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Zimbabwe's ICT sector buffeted by forex shortages and skill losses
Russell Southwood, Balancing Act's News Update 132
November 03, 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 ­ both black and white ­ 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 ­ better still forex acquired at the official rate ­ 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:

• Mweb 11-12,000
• Zimbabwe Online 5,000
• Africa Online 4,000
• ComOne 2,000
• Ecoweb 800

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 Gweru, 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):

• Zimbabwe Online Z$11,000
• Africa Online Z$9600
• Mweb Z$3000
• ComOne Z$1700
• Ecoweb Z$1500

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. Its 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 On Easy (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.

For more information, contact:
Russell Southwood, Balancing Act, 71 Crescent Lane, London SW4 9PT
Tel/fax: + 44 20 7720 5993 Cell: 07973 561987 E-mail: info@balancingact-africa.com

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