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Kenya’s largest telecommunication services provider, Safaricom, had one cause to celebrate last Christmas.
On that day, says Mr Michael Joseph, the company’s chief executive, Safaricom’s ground-breaking money transfer service, M-Pesa, registered its fifth million subscriber.
That figure favourably compares with the total number of bank accounts in Kenya’s 43 commercial banks yet M-Pesa – the world’s first mobile phone money transfer service – has not celebrated its second birthday.
The sheer success of this “convenient, yet cheap service” as described by its users, has won Safaricom the admiration of thousands of newly employed M-Pesa agents and unparalleled customer loyalty. But it has also attracted a barrage of accusations from other financial sector players led by commercial banks.

Shares in Safaricom rose 50 per cent on the first day of trading adding Sh100 billion of new wealth in one of Africa’s richest IPO debuts that now values the company at Sh300 billion.

In the first 20 minutes of trading, the Nairobi Stock Exchange (NSE) had transacted business worth Sh1 billion, in what is now a historical breakthrough that has pushed the value of all shares listed on the exchange, also known as market capitalization to Sh1.2 trillion, which is equivalent to three quarters of Kenya’s formal economy.

Safaricom now with a market capitalization of Sh300 billion is by far the most valuable—and among the best performing in terms of total shareholder returns in Kenya and in the wider emerging frontier markets globally.

Though analysts contend that Safaricom’s share price is fairly valued, compared to other mobile operators in Africa such as Egypt Mobile and Sudatel who rank roughly equally in revenues, the security had been priced at a discount to give it the first day “pop-up” in price that would satisfy local investors, 860,000 of whom drove up the subscription levels to Sh200 billion, while the Treasury only needed Sh50 billion for the 25 per cent stake it was selling.

This led to a lot of disappointment from investors especially those who had borrowed from banks hoping to buy more shares. But with investors getting an allocation rate of 21 per cent, these investors are currently waiting for over Sh150 billion in refunds from the money the government left on the table.

Globally, Safaricom IPO has attracted a lot of media attention and the successful debut marks a coming of age of the Kenyan capital markets and in particular the NSE as a destination for high growth opportunities among emerging frontier markets location around the world in the eyes of foreign investors.

The success of Safaricom—which attracted Sh76 billion from foreign investors—is also likely to signal a dramatic turnaround for the image of the country, which suffered at the beginning of the year when politically motivated violence broke after the disputed presidential election vote tally.

The Johannesburg Stock Exchange (JSE) has unveiled an ambitious plan to list top performing African companies on a common platform to be known as the African Board.

The proposed board will consist of major African blue-chip companies with market capitalisation between $33 million (Sh2 billion) and $21.9 billion (Sh1.4 trillion).

The JSE plans to start off the ambitious project with a dual listing of companies at home and the bourse’s main board before migrating willing companies to the African Board.

JSE has identified 44 companies in Kenya, Nigeria, Ghana, Zambia, Morocco and Zimbabwe.

“The dual listing of stocks on home countries and on the JSE/Africa Board would improve liquidity and increase exposure,” said Ms Maureen Dlamini (Executive Head of Africa).

The interest in African stock markets stems from the fact that African economies have recorded four consecutive years of growth of five per cent and is experiencing a commodity boom fuelled by demand by some of the emerging economies like China, India, Brazil, Russia and Middle East.

Last year, return in US$ percentage was highest in Mauritius (110 per cent) followed by Nigeria (91.3 per cent), Morocco (47.2 per cent), Egypt (56.4 per cent), Botswana 34.1 (per cent), Tunisia (28.4 per cent), Ghana (26.9 per cent) and Kenya (5.5 per cent).

These would culminate in the creation of Africa Board Index for those on the board and the Pan-Africa Index for all listed companies in Africa.

It was also noted that JSE is likely to experience setbacks largely because most stock exchanges across Africa would like to remain independent.

JSE will focus on quality African stocks to be listed on an African exchange. The stocks targeted are required to have solid profit histories, in good business models and countries with sound macro economic policies.

Safaricom recently reported record profits and announced plans to boost coverage in the rural areas as a strategy of growing its customer base in the face of mounting competition.

EBITDA of KSh28.1 billion ($461million) representing a growth of 15 per cent. Safaricom for the third year running has emerged as the most profitable company in Kenya and among the best in sub-Saharan Africa.

Net profit, of Sh13.8 billion ($226 million) reflecting a 15.3 per cent increase. The operating profit however grew at a modest rate of 3.8 per cent to Sh18.5 billion ($303 million). Observers say that this was due the extent to which the business was unable to reign in costs as its expansion plan gathers pace.

Revenue rose to Sh61.3 billion from Sh47.4 billion a year earlier, representing a 29.3 per cent growth.

The performance, driven by an increase in company’s subscriber base from 6.1 million in 2006 to 10.2 million in 2007, comes as competition intensifies in the cellular phone market with the entry of new players.

Econet Wireless, which is partly owned by India’s Essar, is set to rollout its mobile services in July, while Telkom Kenya, owned 51 per cent by France Telecom, is planning a rollout in September.

To maintain its profit momentum in the face of the competition, Safaricom is planning to widen its footprint in the under-served rural areas to boost its national coverage. The firm currently has a national coverage of about 60 per cent range compared to 84 per cent for its main rival Celtel Kenya.

“Having a national footprint is key to beating competition,” said Michael Joseph, the company’s CEO. “You don’t win this market by simply lowering tariffs and rolling out in a few urban centers.”

Kenya’s mobile phone penetration stands at 34 per cent of the population and is expected to increase to 60 per cent in the next four years as more rural dwellers sign up.

Besides boosting its coverage in the rural zones, Safaricom is counting on lower tariff rates and its new low airtime denomination of Sh20 to penetrate the price sensitive rural consumers.

The firm said it is targeting about two million new subscribers by the end of the year, on the back of renewed investment in infrastructure and a focus on the rural market.

The CEO Mr Joseph said that the new entrants would find it hard to eat into Safaricom’s market share, which increased to 84 per cent from 73 per cent in the past 12 months. His optimism is hinged on the fact that it would take the competition time to build a network the size of Safaricom.

“Our coverage and huge subscriber base will give us the much needed competitive edge,” said Joseph.

But competition is not about discouraged by Safaricom’s might.
Econet Wireless made its intention clear, with the announcement that it has placed Sh9.3 billion order for GSM network followed by the onset of the recruitment drive for key staff.

Telkom Kenya has also placed its order and is set to unveil its network in September targeting major urban centers before spreading to the rest of the countryside, a strategy that Econet is also keen to employ.

This is a clear signal that the twin entrants are targeting the urban clientele that has over the past eight years driven Safaricom’s profits.

And through its newly launched money transfer service, Mpesa, the firm hopes to fence in its subscribers and deny other operators getting access to its subscribers who are likely to get reluctant to switch networks easily.

Safaricom is one that company’s that is trailblazing to show the potential in emerging African markets.