Despite an improvement in electricity supply, Strive Masiyiwa’s Econet Wireless in Zimbabwe is facing difficulties raising the $135 million (R2.4 billion) it requires in capital expenditure over the next 12 months as a result of a non-supportive tariff regime, currency depreciation and rampaging inflation.
In the quarter to the end of May, Econet recorded a 30% rise in voice revenues and a 31% rise in data revenues, largely attributed to improved network availability after the Zimbabwean state power utility declared an end to load shedding.
The Zimbabwe Electricity Supply Authority has upgraded the Hwange power station unit 7, adding 300MW of power to the national grid, and resulting in an improvement of power supply and “network availability” for telecom operators.
This yielded a 137% firming in revenues in inflation-adjusted terms for the quarter to May 2023 compared to the same period last year. Analysts now project Econet revenues to top $397m in the year to February 2024, driven by voice and data volumes growth although earnings before interest, tax, depreciation and amortisation “will likely remain flat at 40%” against a forecast net income of $36m.
Analysts at IH Securities say Econet’s financial performance has been weighed down by foreign exchange losses “stemming from foreign currency denominated obligations” and debentures.
“Minimal US dollar collections and the significant Zimbabwe dollar exposure of the business from a revenue perspective in a high inflation, volatile exchange rate environment, will continue to significantly impact the company’s financial performance and the ability to invest in new equipment as Econet imports equipment and software for operating purposes,” said the analysts in a research note on the company.
Higher inflation over the period under review “eroded much of the gains made due to a comparable increase in costs” for the business. Shareholders in the company have approved a renounceable rights offer to raise $30.3m “to be applied towards redemption of our maturing debenture” instruments.
“Exchange losses remain a challenge. We expect the operating environment to remain challenging in terms of below-inflation tariff adjustments, FX headwinds and inflation,” said Econet company secretary Charles Banda.
He explained that the Zimbabwe government last approved a tariff review for the telecoms sector when the official exchange rate was at $1:Z$1 000 in comparison to an official exchange rate of $1:Z$2 577 as at the close of the quarter under review. This translates to a significant depreciation of 158% in the local unit of exchange.
The IH Securities analysts said “the misalignment in the review of tariffs relative to inflation and real costs will continue to impact revenue and profitability”, creating downside risk to the business. Econet also has to balance tariff increases and depressed discretionary incomes of hard- pressed Zimbabweans.
“Until a more dynamic pricing framework is put in place by the Posts and Telecommunications Regulatory Authority of Zimbabwe (Potraz), this challenge is likely going to persist,” said the IH Securities analysis.
This comes at a time the company is in need of $135m in capex over the next year. Raising the capital expenditure would require “a supportive pricing regime given the inflation trends and currency depreciation”.
“Our capital expenditure programme, which continues to be constrained by lack of availability of foreign currency to pay our suppliers over the next 12 months, is expected to be about $135 million,” Banda added.
Despite the improved power supply situation, Econet says it is continuing to invest in alternative and renewable power solutions in a bid to ensure network reliability. This, in turn, will bump up revenues for the company.
BUSINESS REPORT