I was old enough to witness some Zimbos build impressive real estate portfolios from ‘money changing’ profits in the years preceding dollarisation in 2008. As these people made their millions by ‘burning,’ I learnt the lesson, ‘it is in crises that wealth transfer occurs.’ The Covid-19 crisis yielded the same results, and tech companies came out winners this time around.
All around the world, as most activity moved online as we all learnt to social distance, the companies that allowed us to work and play remotely made a killing. We saw how the big 5 in America; Apple, Google, Amazon, Microsoft and Meta were combining to make over a trillion in revenue in just a single year.
Zim tech companies in the pandemic
Zimbabwe was no exception, tech companies did recover during the pandemic. Of course, this being Zimbabwe, there will always be extra challenges to make sure you don’t soar too close to the stars. Our forex and electricity challenges coupled with a struggling population meant there was a lower ceiling for Zim tech companies.
But even with those challenges, we saw Econet post a 23% increase in revenue. Leading to a 115% increase in profits for the 12 months ending February 2021. Which was more or less the first 12 months of us living with Covid-19. In the 6 months following that period, the uptick was even crazier. A 5259% increase in profits came from a 95% surge in revenues.
To remind you, in the year before the pandemic, Econet had posted their first loss in a decade, a ZWL$1.35 billion deficit. So, to bounce back that well was good to see. Now, Strive Masiyiwa, is up to US$2.7 billion in personal net wealth and you love to see it.
It wasn’t just Econet, the Information and communications sector’s gross domestic product grew by 18.6% in 2020. The only other industry which recorded significant growth that year was the bank-charge-reliant Financial and Insurance services sector with a 17.6% growth. These two sectors’ performance was not enough to prop up the whole economy. Despite their growth, the economy shrunk by 5.3% that year.
We remain reliant on Agriculture and Mining which struggled in 2019 and 2020. We don’t have the breakdown for the full year, but in 2021 Agriculture bounced back 36.2%. Whilst Mining registered a modest 3.4% in the first three quarters.
Our chance to diversify
Our reliance on agriculture is not doing us good. Somehow, both droughts and floods are becoming more frequent and the resultant ups and downs in agricultural output are not conducive for building towards middle income status by 2030.
So, when we saw the tech industry pick up the slack in 2020 we felt our chance to diversify had come. Seeing how the industry was doing well both globally and locally, we felt a little more govt support could help it strive.
The future does seem to be in sectors like the Information Communication Technology and Courier Services sector, rather than in the sector which relies on metals in the ground. I think Zimbabwe would benefit from proper govt support of the sector.
What about USF?
The Universal Service Fund (USF) is financed by the mobile network operators and so should be looked at like a tax. The fund is supposed to be used to extend postal and telecommunications services to unserved or underserved areas.
Just how effective Potraz has been with this fund is a story for another day. What we can say for now is that the USF is simply not enough. And besides, the fund represents the amount by which mobile network operators’ profits were reduced. So, essentially it is MNO profits which could have been used for infrastructure development by said MNOs.
Instead of relying on the players themselves to allocate the funds in the market, we now rely on the govt to efficiently allocate it. Not quite the best solution if history is anything to go by.
Tax breaks instead?
Instead of taxing MNOs through the USF, should we not be giving tax breaks to MNOs or at least incentivising infrastructure development spending? Profits ploughed back into improving service should be rewarded in some way.
The same way we see some mining companies get tax holidays, so should it be for ICT players. Rewarding investment in underserved areas by hefty tax credits would see a more spirited infrastructure development regime in the market.
Prioritisation on the forex auction market
Well, I know this is a nonstarter. We are so reliant on agriculture, mining and manufacturing that players in those sectors will continue to get the lion’s share of forex allocations. When we could potentially face food shortages, I understand that it could be difficult to justify prioritising base station equipment purchases.
However, this doesn’t mean we’re not being short-sighted here. Of course, this problem only exists because some people, somewhere, have failed to stabilise our local currency.
So the forex shortages and the unstable local currency will mean high operational costs, lower profits and low infrastructure development. Thereby slowing our progress in this vital sector.
Command ICT
Allocation of funds to the Ministry of ICT appears to be for the govt’s expenditure on its own needs. Unlike some expenditure in agriculture going to the actual players in the sector, the ICT budget appears to be for the govt’s own use.
Imagine if there was some form of ‘command ICT’ where we went on a drive to improve ICT infrastructure in this country? I don’t like ‘command anything’ because that usually leads to some corruption and a whole lot of inefficiencies. However, it’s hard to argue that ‘command agric’ did not have some form of impact. So, again, imagine ‘command ICT.’
That’s all moot though cause it appears ICT budget allocation is for use by the ICT ministry on govt stuff.
ICT budget allocation and utilisation
ICT allocation as percentage of total budget was 0.5% in 2021. Yes, a whole half of a percent.
Contrast that with randomly selected sectors with more allocations than ICT:
- 3.9% for the President’s office and cabinet,
- 0.6% for the Zimbabwe Electoral Commission,
- 1% for Youth, Sport, Arts and Recreation,
- 13.9% for Lands, Agriculture, Fisheries, Water and Rural Development
- 0.6% for Women Affairs, Community, Small and Medium Enterprises Development
In terms of actual expenditure for 2021, we only have data for the first 9 months. In that time only 61% of the ICT budget had been expended whilst the President’s office for example, had a budget utilisation of 111%, i.e. over budget.
Like they say, ‘we know what you value by what you spend your money on.’ I do believe the ICT industry has much to contribute to this economy. Not only does it contribute jobs and taxes to the fiscus, it also allows other govt departments and even other industries to function better/more efficiently.
To add the insult, the 2022 allocation will be 0.36%, down from 0.5%. So, our budgets continue to show that we pay lip service to the ICT industry’s importance to Zimbabwe when we say,
In 2022, Government will improve on its ICT Procurement and Management Framework to guide the use and procurement of ICT services across Government. This is more so, given new developments under the Digital Economy Agenda and COVID-19 ‘new normal’.
From 2022 National Budget Statement
Potential in ICT
There is an e-commerce boom in this country which is hard to accurately measure because of the use of encrypted services like WhatsApp. The Facebook groups pushing millions of dollars worth of goods each month rely on the ICT infrastructure provided by players like Econet, Netone and Telecel.
Now, with the pandemic disruptions, the ICT industry’s importance to the economy couldn’t be greater. As education, tourism, religion and other normal Zimbo activities placed more reliance on this sector. So, can we really afford to allocate a measly 0.5% to this sector even for the govt’s own expenditure? I think not.
In terms of supporting actual players in the ICT sector, how about the fiscus also contributes towards infrastructure development. Of the taxes collected by Zimra, can we not allocate some to increase the USF pot?
If that’s not possible, how about tax incentives to promote investment into this important industry coupled with abolishment of the USF?
Well, knowing our tax regime, all this is wishful thinking. It’s a lovely thought though, isn’t it?
Share
Home
5 comments
I don’t think infrastructure is the problem with ICT growth and development. I think it’s the regulatory frameworks and governance.
And, even if a command programme can make an impact, the question is “at what cost?” The government selected supplier will be selling brandless Chinese laptops for the price of an Alienware.
I agree that the regulatory frameworks and governance require a lot of work. I also see the economic situation posing an even bigger problem – electricity challenges, forex shortages, low income population and even the urban/rural divide coupled with sparse concentration in most of the country.
Our infrastructure is lacking too, mostly because of challenges brought about by those other problems.
The easiest to rectify should be the regulatory/governance problem but this is Zimbabwe. The lowest hanging fruit then becomes infrastructure. Both in getting devices in people’s hands and supplementing the private sector’s efforts in laying fibre, erecting base stations, building data centres, establishing public wifi spots etc
But on command ICT, yeah, it’s a nice thought. Maybe in a perfect world cause in Zim, like you mentioned, it will be abused so bad it’s not even worth attempting. Indeed we would see Alienware prices on invoices for brandless laptops. Much like what we saw with masks that other time.
In a country with diminishing power production and a lots of sun, a private solar power producer requires a licence which has lots of red tape around it. Meanwhile those who already have the licences don’t even have a generator running in their name.
We should not have power as hurdle to advancement, but at least investors are now aware that you must bring your own power when starting projects.
If you keep your ear to the ground you will hear of many things stifled by regulation. Either through greasy palms in the waiting, or failure to keeps with the times.
Even MTN was prevented from operating under the guise of protecting local industry, but while fostering an Econet monopoly.
The MTN thing still stings, especially now as one of the local players that was being protected is as good as dead. We’re down to one and half and we are being taken advantage of methinks.
I don’t think the red tape/corruption delays problem will be fixed anytime soon though. Unfortunately, it kind of has become Zim culture at this point. Hence why I think we have a better chance focusing elsewhere.
I’m very skeptical that the govt of the day in Zim will invest a lot in ICT except for spying on the citizens. Why, you might wonder, am I saying this? I’ve come to the conclusion that the biggest, loudest and most ardent of its supporters are the ignorant who are promised the same sand and air re-bottled a few months before every election. A political party that prides in poverty-infested rural voters held captive in rural homes for 41 years and still counting doesn’t resemble a party that really wants its supporters to develop or progress. Modern cities can be built in a quarter of that time. Plus all of them big-headed ZPF leaders went around the country with the previous dictator donating computers to schools which have no electricity, evidence of dead brain cells, need I mention “diesel from rocks” in Chinhoyi?