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Baptism by fire for new Safaricom boss, Peter Ndegwa

By Macharia Kamau | March 31st 2020 at 09:00:00 GMT +0300

It goes with the territory. So, big job, giant challenges: Safaricom CEO Peter Ndegwa.

When Peter Ndegwa takes office tomorrow as the new Safaricom chief executive officer, his every move will be closely scrutinised.

His words and deeds, however small or off-the-cuff, will instantly spread and be amplified. Occasionally, his sentiments will be misinterpreted.

For Mr Ndegwa, taking over the most profitable company in East and Central Africa will be as exciting as it will be challenging. This is especially so because he will be succeeding two larger-than-life CEOs – Michael Joseph and Bob Collymore – and he must stamp his own imprint to walk out of their shadows.

Few other jobs are as daunting, and Ndegwa’s entry is unlikely to be marked by pomp and circumstance. It is a baptism by fire.

The coronavirus disease, Covid-19, is knocking down businesses. Investors, locally and globally, are losing trillions of shillings in paper wealth as the world economy plunges into a recession.

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As at the close of last week, shareholders of Safaricom, which is listed at the Nairobi Securities Exchange (NSE), lost Sh244.5 billion in paper wealth in three months.

The pandemic brought to an end a share rally at what had been the NSE’s best-performing counter.

And as the pandemic continues to ravage the business world with a lot of companies closing shop and sending workers home, Safaricom might take solace in the fact that people will still need to talk to each other.

Kenyans will still be calling and texting and browsing, ensuring that Safaricom services remain in high demand.

But as the pandemic continues to wipe money from people’s pockets, Kenyans might be forced to choose between buying airtime and food.

But what will prove to be more intricate to his new assignment is the fact that President Uhuru Kenyatta has partnered with Google and Telkom Kenya to unveil an initiative that will see learners, those working from home and regions previously unreached by faster Internet receive high-speed connectivity through the Google Loon project.

Safaricom has increasingly placed its bets on this data front for growth.

It is not yet clear how the project will pan out, but should it take off, it might eat into Safaricom’s plans for its data business.

Voice and text were the first to plateau, before the telco turned to mobile money transfer services with M-Pesa. But that, too, looks like it has hit reached its elastic limit, with the firm now looking to data to maintain its growth trajectory.

Ndegwa will be expected to pull off a miracle, and put into practise his MBA notes on crisis management.

Further, as the first Kenyan at the helm of the telco, Ndegwa’s failure might just be seen as the country’s failure. Equally, his success will be the country’s success and a symbolic victory for corporate chiefs aspiring to lead regional giants.

His two predecessors, Mr Joseph and Collymore, were foreigners. The former is South African, while the latter was a Guyanese-born Briton.

The government has been keen to see a Kenyan take the corner office at Safaricom. After Collymore’s death, Kenya aggressively pushed for one of its own.

“My wish is that a Kenyan gets the position, but we don’t control the business. We have appointed directors to run the business. It doesn’t mean that what the government wants is what it gets,” ICT Cabinet Secretary Joe Mucheru said last year.

But the government must have reached a middle ground with Safaricom, settling on a local with vast international exposure.

Ndegwa was picked from Diageo, the UK alcoholic beverages giant, where he was the managing director for continental Europe, overseeing the brewer’s operations in 50 countries in Western and Eastern Europe, Russia, the Middle East and North Africa.

The University of Nairobi economics graduate, who also holds an MBA from the London Business School, previously worked with East African Breweries Ltd (EABL) and is credited with being a key member of the team that came up with the popular low-end beer, Senator Keg, one of the brewer’s best-performing brands.

The other big assignments that will top Ndegwa’s docket when he assumes office will be Safaricom’s expansion to Ethiopia and putting to rest the much talked about dominance claim that has been a thorny issue to manage.

These could be among the things that are playing over and over on Ndegwa’s mind as he tries to figure out where to start in steering Safaricom through its next phase of growth, particularly in the face of a pandemic.

Personal choices

While both Joseph and Collymore disliked the mention of ‘big shoes’ in reference to the CEO’s office, it will be a difficult conversation to avoid for Ndegwa. Critics will be looking to compare him against his two predecessors who have driven Safaricom to its current status as the most valuable company in the region. For this reason, the personal choices of the new CEO will be subject to scrutiny.

Analysts note that the other issues he will have to grapple with include the headaches of losing key talent, a slowdown in innovation and a dip business as Kenya fights to survive the economic impact of coronavirus.

The telecommunications company, which made Sh63 billion in the last financial year ending March 31, 2019, announced Ndegwa’s appointment in October last year. He takes over from Joseph, who stepped in on an interim capacity after Collymore’s death in July.

The two former CEOs have set a high bar, and many see limited options for growth for a company that has spared little expense to stay ahead of the curve and diversify its services beyond the traditional bread-and-butter call business.

Joseph took what was then a department within Telkom Kenya and in less than a decade transformed it to a regional giant. Other than a telecommunications firm, the firm played a key role in enhancing financial inclusion through M-Pesa, which it launched in 2007.

By the time Joseph was handing over the firm to Collymore in November 2010, the company had just reported Sh15 billion in net profit for the year to March 2010, while revenues stood at Sh83 billion.

Collymore faced his share of criticism and doubt as to whether he could grow and drive Safaricom beyond what Joseph had done.

With time, however, he proved the naysayers wrong, growing the firm’s profitability to Sh63 billion in 2019.

Over the decade Collymore steered Safaricom, revenues grew several times over to Sh240 billion recorded last year.

He notably also strengthened institutions, which guaranteed the firm could function even when the man at the corner office was away. In his last year at Safaricom, Collymore was out of the office for extended periods of time as he sought treatment for acute myeloid leukemia abroad.

As Ndegwa takes over, not only does he have the unfortunate task of matching his successors, and if possible outperforming their past achievements, he will also be under the constant scrutiny of the self-styled corporate dictator Joseph, who sits on the board that he will be reporting to regularly.

The fruit that is perhaps the lowest hanging would be taking Safaricom outside Kenya. The firm is now eyeing entry into Ethiopia, where the government plans to open up the telecommunications market, which has Ethio Telecoms as the only operator.

Whether through partnerships, partial acquisition of the current operator, or a greenfield operation, where Safaricom sets up and grows its own subsidiary from the ground up, it would be a major boost for the firm to tap into a share of the more than 100 million Ethiopians that are largely underserved.

Auction licences

Safaricom has in the recent past said it has been in talks with Vodacom, its parent company, as well as two international banks to evaluate the mechanisms of getting into Ethiopia, including possibly bidding for some of the licences that will be up for grabs.

Ethiopia has been planning to auction two telecommunications licences, and is looking to sell a 49 per cent stake in Ethio Telecom.

“Ethiopia is just opening up its telecoms market, and Safaricom shareholders can reasonably expect gains from the massively underserved Ethiopian telecoms market, which boasts nearly double Kenya’s population and an economy that has recently surpassed Kenya’s in sheer size,” said Peter Wanyonyi, a telecoms analyst.

Ndegwa also needs to ensure that he does not lose key people in his first year in office.

Silha Rasugu of EFG Hermes noted that among the issues the new CEO must stay on top of is retaining talent, especially during the transition period.

The other hurdle before Ndegwa are the unpredictable indirect taxes levied on mobile services and the industry in general. In many instances, the industry has been under the scrutiny of different regulators.

Different issues attract different regulators, but the Communications Authority of Kenya and the Competition Authority of Kenya have recently come out strongly in a bid to oversee the firm’s operations, as well as how it relates with its customers.

Recurring issue

A recurring issue that has dogged Safaricom is talk of its dominance, and with it comes calls to increase regulatory oversight and even suggestions that it be split. A study by Analysys Mason commissioned by CA found Safaricom dominant in certain segments of the sector and recommended a raft of measures aimed at levelling the field, including separating the mobile money business from the telco.

The firm has, however, fought the proposals, noting that it is tantamount to punishing success and would also punish its clientele as well as stifle innovation, discourage investment and reward competitors who failed to invest in their networks over time.

According to Mr Rasugu, Ndegwa will have to be innovative in growing the numbers for Safaricom in a market that is nearly saturated, given Kenya’s mobile telecoms sector has “mobile penetration rates at 112 per cent”.

“Competition for market share is expected to be more intense,” he added.

Rasugu, however, said the fact that Ndegwa is Kenyan could work in his favour, considering reports that the government has been pushing for a local to be at the helm of the company.

Other factors working for him include his having sold alcoholic beverages, and particularly the popular Senator Keg, which shares many similarities with Safaricom’s products, albeit the information age has made some of the telco’s product essentials, unlike beer that is seen as a luxury product.

“He is a Kenyan CEO and the government being the largest shareholder, he should receive some support in form of goodwill from the legislature,” reckoned Rasugu.

While Safaricom is still the market leader across the different industry segments that it operates in, it has been losing market share in terms of the total number of mobile subscribers.

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Peter Ndegwa Safaricom Bob Collymore Michael Joseph
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