ABOUT ECONET WIRELESS AND ZIM’S PERENNIAL HYPERINFLATION – ENTER STRIVE 2.0

Going through Econet Wireless Zimabwe Limited Financial Results for the HY ended 31 August, 2019 was disheartening, to say the least. To put things into perspective the hyperinflation adjusted loss for the period at $1,29 billion (historical: $1 billion) is more than total revenue at $1,26 billion (historical: $0,8 billion). This means the company must increase its revenues by more than 100% just to get at breakeven – now that’s not kids’ stuff.

Anywhere, the question is, "how can Econet improve its fortunes?" Below I try to answer this question in 5 different ways:

1.      Link tariffs (prices) to a price index

Telecommunication tariffs in Zimbabwe are heavily regulated by POTRAZ. Though, they are constantly being reviewed this has been arbitrary. In his 2019 HY Chairman’s Statement Dr J. Myers noted that, ‘’voice, SMS and data tariffs in Zimbabwe are now amongst the lowest in Africa.’’

This supports the argument for a new pricing model possibly linked to a CPI. This will enable telecom players to generate enough cash flows for recapitalisation, dividend pay-out and non-monetary assets acquisition for shareholder value preservation. (POTRAZ should remember Zimbabwe is open for business).

2.      Export/Foreign operations

Econet is renowned for a vibrant intrapreneurship culture which has led to one of the biggest spin-offs in the history of our country – Cassava. This means it should not be difficult for it to start a venture that is export oriented or sales online globally or operates in a foreign land. Alternatively, it can extend its wide range of existing products like Eco-sure (through Cassava) to the global market.

The company can also choose to acquire these competencies – it had almost half a billion in cash as at HY ended. This will allow for collection of foreign receipts which can then be utilized towards the servicing of its debts.       

3.      Venture into tourism

Tourism is some form of ‘internal exports’ because of its ability to generate foreign currency onshore. Tourism players, including quick service restaurants like Chicken Inn & Chicken Slice, are charging domestic tourists (that is how you are then classified) in forex as well.

Econet should consider entering this sector e.g. by developing a mobile-app-centred travel agency or offering VAYA flights (Cassava) leveraging on its existing competencies and robust infrastructure. Foreign currency inflows can then be utilised for the same purposes mentioned above.

4.      Import substitution

For me this is the big one and it is not insurmountable. However, not taking away anything from the current directors, this will need visionary leadership (enter Strive 2.0) that can dream big like Elon Musk at Tesla who decided to make a new electric car, a new vehicle battery and a new Gigafactory concept to go with it or Aliko Dangote at Dangote Group who wants Nigeria to stop importing refined petroleum products (gasoline, diesel etc.) whilst it is the fifth largest oil producer in the world or Jack Ma at Alibaba Group who started an e-commerce company, built a new distribution network, a new online payment platform and a new credit rating agency kuti zvityise (shona for – just to make it work).

Over the years Econet has invested extensively in our nation’s education through its Higherlife Foundation and platforms like Ruzivo. Clearly, some of the funding can be directed towards R&D that creates new skills, competencies and technology in order to produce new telecommunication systems – including for export (remember our ‘beautiful’ STEM). This will greatly reduce the company’s appetite for foreign currency.

5.      Capital Restructuring

The 2017 5% USD denominated redeemable debenture stock and vendor credits (with ZTE & Ericsson) are negatively affecting the company’s bottom-line. To serve as an example, during the reported HY, inflation adjusted net exchange losses were $1,9 billion (historical: $1,3 billion) and about 50% more than total revenue. Clearly there is need to restructure the BS.

Options include converting part of the 2017 debentures funded by local dollars at the prescribed 1:1 rate and converting the rest (funded by off-shore dollars) into equity; disposing USD denominated assets (e.g. Liquid Telecoms); or issue new equity in USD and expunge the debt. Let’s get ready to Rambo (boxing style).  

It is obvious from the above suggestions that for Econet to win the perennial war against hyperinflation; it must carefully consider its foreign currency generation and management strategies because Zimbabwe’s inflation is largely imported. Or maybe the time is ripe for a new vision (enter Strive 2.0).