Personal tools

Africa, Seacom Undersea Cable

Laying 17,000km of undersea cable to connect eastern and southern Africa to a modern, affordable internet service

Off the coast of eastern and southern Africa, below the waves, runs 17,000km of fibre-optic cable delivering an affordable and high quality internet service. The Seacom cable initially connected South Africa, Madagascar, Mozambique, Tanzania, Kenya and Djibouti to existing cables at Marseille (via the Suez Canal) and to Mumbai, India. The cable also connected landlocked countries such as Ethiopia and Rwanda and was a vital first step in providing modern telecommunication infrastructure to the region. Prior to the Seacom project, eastern and southern Africa was the only part of the world without such a connection. The region lacked access to the economic, educational and communication benefits associated with internet access.

BACKGROUND

Without reliable access to the internet, eastern and southern Africa was at a distinct competitive disadvantage, among its immediate neighbours, and in the global economy. Without adequate, affordable and high quality bandwidth telecoms connections, the region had to resort to expensive satellite technology, which delivered a limited service.  This resulted in customers in one of the world's poorest regions paying some of the highest phone and internet costs: bandwidth prices had risen to as high as 40 times those in the US, while making an international call cost up to 20 times more than making the same call from a developed country.

Economic and social development relies increasingly on information technologies, and evidence shows that ICT investment drives higher long-term economic growth.  The case for action was overwhelming, and the solution was a major infrastructure investment in an ‘open access’ undersea cable system supporting high bandwidth telecoms.

THE DEAL

Seacom is 100% privately funded and over 75% African owned.  The total project investment is US$375m, of which US$75m was made up of ‘in kind’ contributions by the project developers.  US$225m came in the form of commercial equity from private South African investors (US$150m), and a commercial loan from NedBank (US$75m). The remaining US$75m investment was by Industrial Promotion Services (IPS), the industrial and infrastructure arm of the Aga Khan Fund for Economic Development (AKFED).  The IPS investment was funded by $15m equity, and a total of US$60.4m debt from the Emerging Africa Infrastructure Fund (EAIF) and the FMO.

PIDG POSITION

Raising finance to lay an undersea cable before any customers are even signed up is an ambitious enterprise, and the project almost floundered.  Without the final US$75m of equity, the cable would not have been laid.  It was the high risk, long-term loan of US$35m made by EAIF to IPS (in turn allowing IPS to invest it as equity on an exceptional basis), which enabled the project to reach financial close. Since the Seacom cable was laid, two other (competing) cables have become operational in Africa – their progress and completion having been accelerated by the successful arrival of Seacom.

DEVELOPMENT IMPACT

  • Total private sector investment of US$375m.
  • High-speed services have enabled English-speaking workers in the region to capitalise on their time-zone in the valuable outsourcing market. Increased telecoms traffic will boost tax and VAT revenues to government.
  • The cable connects southern and eastern African countries to cables linking Europe and Southern Asia, and the new capacity and coverage has boosted broadband take-up across the region, particularly in East Africa, which was previously characterised by limited, expensive and low quality bandwidth.  By March 2011, within two years of Seacom’s commissioning, international and retail bandwidth costs had reduced by 83% and 67% respectively.
  • The project has stimulated significant increase in internet usage in East Africa.  For example, less than two years after Seacom went ‘live’ the number of Kenyan internet users increased to 8.6 million from 3.6 million. The World Bank reports that, in low and middle income countries, every 10% point increase in broadband penetration accelerates economic growth by 1.38% points.
  • People can now harness cheap broadband to take advantage of online education products, and companies can use video conferencing. As prices fall, the benefits of ICT reach an even wider audience – from students engaged in online learning to farmers monitoring global prices for their produce.