As the price of Brent crude continues to range between $105 and $120, Vodacom is putting measures in place to manage the risk to its cost base in its African markets.
The price of oil has increased 47% since the start of the Middle Eastern war, to trade at $105 in the early hours of this morning, having at times gone above $120, resulting in massive jumps in the price of fuel locally.
In SA, diesel increased by as much as R13.70 a litre over April and May, even though government cushioned the price by freezing R3-worth of levies.
Exposed markets
Across Vodacom’s operations in the rest of Africa, its operations in the Democratic Republic of Congo, Ethiopia, Kenya, Lesotho, Mozambique and Tanzania are heavily dependent on oil imports. While Egypt produces oil and gas, it still imports fuel products and is also exposed to global energy pricing.
In a recent analysis piece, Dan Ford from action tank Responsible State Craft, wrote: “The global energy crunch caused by the American-Israeli war on Iran is severely impacting Africa’s ability to access affordable fuel, leading governments to scramble for new sources of energy.”
Ford also notes that the current supply crunch has forced African governments with heavy state control over their country’s energy sector to raise prices.
Mike Gresty, fund manager at Anchor Capital, explains that “Vodacom’s diesel consumption arises chiefly from diesel generators in markets where grid-supplied electricity is unavailable or inconsistent”. This, he adds, is an issue it faces in many of its non-South African operations.
Vodacom’s 2025 annual report shows it consumed 73.2 million litres of diesel, up 4.6% on the year before. It is trying to mitigate this through the introduction of alternative technologies. including renewables, but this faces the challenge of network expansion and deteriorating grid conditions in some markets, says Gresty.
Hedging and supply
During a conference call on its full-year results, CFO Raisibe Morathi explained that the situation varies from market to market because of the structure of diesel regulatory pricing or subsidies.
The telco’s results booklet notes that “as energy costs continue to rise and diesel supply remains uncertain, we have mitigation measures in place and are actively managing these risks to minimise any potential disruptions”.
In Kenya, Vodacom is exploring options with banks to protect itself against diesel price swings, says Morathi. Where it cannot put such hedges in place, Vodacom has “secured supplies with the oil majors,” she says.
“We’re quite comfortable that there isn’t any immediate big risk of not being able to get diesel or getting diesel at a price that does not make sense,” says Morathi.
Impact awaits
Gresty says the full impact of fuel price hikes has yet to be seen in Vodacom’s figures. “The fact that this is a March year-end on which it is reporting means the impact of recent increases in fuel prices has been very limited in this set of results. It will be a much more important consideration going forward,” he says.
Vodacom has “proved very effective in managing its costs within a tight range. I would therefore expect that, should we see costs of fuel escalate, it will seek to mitigate this through savings elsewhere across the business,” says Gresty.
At the same time, investors are seeing better real revenue growth at the moment than in the past several years, “which is no doubt enabling it to cope with this cost better than in the past,” Gresty adds.
Peter Takaendesa, chief investment officer at Mergence Investment Managers, points to Vodacom also benefiting from price increases in the rest of Africa over the past 12 months, as well as the “shift of Vodacom’s investment case from a defensive lower risk profile to a higher growth and higher risk play on the rest of Africa”.
The fuel price surge also affects MTN, notes Gresty. “In the case of Telkom and Cell C, their lack of exposure outside SA makes this a lesser problem, as does the fact that they make much greater use of roaming on the others’ networks, meaning this cost is less directly felt.”
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