Who remembers 2008? Everybody who was alive then (even those who were mere toddlers) do. Do you remember the price slashes effected by the National Incomes and Pricing Commission (NIPC) led by VaMasimirembwa? What was the motivation behind these moves and what was their effects?
I remember vividly seeing a man walking out of a top retail store carrying a plasma television set (they were still quite rare in Zim those days) with a grin on his face because he knew he had just bought the TV at less than half its cost value to the retailer. Seeing that man made me resolve that I would not buy anything at these ridiculous prices. The entrepreneur in me could not participate in this thievery, I believe in the principle of do unto others…
I am not the biggest fan of textbooks but I do agree with Economics textbooks when they say it is a very bad idea for governments to regulate pricing. The market is smart enough to regulate itself. When the government interferes, 2008 happens. Of course every rule has and must have exceptions because life is too nuanced to be rigidly legislated. Even so, I am not excited about the news that hit us Wednesday morning that POTRAZ is considering a price review of sorts.
First, taxes payable by operators keep getting ridiculous cutting their margins. Why a health tax should be directly paid by telecoms companies does not make cents (intended). Zimbabwe’s macroeconomic problems will not be fixed by punishing the only perceived to be lucrative connectivity sector. On top of that the regulator offers populist rhetoric around the huge costs of data. Please Mr Regulator invite the government to show good faith and commitment to low pricing on connectivity products by first scrapping off the little extra taxes that they have just been adding to these products.
Second thing is there is a serious foreign currency shortage in Zimbabwe right now. Exporting will continue to be difficult if at all possible. Bank vaults are increasingly seeing the greenback almost as infrequently as the NOSTRO accounts of local banks. Within Zimbabwe there is already an unofficial 15% (could have increased by now) cost of money. This means that mobile operators are and will increasingly find it difficult to pay back loans, licenses to vendors, equipment for expansion and upgrades. When they do prioritize whatever little purchases they can make, that money will cost them at least 15% more. Let’s not pretend this is not so.
This is not all. Has anyone noticed how ZESA cuts seem to be coming back? Besides the power cuts, the cases of transformer vandalism are increasing- I have been affected four times! My sister’s family is in darkness for three weeks now as a result of transformer oil theft. The mobile operators will then have to power their transmitter towers by generators. This is a huge cost.
The fact that they have these generators at every other base station is a cost in and of itself whether they have used the generator or not. The generator was bought, the generator has to be maintained otherwise it will not work whenever it will need to be used, and in the case that it has to be used, it has to be refilled with fuel each time it runs out.
We must also understand that even if we go for 3 years without a power cut, if you are a mobile operator in Zimbabwe you need to include generator costs on your budget lines every year because nothing is really predictable as far as ZESA is concerned- prudent budgeting requires worst case scenario thinking and therefore when you effect pricing it should make sense at that worst case scenario assumption otherwise you will find yourself pama1.
Pricing must also take into consideration risk factors. If you are a business that seeks to raise capital and attract investors for your Zim operation, they will not be found queuing up to give you money. The risk is too high – you can wake up and find that the company you invested in is now owned by NSSA or the government. What attracts investors to high risk environments? Profits! Where do profits come from? Profitable pricing! Given the same level of profitability where would you invest, in volatile Zimbabwe or in stable Botswana for example? Of course you are not dumb, your money will go towards stability. This means for Zimbabwean companies to attract the same level of investment they have to be 10 times (or whatever number of times) more profitable (the margins) than companies in other markets.
Capital does not always come from investors. It sometimes (in fact more oftenly) comes from lenders/financiers. How do these lenders determine interest rates? They asses the risk as well. Fortunately, most of our operators are owned by the government and hence they can have a sovereign guarantor when they borrow. Hard luck for private companies who have to endure higher interest rates. Even for government owned operators, borrowing is a huge cost and it has to be recovered hence arbitrary price cuts will affect quality and availability of service from all operators.
So yes, South Africans may have their cute # tag today but let’s not be reckless and start critisizing ourselves for not copying our neighbors. They live in a totally different context. We ran with the #DataMustFall a few months back but who were we targetting with that # tag? If we were targeting mobile operators we are naive and cannot be helped. Yes #DataMustIndeedFall but the responsibility to make data fall solely rests on our government (with all due respect). Not for them to go Masimirembwa on us but to show seriousness in promoting ICT adoption.
Seriousness must be shown by tax reductions for this very key sector not addition. Seriousness must be shown by the government driving data consumption by making it’s services accessible on the internet. If birth registration for example were possible online, that in itself will increase volumes for operators which may justify price reductions. I know this is a far fetched example but I trust we all understand the illustration. Seriousness has to be shown by forex regulations that do not give rise to 15 or whatever percentage costs to money…
I must say Zimbabweans, let’s not be myopic, let’s not celebrate the beginning of 2008 just because we want a cheaper WhatsApp bundle today. Let’s not # tag without thinking. Let’s not be excitable and put aside everyday reasoning and fairness just because someone knows what tune to play on their pipe. Life happens in cycles but there are some cycles that have to be broken. Lets continue with #DataMustFall but lets direct it to the right place this time. Yes #DataMustFall but #ItMustFallTheRightWay
Operators are not off the hook too! They must allow more collaboration amongst themselves and with other businesses and service providers. When I introduced the Broadband Economy Conference, I gave a hypothetical example of a bank that pays for the data usage of its customers who are using the bank’s mobile app. Operators must be looking for these kinds of collaborations and that’s the thinking we are promoting at Broadband Economy Conference 2017. However, at the moment it seems like the operators themselves are refusing businesses to pay for internet usage by their customers. The ISPs have to be present to answer why for themselves.
Is this long article going to be popular? No! But that’s the point, we are tired of populist proclamations from people who know the truth of the economics behind such rash proclamations. I will not join those ranks, I will say the unpopular truth (at least truth from my perspective) that’s called principle. What happens if the population itself refuses populist gimmicks? There won’t be incentive anymore for the gimmick manufacturers to keep their machinery churning them out. Perhaps when that happens the powers that be will change focus towards real solutions. This is probably just a pipe dream but please let me keep it. #DataMustFall #ItMustFallTheRightWay
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