By acquiring the African operations of Kuwait?s Zain Telecom, Bharti Airtel will expose itself to around 11 volatile currencies. This will in turn increase its risk of earnings from Africa.
Though Zain?s revenues are fragmented across the 15 nations it operates in, Nigeria alone contributes more than a third to the company?s revenues. The country?s currency, Nigerian Naira, that contributed 36% to Zain?s nine month-ended revenues in the calendar year 2009, however, depreciated 27% against dollar during the same period.
This has been largely on the back of political instability in the country as well as higher dependence of the region on oil exports. Post the credit crises in 2008, African currencies were significantly devalued by about 3-39% as these nations are highly dependent on natural resources like crude oil and remittances, according to a research report by ICICI Securities.
Nigeria is the fifth-biggest supplier of oil to the US and has the 10th largest oil reserves in the world. But chronic government corruption and militant attacks in the oil-producing Niger Delta region have hampered the country’s growth and reduced international oil companies’ production levels, say various international media reports.
A research report by Kotak Institutional Equities puts forward a similar view stating that, ?High political uncertainty in the African region has led to high volatility in these currencies.? The other currencies that Bharti would need to operate in are CFA Francs, Congo Francs, Ghanian Cedis, Kenya Shillings, Malagasy Ariary, Malawi Kwacha, Sierra Leonean Leon, Tanzania Shillings, Uganda Shillings and Zambian Kwacha.
