Low tariffs chomp into Econet profits

TELECOMmunications giant, Econet Wireless Zimbabwe (EWZ) is reeling under continued exchange losses with the firm reporting a loss of $13,4 billion owing to the firm’s inability to raise tariffs, NewsDay Business has learnt.

In its 2022 annual report for the year ended February 28, 2022 EWZ reported that the Zimbabwe dollar depreciated from $84 to $124 during the period, against the greenback, a depreciation of 48%.

However, while this helped EWZ narrow its exchange loss from $22,8 billion in the 2021 comparative to $5,1 billion in the period under review, the continued local currency depreciation led to an exchange loss of about $13,4 billion. This was after the reporting period.

The official forex market is controlled by the central bank and has thus left the Zimbabwe dollar heavily discounted against the greenback. The Zimbabwe dollar is depreciating owing to the government constantly printing money through debt securities, namely, Treasury Bills and central bank bonds.

“The company uses the Reserve Bank of Zimbabwe (RBZ) auction rate for reporting purposes. In the period under review, the exchange rate to the US dollar moved from $84 to $124 (prior year from $18 to $84), a depreciation of 48%,” EWZ chairperson James Myers said in a statement attached to the annual report under review.

“This resulted in exchange losses arising from foreign currency-denominated obligations decreasing from $22,8 billion to $5,1 billion, resulting in an incremental profit of $17,7 billion. Unfortunately, immediately following the end of the financial year, an exchange loss of about $13,4 billion was incurred when the official rate was devalued from $124 to the US dollar to $338, a depreciation of 172% thereby eroding the gains made by the company in the year ended 28 February 2022.”

He said the company was highly susceptible to exchange rate movements because it imported equipment and software for operating purposes, which means that any exchange rate depreciation significantly impacts on its ability to invest in new equipment.

While EWZ narrowed its exchange loss as of February 28, 2022 the consolidated financial statements were authorised for issue on June 16, when the exchange rate was US$1 to $308.

“The depreciation of the exchange rate from US$1: $124 at the reporting date, 28 February 2022, increases the impact of exchange losses recognised in the statement of profit or loss and other comprehensive income,” the company reported.

As a result of the continued exchange losses, the company is pushing for higher tariffs on voice, SMS and data, the main sources of revenue, that are benchmarked according to regional prices.

According to the firm, tariffs for voice are 4,2 US cents, SMS 0,9 US cents and data 0,7 US cents against regional averages of 8,8 US cents, 2,7 US cents and 5,5 US cents, respectively.

The local US cents tariffs are derived from the official forex rate, hence, the lower tariffs.

While EWZ wants prices benchmarked against foreign currency, the majority of its customers are earning Zimbabwe dollar wages.

“Regional comparatives are based on average operator tariffs in the Sadc [Southern African Development Community] region. Local tariffs were converted to US$ from ZWL using an interbank rate of $380 to the US dollar. The tariffs of the industry are much lower than the region and this poses a threat to industry viability,” Myers said.

“The telecommunications industry has been struggling to meet the capacity and coverage demands of its consumers. On July 6 2022, the regulator approved a headline tariff increase for the sector of 61%. The last approval of tariffs was granted in September 2021.”

The last tariff review for the sector, during the reporting period, was in September 2021 using the telecommunications pricing index.

“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,” Myers said.-newsday