Established in April 2000, EFG Hermes’ Telecom Fund invested in telecoms, media, IT companies both listed and unlisted in Africa and the Middle East. Back then, the sector in the Middle East was very different with 90% of the market operating on government monopolies. In 2002, a wave of liberalizations took place as various countries signed on to the WTO.
“What we saw from 2002 until today is massive growth in the telecom sector and the fund was able to capture that growth,” explained Heshim Omran, fund manager at EFG Hermes. “Before liberalization took place the average penetration in the region was less than 20%, today that figure is closer to 50% — that gives you a good indication as to how much growth.”
Prior to 2007, the fund’s investor base remained stable with few leaving the fund. Omran explained, “They have seen what has happened in other emerging markets in Asia and Latin America. They felt that the region would respond the same way and it has.”
The mandate’s unique geographical base — including access to both Africa and the Middle East — has also helped to drive its popularity, which hit its height about two years ago when it was the best performing fund in the region with 57% returns. So far the fund has turned around 318% since its inception on a total return basis.
The African market is looking particularly appetizing right now, in large part because a lot of GCC companies are seeking expansion and have benefited from the economic situation in the GCC. For Omran, “GCC investors have underleveraged balance sheets and have been expanding and using their financial clout to basically buy assets across Africa which has given growth tremendously.”
Omran believes that there is a revitalization of the interest in the telecom fund because of the geographical focus and a sector that will benefit for any kind of macroeconomic growth. “I think that the growth we have seen in Africa will even outdo the growth we have seen in the Middle East,” he said.
Expectations for the GCC, with most countries having mobile penetration rates over 100%, are that usage trends of having separate phones for work and personal life will continue. According to Omran, “Growth is driven now by new services coming in and less actual top line growth. So it becomes a service strategy of how to get people to use their phones more than getting people signed up to use their mobile phone.” Consolidations are expected to take place to branch out into other markets.
In North Africa, the area is still under-penetrated with a growing population. In Egypt, mobile penetration rate is around 33% in a population of 75 million people, leaving the country with a lot of growth potential. Omran cited Mobinil as an example of what can be expected, saying “they’ve been around since 1996, in 2007 in terms of subscriber growth it was their largest growth year ever. So there is still a lot of room to grow.”
Omran believes that media space, both broadcast and print, has carries the same potential as telecoms for growth. “Five years ago you could count on one hand the number of broadcast channels in the region. Today that number has quintupled. People want more information that is driving growth.”
In the farther future, he thinks that at one point telecoms and media will converge “because the telecoms have the infrastructure and media has the content.”
