- Econet succumbs to significant costs increments
- Power shortages to further weigh on Econet margins
- ZPC announces a 1-month long load shedding
Harare - Known for its drive to identify and solve traditional and modern-day problems through modern-day solutions which are typically tech-driven, Econet Wireless has grown to be a household name in Zimbabwe with an unforeseeable going concern. While its former and current peers have either completely shut down operations or failed to sustain, Econet has managed to widen its exposure into the region and the globe. However, despite all these achievements, the giant company has remained susceptible to a perennial predicament- power outages.
With operations and investments in Africa, Europe, South America, and the East Asia Pacific Rim, Econet, formally known as Econet Global Ltd, is a diversified telecommunications group that provides goods and services in the key areas of mobile and fixed telephony services, broadband, satellite, optical fibre networks, and mobile payment. Econet Wireless and Cassava Technologies are just a couple of the group's subsidiaries. Renowned entrepreneur Strive Masiyiwa founded Econet in Zimbabwe in 1993. It was originally going to be named "Enhanced Communications Network," but was later abbreviated to Econet. When Econet received a telephone license in 1998, 70% of the people in the nation had never heard of a ringtone. After the Burundi crisis, Econet created a mobile payment mechanism to assist NGOs in sending funds to refugees. Along with a credit solution, the concept was expanded and integrated into Econet's technology.
2011 saw the official introduction of EcoCash, which was run by Econet Enterprises and now listed separately on the Zimbabwe Stock Exchange as an associate company to Econet. Following its introduction into the market, over 6.7 million people had signed up for the mobile financial service by November 2017, which accounted for 80% of adult Zimbabweans or 52% of the entire population. One of the local commercial banks in Zimbabwe, formerly known as TN Bank Zimbabwe, was acquired by Econet in February 2013 and renamed Steward Bank. The bank's shares were delisted from the Zimbabwe Stock Exchange (ZSE), where they had previously been listed and incorporated as a subsidiary to date.
Before the spin-off, Ecocash Holdings, formerly Cassava Smartech, the Group controlled numerous subsidiaries which include Econet Wireless Zimbabwe, Econet Wireless South Africa, Econet Telecom Lesotho, Mascom Botswana, Econet Leo (Burundi), Liquid Intelligent Technologies, ZOL, Transaction Payment Solutions, Africa Data Centres, Sasai Fintech, Cassava Remit, Vaya Technologies, Distributed Power Technologies, Ecocash, Steward Bank, Ownai, Ecofarmer, Ecosure, Moovah and Ruzivo Digital Learning.
The above-mentioned subsidiaries all came into existence as a means to solve a problem, hence the founder’s obsession with capitalizing on problem-solving as “perfect entrepreneurship”. However, the telecommunications giant is one of the biggest single consumers of electrical power in Zimbabwe, and as a result, the availability of power is very crucial to the going concern of the business and its operations. In his quest for solutions to “modern problems”, Strive Masiyiwa was reportedly involved in a chase to become a private player in electric power generation in Zimbabwe, a move which was denounced by authorities.
This idea was in retrospect meant to address the power challenges the company had succumbed to in the near past. In a post titled “Why I hate corruption”, Masiyiwa said, “In about 2007, as Zimbabwe lurched into hyper-inflation, and foreign currency disappeared, our local management was faced with a big, big problem: Electrical power! The cell phone network consumes over 10MW distributed nationally. Base stations were collapsing, and service was degrading on a daily basis.” He goes on to proclaim that with the right calibre, every problem has a solution. In his words, his efforts to come up with a solution to the aforementioned problem were hindered by corruption from high offices.
Zimbabwe is currently experiencing a hyper-inflationary phase and massive power cuts, similar to the problems Econet was facing when Masiyiwa initially tried to resolve the debacle. Recently, Zimbabwean authorities publicly announced that Kariba's hydro project, which typically meets 65% of the country's power needs through its established capacity to produce 1200 MW of energy, will immediately temporarily shut down. The shutdown is being attributed to the reservoir's low water levels. The suspension will last the remainder of the year, according to a statement from the authorities, and a reevaluation will be done early in 2023. The anticipated time for reevaluation is after the recent rainy season. Since Econet depends heavily on electricity supplied by the public entity, ZESA, insufficient supplies from the entity will have to be set off by other alternatives which are inherently costly to the telecommunications company.
For the company to provide its products to its vast customer base (mainly the network), it requires electricity to power its network bases and other base stations. If the national grid is failing to power these bases, then alternatives that include solar grids or generators powered by fuel will have to be resorted to. In its Q1 Trading Update, Econet said, “Persistent national grid power outages have affected network quality and reliability, thereby necessitating us to increase our efforts to augment our power supply with solar power.
However, as inflation increases and disposable incomes are coming under more pressure, there is a discernible increase in the theft of diesel, batteries and solar panels. In response, “we have enhanced security at our sites to counter the effects of increased vandalism and theft.” These measures heavily weighed on the company’s financials in the first quarter as it predicted a recovery in the second quarter. However, in its HY-2023 report, the Group was negatively affected by regulatory tariffs from POTRAZ, which were trailing behind inflation. This negated the Group’s efforts to recover from the effects of power outages in the previous reporting period.
While negotiating with regulators for better tariff rates in a bid to recover, Econet is yet again back in the trenches of darkness as electricity continues to throw fists at operations. According to a report by POTRAZ, overall operating costs for mobile operators in Zimbabwe escalated by 97% in the third quarter of 2022, comparative to prior quarter. According to the report, bandwidth constituted 30% of the aggregate cost while administrative costs accounted for 19%.
The increase in costs was reportedly due to inflationary pressures in the economy. Despite inflationary pressures in the economy, Econet succumbed to tariff reviews in its HY2023 and recorded a -1% dip in inflation-adjusted revenue. The Group’s EBITDA plunged by -17% owing to cost pressures. The regulators are yet to review tariffs ahead of inflation. This means that the telecommunications company is still highly susceptible to further declines in revenue owing to tariff laggards. At the same time, the power outages in December will pose a greater threat and weight on Econet’s cost base. Prospects of recovery from the weak macroeconomic fundamentals seem murky for Econet, as the three last quarters of 2022 have posed a significant heft on revenues. Lost revenue, repair of damaged equipment, replacement of equipment damaged beyond repair and manpower costs of restoring service will remain the four main categories of the negative financial effects of power outages on Econet going forward.