May 29 (Bloomberg) -- Nokia Oyj's bet that Africans will consider buying mobile-phone service to be as vital as paying 11 year-high corn prices stands a good chance of succeeding.

A surge in demand from India and China this decade made the Finnish company into the world's dominant maker of wireless handsets. Now, Chief Executive Officer Olli-Pekka Kallasvuo has designated Africa as his company's next target.

Like in most developing regions, owning a mobile phone in Africa is viewed as such ``a necessity'' that growth won't be stymied by money being diverted to pay record prices for staples, Kallasvuo said in April. Already the world's fastest- growing mobile-phone market, Africa still has the lowest penetration, at below 30 percent, of any populated continent.

This growth potential may help Nokia sustain sales through the slowdown that has gripped Europe and the U.S. this year and sent the company's shares down 32 percent. Africans bought 33 million handsets in the first quarter, up 37 percent from a year earlier, according to Boston-based researcher Strategy Analytics. That isn't far from the 37.9 million purchased in North America, where industry shipments fell 4.5 percent.

``Nokia is better positioned than its competitors to weather an economic slowdown,'' Ittai Kidron, an analyst with Oppenheimer & Co. in New York, said on April 18. ``A European slowdown will hurt, but we believe Nokia's results over the last year show that it can successfully manage the transition toward lower-tier and more price-sensitive emerging markets.'' He rates Nokia ``outperform.''

`Disproportionate' Spending

The African market will grow by 33 percent this year, projects Neil Mawston, an analyst in London for Strategy Analytics. Nokia, based in Espoo, Finland, claims it commands 55 percent of sales in Africa and the Middle East.

``People in emerging markets spend disproportionate amounts'' of their income on mobile phones and ``are likely to continue to do so,'' Mawston said.

Kallasvuo, 54, said last year that he sees the potential in Africa as being similar to India's several years ago and China's at the turn of the millennium. Those are now Nokia's two biggest markets, accounting for almost one-fifth of sales. Nokia sold 34 percent more phones in China during the first quarter than a year earlier, and 44 percent more in Asia-Pacific countries including India.

Sign of Decline

In April, the company reiterated its estimate that industry shipments in the two markets would grow more than 15 percent this year, even as it trimmed its overall market-value forecast based on the weakening dollar and slowdowns in the U.S. and Europe. Shipments in Western Europe dropped 16 percent from January through March, the first decline since at least 2001, researcher Gartner Inc. said on May 28.

Nokia, which plunged 14 percent on April 17, fell 26 cents to 17.95 euros today in Helsinki. The stock is projected to climb 31 percent in 12 months to 23.6 euros ($36.96) based on the average of 30 analyst estimates compiled by Bloomberg.

Kallasvuo is also banking on consumers in developing countries eventually buying more expensive phones as their spending power increases. While models costing less than 50 euros make up about half of Nokia's total volume, the amount paid for its phones in China in the first quarter surpassed its global average of 79 euros. The Nokia CEO is looking for a similar trend in Africa.

Growth Markets

``Growth is strong in emerging markets,'' said Petri Ukkola, fund manager at Tresor Investment Management in Helsinki, which oversees the equivalent of $781 million and has added to its Nokia holdings. He said Nokia, trading at 9.7 times earnings, is cheap compared with other technology companies.

Working against Kallasvuo's scenario is the soaring cost of food and the threat of dwindling supplies. Global stocks are at their lowest since the 1980s, according to the United Nations' Food and Agriculture Organization. Food lines formed in the Philippines, and price increases for rice caused riots in April in Haiti and Egypt. Coarse grains such as corn, among the main staples in sub-Saharan Africa, may reach $166.60 a ton in a decade, the Organization for Economic Cooperation and Development said today, increasing its estimate by 21 percent from a report last year.

Nokia has weathered past economic slumps ``much better than its competitors,'' said Patrick Nielsen, a fund manager at Mapfre Inversion in Madrid, which manages the equivalent of $7.9 billion including Nokia shares. He said this time may be worse because consumers are being hit so hard.

Telenor ASA, the Norwegian phone company with 147 million wireless customers mainly in emerging markets, said in April that higher food prices have made the company more ``cautious'' about its operations in Bangladesh, although it hadn't witnessed any slowdown in Malaysia or Pakistan. In Thailand, a net exporter of rice, voice traffic has increased in rural areas.

Sub-Saharan Sales

Most of the growth to date in Africa has come from countries such as Egypt on the northern rim, and from South Africa, where penetration is above 60 percent. Sub-Saharan demand will lead a doubling in mobile-phone usage within three years, projects Capgemini SA managing consultant Ashish Sidhra.

Mobile phones help people improve their status, Sidhra said. While food prices will have an impact on the decision to buy a phone, operators are packaging prepaid minutes at lower prices to compensate, he said.

``You can't write a letter home anymore, it takes too long,'' and workers need to provide phone contacts to employers, said Owen Makhubela, 25, a security guard in Johannesburg who hails from Limpopo Province near the Zimbabwe border. ``You can't trust someone to keep a message and tell you in time.''

To contact the reporter on this story: Juho Erkheikki in Helsinki at jerkheikki@bloomberg.net.

Last Updated: May 29, 2008 12:53 EDT