Econet Zimbabwe has announced via its 2016 half-year results that it intends to reduce its capital expenditure significantly from 16.6% to 5.1%. According to Investopedia, Capital Expenditure is:
….funds used by a company to acquire or upgrade physical assets such as property, industrial buildings or equipment. It is often used to undertake new projects or investments by the firm. This type of outlay is also made by companies to maintain or increase the scope of their operations. These expenditures can include everything from repairing a roof to the building, to purchasing a piece of equipment or building a brand new factory.
In his statement to shareholders, Econet’s Chairman cited POTRAZ’s suspension of promotions and the introduction of Quality of Service Regulations as major interferences with its business operations. The Chairman further stated that:
…”Whilst the Company has strived to meet these standards (Quality of Service Regulations), the ongoing liquidity challenges have hampered our efforts to continuously invest to meet increasing capacity demands. Consequently, our capital expenditure intensity decreased from 16.6% to 5.1%”
The decrease in capital expenditure can go both positively and negatively on Econet’s share price. Positively if it is seen as a good decision to not try to meet unfavorable regulations as the company may fail to recoup its investment over time in a shifting economy or Negatively if it gives the impression that Econet can no longer sustain its business and no longer has any drive for growth. Either way, a decrease in capital expenditure is a big deal.
Here are 10 possible reasons for Econet’s decision to decrease it capital expenditure:
- Econet may have made the decision to focus on something less capital intensive but profitable hence no need for a large capital outlay e.g. EcoCash, EcoSure or Data services.
- Econet may see no more growth opportunities in Zimbabwe and therefore see no need to expand their assets (base stations), hence the decrease in capital expenditure.
- Econet may have made the decision to halt expansion in the belief that what is available is enough for the current market needs.
- Econet may see no incentive to expand as there is no guaranteed return on investment and profits in an unstable economy
- Econet may be issuing a statement to POTRAZ that their regulations are too tuff/unrealistic for a company operating in Zimbabwean economy and actually make a profit.
- Econet may be setting up a showdown with the regulator to allow promotions to be run again, not that it would change their capital expenditure, but it’s a stance worth taking to allow for customer retention
- Econet may be backing off investing in Zimbabwe due to possible forced infrastructure sharing
- Econet may be unsure of the next few years in the country due to economic and political instability, therefore don’t feel the need to risk its money in Zimbabwe
- Econet may see that trends in the countries communication methods are moving away from voice to data as characterized by its quarter-on-quarter decreases in voice revenue and sms, may need to restrategize the future of the company before committing themselves to capital intensive projects.
- Econet may want other MNOs to show faith and intent first before they do so, especially if Government is successful in taking over Telecel,
10.1 Econet could just be broke
One way or another Econet has voiced itself and made it clear that they will not be doing any capital intensive projects for some time. These are just our opinions of possible reasons why. Econet itself chose to blame it on liquidity challenges but we feel there is much more beneath the surface of such a monumental decision.
Is Econet decision justified? And what will this mean to its subscribers? We think Econet, like other companies, have decided to go on a go-slow in Zimbabwe, the service we get now will most likely remain the same for some time.
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20 comments
They have built sufficient assets in terms of fibre, 4g (lte) and 3g . They are now focusing on protecting market share under the prevailing conditions . It’s a defensive strategy
The whole article is very sub-standard and lacks any meaning, please revise it and provide real researched facts not pub gossip.
You started by saying:
10 reasons why Econet is slowing down its investment in Zimbabwe
To me, that alone sound like you have done your homework and have real facts at hand, but then you go on to give guessed answers and very speculative.
If you have money, the next statement would have got Econet lawyers very excited and ready to sue you:
“… the introduction of Quality of Service Regulations as major interferences with its business operations…”
Zimbabwe is not the only country Econet operates in as a telco, but it maybe the only country which doesnt have QoS monitoring in place. Every normal country have a regulator in place whos job goes beyond QoS monitoring, and Econet operates in such countries without having any such issues
What that statement is portraying is that Econet cannot operate in a regulated enviroment.
Having said that, l think Econet is following the worldwide strategy of either containing the impact of OTTs or invest and focus on countering OTTs like what they are doing with KweseTV. This is future proofing themselves from any negative impact which might affect its business.
Econet have the LTE framework in place to progress quickly should the need rise. Food for thought!!
This is a poorly written article both from an editorial as well as simple grammar. We do not need opinion but rather facts then give your opinion. Limbikani do something please.
These list articles are always of poor quality. 10 reasons for this, 5ways to do that.. please techzim, you are better than this.
This one just slipped through the cracks im sure…
This was for maintaining your own “at least one article per week” QoS wasn’t it. Speculation and opinion are not really what we come here for. My 345 friends ‘ Facebook walls have enough of that
Taboo topic? Surely not the great Econet right?
“tuff/unrealistic”
seriously?
Who on earth spells tough like that?!
Geeze… take pride in your articles!
The investment community has all along been accusing Econet (and Delta Beverages) of overinvesting.
Any scaling back is a welcome development from where i sit as an investor holding Econet shares.
This article is poorly researched and resultantly the guess work is ill informed to a great degree especially given that a key stakeholder had been requesting Econet management to slow down on the capex
Write your own articles if you think this article is sub standard… These are Techzim views and opinions.
Actually this is not Techzim, this is a new kid called Batsirai Chikadaya writing for Techzim, we know who writes what, he will not last that long, he needs to review Victor Miracle from Saith previous story archives to understand and learn. We have been here commenting from day one when the website was launched.
When Kabweza writes, you easily see the passion and dedication he puts into his writing.
If he is writing for Techzim, then it’s Techzim. Because people have criticised the article, you have thrown him to the dogs. I’m sure if the article had been praised, you wouldn’t have stepped in an said “Hey, it’s not Techzim”. It’s not good sportmanship, a team member is a team member even if when you are losing.
I am more than capable of taking both criticism and praise good sir
Fair point, he is a team member!
Unfortunately the website is yet to adapt the likes option button so that people can register their feeling
We take all your comments with the highest consideration
A “kid” is what I am not, I am someone who simply had an opinion to share, writing styles differ and so do personal preferences, and i respect that
Then you need to understand that your opinion is not fact, if you have made it clear that it was just an opinion, then there wouldnt have been any of this!
We will look into adding “opinion & analysis” category so you’re made aware of it before reading the article, apologies for the confusion
That’s silly.Feedback is important.
Not ass-licking, worshipping and cheerleading.
Criticism has does better for self-improvement than blind hero-worshipping.
You’re more of their foe than we are
The problem if the title of your itle reads “10 reasons why Econet is slowing down its investment in Zimbabwe”.
Please take a note why people are criticising this article and in this case its constructive criticism.
You could have rephrased the headline to read “10 reasons why Econet might be slowing down its investment in Zimbabwe”.
The “is” you used in your article means that you are 100% sure of everything you have written and cannot be contested which is wrong as all you have done is give us your opinion which might not be necessarily Econet’s.Please do correct this as in a normal world this could cause panic amongst investors and you can actually be sued for such an article
ane ma feelings towards econet ,
siya ma feelings techzim