Difficult TO Tell Whether Econet Performed Well Or Not, Reason: Mangudya’s RTGS$

The introduction of the RTGS Dollar by the Governor of the Reserve Bank of Zimbabwe introduced far reaching ambiguity locally and internationally. One of the casualty of this is Econet Wireless Zimbabwe whose financial report for the year ended February 2019 has just been published.

The Chairman of the Econet Board, Dr J Myers had to issue a cautionary statement regarding the financial report presented:

The Board is unable to comment factually and accurately on the financial performance of the business based on these results. Local and international accounting experts have concluded that there is ambiguity in the currency that existed during this period and the effective valuation of this currency, hence the modification to the auditors’ report for entities reporting in Zimbabwe. The Directors would like to advise users to exercise caution in their use of these financial statements due to the material and pervasive impact of the changes brought about by the change in functional currency and its consequent impact on the usefulness of financial statements of Companies reporting in Zimbabwe.

This is indeed a big problem. The financial statements presented by Econet (and any other company in Zimbabwe really) for this period are all but useless. It’s just too difficult to know if Econet spent more than it received or vice versa.

The RTGS$ came with an insistence of 1:1

Most of the problems exist because when the RBZ governor introduced the RTGS$ he declared that the RTGS$ was equal to the US Dollar for all historical transactions up to that point. Do you remember Mangudya’s famous words?

People should not get confused. In the bank, the RTGS balances have the same value with the USD but when one wants forex at the bank, then it changes and its value is determined by the rate prevailing at that particular bank.

We have not devalued the RTGS balances, but allowed people to access the forex at a rate which is competitive and allows the economy to grow.

Your $1 000 in the bank is still $1 000. However, when you want to get the USD$, the rate and value will be determined by the market

In simpler language he said: when RTGS$ are in your bank account, they are 1:1 with the USD, value changes when you want forex… And the guy started the statement by saying, “People should not be confused.”

That murky definition of the currency is not helpful for companies preparing financial reports. For Econet and other telcos perhaps this is worse because they claim that a substantial percentage of their costs (some claim up to 80%) are in foreign currency. However, their revenues are basically all in local currency.

If the two currencies are forced to be presented as equal it becomes difficult to tell whether or not a profit was made. In fact, it’s highly probable that the telecommunications operations of the Econet Wireless Zimbabwe group were loss making in 2018. However, the financial statements show a profit of above $10 million for these operations.

Forced to violate standards

Some of these factors have been accounted for in the preparation of the financial statements. Those treatments can only help so much though, the real business performance of the Econet group and other companies in Zimbabwe is mostly a black box for 2018. The ZSE issued a caution themselves:

…it was not the Listed Companies’ volition not to comply with financial reporting Standards but rather a matter of complying with the obtaining laws of the Country as prescribed by SI 33 of 2019.

Yes, Mangudya’s insistence on the RTGS$ being at par with the USD before 22 February 2019 has resulted in local companies violating accounting standards regarding currency changes and conversions. That’s a different story that a colleague is covering…

Open for business? Playing with currency names and values actually closes business, no investor wants to deal with black boxes…