Internet connectivity in Africa just got a major boost

Liquid Telecom’s recent $620 million bond sale—one of the largest by an African telecoms company—should provide a big boost to the continent’s digital infrastructure.
Liquid Telecom’s recent $620 million bond sale—one of the largest by an African telecoms company—should provide a big boost to the continent’s digital infrastructure.
Image: Reuters/Joseph Okanga
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Liquid Telecom’s recent $620 million bond sale—one of the largest by an African telecoms company—should provide a big boost to the continent’s digital infrastructure, and chip away at a major barrier to more widespread internet access.

One of Africa’s biggest internet and cloud computing companies, Liquid Telecom hopes to use the fresh financing to roll out connectivity infrastructure in existing areas, and grow its presence. The financing included $220 million in loans, bringing the total amount of capital raised to $840 million.

“In the countries in which we operate there are great opportunities to address under-developed telecommunications and internet access, as well as to accelerate the adoption of digital and cloud-based services,” said Nic Rudnick, Liquid’s group chief executive officer.

The company’s bond offering was oversubscribed, a signal that investors are seeing great value in the business of connecting Africans to the web.

The coronavirus pandemic has reinforced the critical importance of increased internet access. Africa is still largely playing catch up on universal internet connectivity, even though the pandemic helped to accelerate some changes. Poor infrastructure roll-out is to blame in many areas, but it is only part of the picture. Half of consumers who are covered by mobile broadband networks don’t use the internet, according to GSMA, with many citing a lack of digital skills as a barrier. Some telecom operators believe expensive gadgets and high import tariffs are holding millions of Africans back from being fully online. Politics and electricity supply also come into play.

Boosting internet connectivity across Africa through increased network and infrastructure deployment would accelerate the growth of burgeoning sectors like e-commerce, logistics, and other value- added digital services.

This is in part what drew investment from the International Finance Corporation, which snapped up about $100 million of Liquid Telecom’s $620 million bond listing. IFC estimates that the African digital economy will be worth $180 billion by 2025. It believes its Liquid Telecom investment will be amplified by the African Continental Free Trade Area (AfCTA), as well as the continent’s young growing urban population, and startup scene.

Stephanie von Friedeburg, IFC’s chief operating officer, says that investment in infrastructure deployment is the best way to boost internet reach across the region. As an example, the fact that most of the region’s rural areas still lack internet connectivity is holding back funding platforms for the agricultural sector, a key poverty-alleviating industry for Africa.

“Our best chance at ensuring much-needed internet access for everyone in Africa is to invest in digital infrastructure,” said von Friedenburg. “Our investment in the Liquid Telecom bond will help the company free up capital to further expand broadband access across Africa,” and she adds, help with a “faster, more resilient recovery” from the coronavirus pandemic.

The Fitch Ratings agency expects Liquid Telecom to ride through some of the economic disruptions of the pandemic given “the essential nature of its business,” and the way it is supporting companies having to adapt to the pandemic environment.  “Higher demand for data, storage, and bandwidth provide future growth opportunities for Liquid Telecom’s enterprises and wholesale data divisions,” stated Fitch.

Liquid Telecom currently offers cloud computing, fiber internet, and data center services in 13 African countries. Boosting its infrastructure in these markets and venturing into new ones will be welcome news for operators who are still not connected via fiber.  After settling its immediate debt obligations, Liquid Telecom will focus on “markets with low broadband penetration” according to the company.

The company has more 70,000 kilometers (43,500 miles) of fiber connections, including links connecting Cape Town and Cairo, and reaching into countries such as the DRC and South Sudan. Marine data cables installed by the company and its competitors have helped to raise internet speeds and lower costs in some cities, although huge gaps remain.

The Development Finance Corporation in December announced a $300 million financing package to help Liquid Telecom’s Africa Data Centers (ADC) expand across Africa. ADC runs data center operations in South Africa, Kenya and Rwanda and has already bought land for projects in Nigeria and other markets in the region. It has been spun out into a separate unit to allow Liquid Telecom to focus on core business.

Investors are eager to enter into Africa’s telecom sectors, but the pace of liberalization in some markets has been slow. This may present a challenge for Liquid Telecom’s growth, particularly in countries where governments may be holding onto, or over-protecting state-controlled companies. However, with cash in hand and increased infrastructure capacity at its fingertips, Liquid Telecom is one of several players poised for expansion in more open regional markets.