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IBM's New Partnership in Tanzania

IT major International Business Machines Corp. (IBM) recently announced that it has entered into a partnership with Tanzanian Ministry of Communication, Science and Technology, to accelerate technology adoption in the country. The new partnership is a part of the government’s developmental efforts and strategy to improve competitive position in East Africa.

The new partnership with the Tanzanian government reflects IBM’s continuing focus on expanding its business in East Africa. Tanzania holds a key position in the region as its Dar es Salaam port acts as a trading hub not only for domestic traders but also facilitates business for the neighboring landlocked countries like Zambia, Malawi, Burundi, Rwanda, Uganda, and the Democratic Republic of Congo.

As per the new agreement, IBM will help Tanzanian government to improve the IT infrastructure of the Dar es Salaam port in order to operate more efficiently. This is not only expected to boost Tanzania’s revenue collection processes but also strengthen regional trade relations going forward. Besides the port, IBM will help the ministry to develop IT infrastructure across the country by building data centers as well as providing cyber security solutions going forward.

Tanzania’s strategic position in East Africa has made it an important market for IBM. To focus on delivering solutions and services to its growing clientele in East Africa, IBM opened a branch office at Dar es Salaam in June 2011. IBM collaborated with Tanzania based National Microfinance Bank (NMB) and transformed its core banking technology infrastructure in order to support business growth. Currently, NMB is using IBM’s Power servers and storage technologies to serve a customer base of more than 1.4 million.

IBM is also aiding the Tanzanian government to support the adoption of information technologies and Tanzania's development in key areas such as education and research and development. IBM is also engaged in supporting a number of Universities in Tanzania, for imparting information technology training to the students in the region.

IBM Continues to Focus on Africa

Over the last couple of years, Africa has emerged as the key market for IBM, as the company continues to extend its support toward a number of key sectors (primarily banking and financial services) across the continent. IT spending in the continent is expected to grow at a compound annual growth rate (CAGR) of 11.5% over the next four years. We believe that IBM’s initiatives to grow in Africa positions it well to benefit from the increasing IT spending in the region.

IBM has a number of agreements (approximately 20) with leading banks across Africa, which is expected to drive its expansion policy going forward. Through partnerships with Bharti-Airtel and Vodafone Group Plc (VOD), IBM is providing complete assistance to the banks to launch financial services such as mobile banking and internet banking for their growing customer base.

Apart from banking and financial services, IBM also serves a number of clients across telecommunications, oil & gas and government verticals. Currently, IBM has been chosen by various government agencies across different African countries to support their operations, and thus has ensured steady flow of orders and market share gains across the region.

Our Take

IBM has invested approximately $300 million in Africa since 2006 and plans to increase its spending in the continent by 47.0% to $12.5 billion by 2015. To expand its operations and raise demand for its service and solutions, IBM has also opened more than 20 offices across Africa.

We believe that IBM will continue to open branches in uncharted areas of the African region, which will enhance its presence in the key growth market and support its global growth strategy over the long term. By 2015, IBM expects to expand its operations to at least 23 countries across the continent.

Despite the socio-political instability and underdeveloped economic conditions in Africa, we believe that IBM is well positioned to benefit from the tremendous growth opportunities in the region over the long term. IBM expects the growth markets to contribute 30.0% of its total geographic revenue by 2015, up from 21.0% in 2010.

We have a long-term Neutral recommendation on IBM. Currently, IBM has a Zacks #3 Rank, which translates into a short-term Hold rating.

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