Econet bemoans foreign obligations in latest trading update

Econet has released a trading update for the period ending November 30th 2020. In that report, Econet noted that even though POTRAZ allowed a tariff adjustment the company is still plagued by Foreign Obligations.

What are foreign obligations and why are they such a problem for Econet and other MNOs?

The telecoms sector is a very foreign currency intensive industry. Econet and other MNOs require a lot of equipment and services from foreign vendors in order to keep operating. In most cases, Econet and others borrow forex in order to keep their systems running but they are required to price their services in local currency.

When they repay those loans, they will incur losses because of the declining value of the local currency against the US$ (and other currencies).

One way of seeing the extent of the issue is by looking at the foreign exchange losses that Econet and other MNOs incur.

Mobile Network Operator foriegn exchange losses

Econet didn’t provide any figures as to the extent of the losses they incurred in the latest trading report. But we can use the figures given by POTRAZ in its Sector Performance Report for Q3 2020.

These figures, of course, don’t cover the period under review in Econet’s report but I think they will offer insight into the extent of the problem.

Even though Zimbabwe’s MNOs revenues grew by 194.7% in Q3 2020 to over ZWL$8.9 billion from the ZWL$3 031 806 597 recorded in Q2 2020. The operating costs have been the biggest problem especially when we factor in operating costs inclusive of foreign currency exchange losses.

Econet being the largest MNO in the country, commanding 67.3% of mobile subscriber market share, would have incurred a greater proportion of those overall losses. When we get a more detailed report from Econet or when POTRAZ’s sector performance report for Q4 2020 is available we will be able to properly see how much foreign obligations are affecting not only Econet but the mobile telecoms sector as a whole.

On the flipside

Econet recorded an 89.5% increase in data traffic last year. This is, of course, in large part to the effects the pandemic. The MNO also saw growth in voice traffic and SMS traffic in the same period. Econet said that the growth in SMS volumes reflects increased adoption and usage of the service by e-commerce platforms.