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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