Finance for Nicaragua’s fast-growing telecommunications
Finance for Nicaragua’s fast-growing telecommunications
30/10/2003
The privatisation of Enitel (Empresa Nicaragüense de Telecomunicaciones S.A.), a former state-owned company, has been a key part of the reorganisation of Nicaraguan telecommunications.
Finnfund has granted a loan of 3 million US dollars for Nicaraguan telecom operator Enitel. It is part of a syndicated loan totalling $30 million, arranged by the Dutch development finance company FMO.
The privatisation of Enitel (Empresa Nicaragüense de Telecomunicaciones S.A.), a former state-owned company, has been a key part of the reorganisation of Nicaraguan telecommunications. The company will retain its monopoly position in fixed telephony for another two years but competition in wireless traffic has been deregulated.
Finnfund's senior investment manager Thomas Schmidt believes that telecommunications reforms and a rapid growth of connections will be a significant stimulus for the economy of Central America’s poorest country.
“It’s a sign of the old system’s inefficiency that subscribers had to wait an average 8.4 years to get a fixed line connected,” Schmidt says.
Privatisation under World Bank guidance
It’s two years since the Nicaraguan government decided to privatise Enitel. 40 percent of its shares were sold to a consortium consisting of Sweden’s Swedtel and the Central American EMCE. Eleven percent was sold to Enitel employees and the State of Nicaragua kept 49 percent.
The privatisation process was carried out under World Bank guidance. Enitel’s sale was part of an HIPC initiative, which the World Bank has drawn up together with heavily indebted poor countries.
Converting Enitel from a state company to a private telecom is bringing fundamental changes to its corporate culture. The training of staff and attracting skilled employees are major challenges in a developing country like Nicaragua, Schmidt points out.
With privatisation, Enitel’s payroll will be cut from the present 1900 employees to about 1200 by 2005. The reductions are due to be implemented via voluntary retirement packages. Only employees guilty of corruption or other abuses will face dismissal. Also, company executives nominated on political grounds will be replaced by professional managers.
Most growth in mobile markets
There has been considerable debate in Nicaragua about Enitel’s privatisation. Schmidt notes that the privatisation of state companies arouses strong feelings all over the world, and that fierce rhetoric is a major part of the Nicaraguan political culture.
“But the privatisation process itself has advanced well,” he adds. “The company’s financial development has been stable and its future prospects are good.”
Enitel’s business growth target is 11 percent per year. The strongest growth is expected in mobile telephony, for which Enitel is currently constructing a GSM 1900 network. The equipment supplier is Ericsson.
In mobile telephony, Enitel is competing for customers with two other operators, BellSouth of the United States and Telmex of Mexico. Enitel is aiming at about a third share of the fast-growing mobile market.
Nicaragua has some 5 million inhabitants. Pyramid Research, an institute that analyses telecommunications markets, predicts that mobile telephone penetration – the proportion of cell phone users among the population – will rise from the present 4.9 percent to 10.6 percent by 2006. For comparison, Finland’s penetration rate is 84.8 percent.
If the forecast comes true, Nicaraguan operators will have 630 000 new customers in the next few years.
Interesting for Finnish companies
Schmidt believes that financing Enitel is well suited to Finnfund’s business principles. The development of telecommunications is important for economic and social advance in poor Nicaragua.
“Developing mobile connections is especially interesting for Finland,” he points out.
Nokia is also improving its position in mobile phones sales in Nicaragua although Motorola is currently still number one on the local cell phone market.
For more information please contact Mr Thomas Schmidt, tel. +358 9 34843327, email firstname.lastname@finnfund.fi
