If I asked you how valuable ZW$5000 was this time last year, you would struggle to answer that. You would only get an idea of the value by looking for an invoice from that time, or by trying to remember what the price of something that’s not subject to price controls was.
So, when Econet says their revenue increased from ZW$282 billion in the year ending February 2022 to ZW$339 billion in the year ending February 2023, does it clear things up for you? I don’t imagine it does, even though they say that those figures are inflation adjusted.
You can’t look at Econet reporting that they went from a profit after tax of ZW$39.6 billion last year to a loss of ZW$17 billion this time around and understand what happened. It really could be not as bad as it sounds or it could be much worse than it appears.
In fact, even Econet says,
The Directors caution users of the financial statements on the usefulness of these reported financial statements, considering distortions that arise when reporting in a hyperinflationary economy.
I would agree with that statement. This is not them trying to hide behind that in the wake of disappointing financial results. It really is hard to make sense of monetary values from 15 months ago, when the financial year they are reporting on started.
To adjust for inflation, Econet turned to the Consumer Price Index. They “estimated and applied inflation rates for February 2023 based on the Total Consumption Poverty Line published by ZIMSTAT.”
They used a conversion factor of 3.23 to convert figures as of February 2022. You can verify this yourself by checking that the historical revenue of ZW$67 billion for 2022 was adjusted to ZW$282 billion in the inflation-adjusted accounts.
Now, it is up to you to determine whether you think that conversion factor is accurate. Personally, I would argue it should be higher because I think the ZW$ lost more value than that 3.23 conversion factor suggests.
Here’s a simple way to visualise what actually happened
Here’s the thing, we know that the official exchange rate is not representative of what’s on the ground. So, let’s see what the parallel market exchange rate reveals about the figures Econet is reporting.
- ZW$ against USD on 28 February 2022 – 1:240
- On the 28th of February 2023 – 1:1150
So, that would mean the historical ZW$67 billion revenue figure on 28 Feb 2022 was worth around US$279 million on that date. The historical ZW$282 billion for 2023 was worth US$245 million. In this case, revenue fell by US$34 million.
There’s more to it than this but this paints a clearer picture in my mind.
So, in the inflation-adjusted financials, Econet reports a revenue increase of ZW$57 billion (USD$50 million on that date using the black market rate of 1:1150). However, the simple USD/ZW$ exchange rate movement suggests otherwise. The real value of the revenue fell.
Econet already reports a loss of $17 billion. Meaning they went from a profit of $40 billion to a loss of $17 billion, a $57 billion drop. If we convert that to USD, it’s a $50 million swing.
If we use the exchange rate movements to estimate the actual drop in profits, we find profits fell from $40 billion (US$167 million last year – 1:240) to a loss of $17 billion (US$15 million). That would mean a drop in profits, a swing of US$182 million. Much worse than the US$50 million that the inflation-adjusted accounts suggest.
However, this doesn’t mean the simple way I used to translate these accounts is accurate. Not at all. There are faults with this approach too. I would argue it’s closer to the actual picture since the CPI they had to use is inaccurate as many argue.
The usefulness of Econet’s financials
Let’s go back to the directors’ caution. “The Directors caution users of the financial statements on the usefulness of these reported financial statements…”
My own calculations paint a much gloomier picture than theirs and neither is accurate. Hyperinflationary environments are tricky.
You have to agree these financials have dubious utility at best. That is if you consider the values reported. However, the rest of the non-monetary information contained therein is valuable. We shall be looking at those in more detail. Let’s leave these dollar amounts behind.