Risk management becomes key in emerging markets

Egypt’s recent shutdown of its Internet and mobile services highlights wider implications for operators and vendors seeking to invest in emerging markets, analysts say.
 
Risks abound for players including Vodafone, RIM and Google, which will have to be weighed against the opportunities for growth, according to Ovum analyst Angel Dobardziev.
 
“The political risk has always been there in the Middle East, but when the risks are weighed against the growth potential, we think many investors with a longer term, strategic outlook will remain on the optimistic side,” Dobardziev told Telecoms Europe.net
 
He said the recent ban in Egypt could be viewed as an ‘acute reaction of a political establishment to an existential threat’ that would do little to affect the Middle East and Africa telecoms landscape. “Digital communication is becoming so entrenched that any government attempts to suppress it are counter productive, and both governments and telcos increasingly recognize that fact.”
 
Jake Saunders, forecasting vice president at ABI Research, agrees. “There have been a number of flare ups from Tunisia to Egypt and potentially Jordan, but things will stabilize in the longer term,” Saunders told TE.net
 
Risks are part and parcel of investing in emerging markets, and political unrest is not the only factor operators need worry about. “Out of the blue taxes and fines are also extremely unpleasant - it’s a minefield out there,” said Saunders, citing SingTel’s recent fine in Indonesia and Vodafone Essar’s Indian tax battle.
 
 
“Opportunities abound for segments of emerging market’s populations that will increasingly move into higher income brackets. Unexpected obstacles are just part of the roadmap to get longer term profitability and should not put off investors.
 
“Most operators will get savings from 15 to 20 year licenses and plenty of opportunity to recover their investments and make tidy sums. Growth is a lot tougher in saturated markets,” Saunders noted.
 
According to Dobardziev, the issue in Egypt will result in operators reviewing their risk assessments and approaches to risk management. “Country political risk will be top of the agenda, but other issues such as processes and procedures to cope with forced network shutdowns will also be carefully scrutinized.”
 
Political risk simply means investors require greater premiums before putting their money down, said Dobardziev. “We think operators will be able to develop policies and procedures to deal with manageable risks, but they will also recognize that certain situations will be very difficult or too expensive to address effectively. Ultimately, all of this will add to the return premium many will seek for their investments.”

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