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Lack of Financing: The Bane of Terrestrial Fiber Expansion in Africa

26 May, 2014

Source: ICT Africa

Kihara Kimachia

Africa has experienced the fastest growth in Internet use over the last decade. In the late 1990s and the last decade, Africa lagged behind the rest of the world in Internet uptake. This was largely blamed on lack of undersea fiber optic cables connecting Africa to the rest of the world. Africa relied on satellite connections for intercontinental traffic, a costly option as these system have high cost per bit.

Recognizing this need to bring down the cost of Internet access, increase bandwidth and offer reliable connectivity, policy makers rolled out programs to connect Africa to the rest of the World via undersea fiber optic. The result was several projects. At a glance, the following are the main undersea cables connecting various regions of Africa to the rest of the world:

-The East African Marine System (TEAMS)
-Eastern Africa Submarine System (EASSy)
-West African Cable System (WACS)
-Africa Coast to Europe (ACE)

However, while there has been massive investment in undersea cables, investment in terrestrial fiber has been inadequate. Terrestrial fiber is mainly concentrated around major urban centers and affluent neighborhoods. Residential broadband via fiber is still a pipe dream for most people in Africa. The last few miles of connectivity is provided via wireless Internet and mobile data.

According to a report by O3B networks, "only 30.8% of Africans are currently within 25km of a terrestrial fiber node". This has left millions of potential customers without Internet access. In comparison, there is more terrestrial cable deployed in India than Africa yet Africa is 10 times the size of India.

The Problem
Local financiers tend to shun fiber optic projects. This could partly be blamed on the relatively high costs of deploying terrestrial fiber in Africa when compared to the rest of the world. Some of the factors that drive up the costs include; poor infrastructure such as roads, railways and the electricity needed to power the active equipment, high third-party damage, lengthy procedures due to government red tape. All these add up to a total cost that is more than sensible for most providers.

Recent Developments
While all these problems exist, the long-term benefits of investing in telecom projects make them worthwhile. Unfortunately, many local financiers are yet to appreciate this fact. Telecoms financing has largely been provided by China's Exim bank. The bank has a mighty telecom footprint in Africa financing projects from Cairo to the Cape. Projects often follow a vendor financing model where ZTE (State owned) or Huawei (Private) bid on telecom projects and China Exim bank provides the financial backing. In a number of instances, this has led to poor project implementation. For example, the network built by ZTE in Ethiopia has serious network quality issues. In Kenya, a project for a national police telecommunications system awarded to ZTE was cancelled due to allegations of over pricing. Other countries where there have been issues with telecom projects undertaken by Chinese companies with funding from China Exim bank include; Algeria, Uganda and Zambia.

The solution lies in African funding for telecom projects. There is hope in this regard. A step in the right direction is technology investment firm's Convergence Partners partnership with Nedbank Capital to launch a R400 million long-term funding facility aimed at enabling the expansion of ICT infrastructure companies in Africa.


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