth to continue in 2025 though at a more subdued rate of about 3%.
With Lindiwe Tsobo
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