ZIMBABWE SPECIAL - ICT SECTOR BUFFETED BY FOREX SHORTAGES AND SKILL LOSSES
11 October 2002
This week’s special report on Zimbabwe looks at how the current political and economic situation is affecting the internet and telecoms sectors. Although the underlying economy remains strong, there is no economic strategy to tackle the current rising inflation and no-one knows how to untie the political knot that will lead to a post-Mugabe era.
ACCELERATING BRAIN DRAIN ROBBING ICT SECTOR OF MUCH-NEEDED SKILLS
The current political crisis and its economic consequences dominate all discussions of Zimbabwe’s connectivity markets. The official US$ to Z$ rate is 1:55. The "parallel market" rate is 27 times as high at 1:1500 and steadily falling. Inflation is currently around 200% and the IMF predicts that it will go as high as 520% by next year. Stripping out the impact of inflation, most ICT businesses are actually shrinking in money terms.
Despite all of this, the economy burns brightly for those with access to hard currency (forex). Except for long food queues for expensive basic food items, there is little sign of crisis in Harare. Why?, you might say. The steady outflow of professional Zimbabweans &SHY; both black and white &SHY; has meant a very high level of hard currency is sent back to the country by them. This either supports their families or is used to buy assets like businesses or houses. These assets are now incredibly cheap if brought with forex exchanged at parallel market rates. Then there are large amounts of "informal" trade with the country’s neighbours and further afield (the DRC): goods traded outside formal currency controls. The accelerating "brain drain" is robbing the country of much needed professionals: several ICT companies said they were losing skilled personnel and increasingly finding it difficult to replace them.
Those with access to forex &SHY; better still forex acquired at the official rate &SHY; are doing very well, thank you. Harare is full of expensive, new four-wheel drives and Mercedes. Entire new banks have sprung up in this over-heated climate, making a living out of currency speculation and the business it brings.
Zanu-PF "chefs" have never had it so good. Meanwhile the purchasing power of those without forex has declined dramatically as wages fail to keep pace with roaring price inflation on basic goods. For ISPs, their professional customers are seeing their earnings fall or are either choosing to leave the country in considerable numbers.
Whatever people say about the underlying strength of Zimbabwe’s economy (and they are absolutely right), the economic situation is unsustainable. All the fizzing economic activity brought on by the "parallel market" will go pop. It’s like a cancer patient on steroids: it’s in rude, good health except for the underlying cancer.
When asked what will happen, all those we spoke to who were prepared to predict advanced one of two scenarios. The pessimists believe that either shortages (petrol, electricity or food) or pressure from South Africa will force change. The optimists say if the rains come and there’s enough food, the current pressures will recede. Neither scenario is completely compelling.
Normally when a country’s economy is in this state, it goes "cap in hand" to the IMF. It gets a loan and takes unpalatable medicine. Zimbabwe currently owes the IMF US$165 million at the official rate (27 times more at the more realistic parallel rate) and for political reasons is unlikely to take this route. So what will it do? Nobody knows. Even the country’s outgoing Central Bank Governor freely admits he has no idea: the economy is adrift and without a navigator. Worse still, nobody has any clear idea how to untie the political knot that will bring about some kind of transition, any kind of transition. As one ISP Manager told us:"Long term in Zimbabwe is a month. We can’t see further ahead than that."
INTERNET: FIVE MAIN PLAYERS BATTLE IT OUT BUT NEW ENTRANTS KEEP COMING
There are five main players in the ISP market:
Zimbabwe Online has recently undergone a change of ownership, having been bought by Samir Shasha of Shasha Associates. It is a local company with trucking interests and an importer for Kenwood. It has just launched free surfing between 12-6 and at weekends.The latest large-scale entrants in the market are Telconet (see below) and TelOne’s internet brand, ComOne.
In addition there are a number of smaller players including Utande and Mango (not-for-profit, e-mail only with 2,000 users). In addition there are three smaller players in Mutare and 5-6 in Bulawayo. Africa Online, Zimbabwe Online and Mweb all have three POPs (Harare, Bulawayo and Mutare) and Ecoweb only two with no presence in Mutare. ComOne has ten POPs, with a presence in places like Gwero, Victoria Falls, Bindura and Kariba.
The total paid account market is probably somewhere between 20-35,000 with total users estimated at 200,000, according to a recent survey. A recent Ernst and Young survey based on PC growth predicted expansion to 45-47,000: without forex to buy increasingly expensive machines, there’s little chance of this coming about any time soon. No-one is predicting future growth but one of the major ISPs has 30% growth in its budget. The striking feature is that if you ask companies to predict what the market would be without Zimbabwe’s current troubles, most believe it could be double or treble the size, just one small measure of the cost of the current crisis.
Monthly access prices vary enormously (prices at time of going to press):
Price disparity is a function of quality of bandwidth and service levels. Both Zimbabwe Online and Africa Online are the "quality leaders", both charge high but offer significant levels of service and bandwidth as advertised. The market leader Mweb appears to be adopting a strategy of staying market share leader, hoping that the others will succumb to commercial pressures. It customer level is high for the amount of bandwidth deployed, obviously aiming to squeeze as much value as it can out of it in order to keep prices low.
ComOne is the only ISP with something resembling a national presence and it is the only one offering access for the cost of a local call. With advantages like this you would expect them to have wiped the floor with the competition. But as Nomsah Jowah of ComOne admits:"We are a late entrant and people remain suspicious of the TelOne, as the former PTC."
Africa Online pays US$8000 for a 1.5 mb PTC downlink which it uses mainly as a back-up, using its own supplier GDBC for most of its needs. It has been relatively lucky in the forex squeeze as Caroline Mugwanyo, General Manager told us:"We bought most of our current capital equipment before last big drop in the currency and we have customers who pay us in forex."
There are about 75 cyber-cafes in Harare, of which about 35-40 are of any scale. There are only two chain operators: Kwik Œn Easyt (3) and TeleOne (2). Access charges vary between Z$9-20 per minute. Telconet runs several cyber-cafes. The profile for users is remarkably similar to elsewhere in Africa: the young, love and job-seekers and tourists. However an interesting local phenomenon is the downloading of music. There is a youth culture that downloads tracks from largely US sites and these are then distributed among friends. TelOne operates VOIP calling through both i-Basis and ITXC and there appears to be a much smaller grey market for it than elsewhere.
The local internet exchange is called ZINX and already connects Africa Online, Zimbabwe Online and Mweb. Econet and Telconet are planning to join shortly. Cisco has offered to donate equipment to extend and upgrade the exchange but it has asked for a letter from the regulator saying that the exchange does not need a licence. Thus far the regulator has failed to come up with these assurances.
The forex crisis has hit bandwidth supply through TelOne. Whereas in the past ISPs might import equipment on its behalf and barter this against bandwidth supply, the current rate disparity is too great to allow this to happen. So there has been a steady degradation in the speed with which faults can repaired on things like E1 lines. The lack of investment because there is no forex is echoed in the cellular sector of the market (see below). Net result? Network congestion and delayed investment plans. For its part, TelOne claims any congestion comes from ISPs overselling their capacity and blaming it on the TelOne. Look at the quality achieved when you buy ComOne, it says and you’ll see what we’re saying is correct. It currently has 6 mb operational and says another 4 mb will become operation by Christmas when the cross-border link (which currently carries voice but not data) is sorted out. In the interests of fairness, we leave you the reader to judge what’s causing the current congestion.
The long-running saga over who runs the domain name system continues with no clear end in sight with the regulator clearly fairly determined to avoid awarding it to the obvious contender, ZISPA. Reason? It wishes to indigenise the industry and sees ZISPA (wrongly) as a white organisation. The tender period for the current bids has expired and with current rates of inflation bidders can hardly be expected to hold to their original tender.
THE REGULATOR AND TELECOMS: POLITICS AND MONEY COLLIDE
The regulator POTRAZ sees its primary function as ensuring a "level playing field" in a fair and transparent manner. Not surprisingly companies operating in the market see it otherwise. As one told us: "There are a lot of things they can’t know and understand. They should try and understand the industry. They make the rules to suit the government. They could be doing so much to help grow the industry but they are just stifling it. A good example is whole ISM saga which could have been handled better." And as one ISP put it to us:"We’d put in a satellite if the licence fee was not US2million. That’s hardly creating a level playing field."
A 30% shareholding was supposed to have been sold in TelOne by August of this year. But only one bid was put forward by a local consortium MegaTel has come forward and the Government appear to have got cold feet. Government sources however said because only one company had made a bid, this could weaken the government’s negotiating position at a time when it desperately needs to get a huge forex injection into its coffers. Three of the four firms who had originally expressed interest cited Zimbabwe’s hostile operating climate for not investing in the potentially lucrative telecoms sector. TelOne owes Zimbabwean and foreign creditors more than Z$6 billion and is hard to see who would want to get involved as a minority shareholder with such high levels of indebtedness.
The other long-running saga is the stalled attempt to create a second national operator (SNO). As ever in the current climate, politics and money seem to coincide. Daniel Shumba of TeleAcess had applied to become the SNO backed various investors including one of Zimbabwe’s new banks, Jewel Bank. Shumba is an ex-combatant and former army officer. First the Government raised the bar by asking for a massive sum in US dollars up front. The Attorney-General has advised the government to reduce the US$350 million it is charging for the licence as it is prohibitive and tantamount to denying the company a licence, thus perpetuating the state-owned TelOne monopoly.
However by 15 October 2001, TeleAccess had paid POTRAZ US$150 million as a deposit for the licence which the authority accepted. But on 15 November 2001 it returned the cheque to TeleAccess. According to a story in last week’s edition of The Standard, a Government Committee to look at the appeal for the licensing of the SNO believed that "it was of such national importance that he could not be allowed to go it alone." It quotes a reliable source as saying that:"Two members of the Committee would rather see the TeleAccess’ vision destroyed if their interests are not warehoused by Daniel Shumba." Apparently Information Minister Jonathan Moyo wants the recently commissioned transmission and distribution company, Transmedia Corporation, to be given shares in TeleAccess.
In an ad in Thursday’s edition of the opposition Daily News, Daniel Shumba claimed:"There is now a systematic and cynical campaign aimed at discrediting TeleAccess and its market good will in order to accept it to accept certain terms. How else can anyone explain the inaction surrounding the licence fee issue, or why all of a sudden has equity of a private company been an issue of discussion in government circles?"
There are four operators with data communications licences, including the power utility company ZESA (which has fibre networks), Powertel, TeleOne and Telconet. The latter (run by Shadrack Nkala, a former PTC director) has plans to lay a fibre cable network, initially in Harare but then rolled out to other major centres. It has also applied for a VOIP licence that has not yet been approved, the only approved operator being TelOne which operates a 2 mb link for VOIP traffic.
A relatively recent entrant is the network company, Africom which is owned by Keke Kashungura and Brigadier-General Moyo. They have installed a lot of ISM radios for Government ministries and seem to be finding much favour with the regulator. It is reported that it has plans to offer internet bandwidth and has been involved in bidding for the right to administer domain name registrations with Mweb.
CELL-PHONES - FOREX SHORTAGES PLACE A CAP ON MARKET GROWTH
There are three cell-phone players in the Zimbabwean market and whilst everyone agrees that cellphones have played a key role in opening up the market, all networks are suffering from quality issues to varying degrees. As one operator put it:"We are inundated with people churning from other networks because they can’t make calls. There is a considerable level of network congestion. The operators haven’t been expanding and they put too many subscribers on limited switches."
Econet is the original well-spring of Zimbabwe’s Strive Masiwya. Net One is owned by the state-incumbent. Telecel is one of Egyptian tele-giant Orascom’s pan-continental investments and has the most complex equity structure of the three.
60% of its shares are owned by Telecel International which is jointly owned by Orascom and a Burundian called Miko Rwaiteri. The remaining 40% is owned by the Empowerment Corporation, which represents local Zimbabwean interests. The company has a local Chair but that may change shortly. Orascom has about 14 operations across Africa but is currently selling them off to reduce its large debt burden. (It has recently sold its operations in Cote D’Ivoire, Togo and Benin.)
Why is this of interest? Telecel has recently asked its shareholders to invest in its network but they do not have the money. So its management will be raising money locally through loans to invest in its network.
The subscriber base of the three players is as follows:
Net One 110,000
In terms of geographic coverage, availability follows the pecking order of market share. These are the operators claimed numbers but it would appear that in reality they are all hovering around the 90-100,000 mark with little or no growth. As one operator told us:"This is a virgin market. Its full potential should be in the region of 2-2.5 million. We have all stunted the market because we have not expanded the network in the last two years".
The lack of network expansion has two main causes: lack of Forex to acquire equipment and the tightening of the controls on pricing. The regulator has not allowed the operators to keep up with the current levels of runaway inflation or to have prices to reflect real values as measured by the parallel market.
WEB DESIGN: SECTOR SMALL BUT CYBERPLEX SELLS INTERNATIONALLY
There are around ten web design companies of any size, including CyberPlex Africa, WebDev, Mweb and Design@7 (recently sold by Africa Online. A lot of local advertising companies are also moving into design as it makes sense to offer clients a full branding service across all media.
The most interesting of these companies is CyberPlex Africa whose team includes Canadian Roy Steiner (who started the company) and on the technical side, Gaikio Karanja (the founder of Africa Online). It generates 80% of its revenues outside Zimbabwe and has opened sales offices in Botswana and South Africa, as a form of "risk mitigation". It started as a company focused exclusively on web design and about one year after it had started it had captured about 50% of the local market. It then moved into doing larger, knowledge-based management systems. With 30 staff, it is both a Microsoft Solutions provider and capable of providing open source linux solutions.
Its earliest client in this areas was the US-based Deloitte Touche who commissioned a data system from them. The client calculated that what cost it US$50,000, would have cost $90,000 to produce in the States. It has also produced a web-based project management system for the World Conservation Union. It enables them to allows them to track all their projects and allows donors to see the current status of any project. All of the 80 countries where it has projects report online.
In a different field, it has produced a web site for a company called Hand-to-Hand which is an online equivalent of Western Union. It operates using a network of agents and with passwords and codes for security. The site is now operational and is one of several used by the Zimbawean diaspora to transfer hard currency back into the country. Outside of this activity, e-commerce is non-existent as credit cards can only be used locally and trade restrictions are cumbersome and bureaucratic.
WHAT THEY SAID
The Scientific and Industrial Research and Development Centre (SIRDC) held a conference on the Governance of Knowledge Socities:
"The supposition is that the state is all-powerful as big brother. Technology has undermined that state sovereignty."
Mr A J Manase, Executive Dean of the Faculty of Law, University of Zimbabwe
"The challenge that this revolution creates is the need to be able to handle abstract ideas. We need to be able to demonstrate the benefits that flow out of these technologies. It’s important to integrate the traditional and the new media: for example using theatre to reach those people without the technologies."
Tracey Mutaviri, Executive Dean of the Faculty of Commerce, University of Zimbabwe
"Walking between ministry buildings (with government papers), are we really accelerating the flow of data?"
Mr S R G Matondo, IT National Co-ordinator, Public Services Commission
"Whatever the young man from ZBC (a speaker) thinks, (Zimbabwean) society is dynamic. Because of ICTs, people are beginning to look at how they live."
Professor Nyezema, Chair of Econet and School of Medicine, University of Zimbabwe
ON THE MOVE
Steve Freymark of RTAA has gone to New ZealandŠDave Beer, former owner of Zimbabwe Online is going to Harvard Business SchoolŠFortune Mhlanga, formerly Director of the Information and Electronics Institute has got a Professorship in the USA.
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