Econet Wireless, Zimbabwe’s biggest tech company, recorded strong growth in data volumes and voice usage last year, but the company’s latest numbers show how much the economy’s currency crisis is holding back growth and service.
Customers used 58% more data and voice usage was 19% higher, Econet says in its financial report for the year to February. But the company is worried by the impact of rising costs and the volatile exchange rate.
Here is how the currency crisis is affecting Econet:
Investment in telecoms infrastructure has been slowing down because companies cannot access forex. Typically, telcos in the region spend 15% of their revenues on infrastructure. Econet has been spending an average of just 5%.
“This continues to have an adverse effect on the customer experience,” the company says.
In the 2022 budget, government imposed a US$50 levy on any new cellphone that’s used on the network, if the user cannot show proof that they paid customs duty for it.
The Postal Telecommunications Regulatory Authority of Zimbabwe has installed a system to monitor traffic on all networks, which it says is necessary to prevent billing fraud. Because of this system, operators are paying US6 cents per minute on international incoming traffic.
Telcos already pay 10% excise duty on revenue, in addition to 14.5% VAT and other levies and taxes of 3.5%.
“These taxes are generally higher than the African average and have the impact of increasing the connectivity costs for consumers,” Econet says.
Exchange Rates vs Tariffs
Because telcos import all their equipment and software, exchange rate movements have a major impact on them.
For Econet, when the exchange rate moved from ZW$124 to the US dollar to ZW$338 at the end of its financial year, the company made an exchange loss of about ZW$13.4 billion.
While weaker exchange rates mean Econet must spend more to support its network, the tariffs have not kept in step, the company says. Tariffs only went up on July 6, up 61%, the first increase since September last year.
“The inflation that was experienced since that time has not been factored into our pricing framework as at February 2022, meaning that our tariffs are now unviable for the business to continuously invest to meet the increasing demand for its services,” says Econet.