Econet orders suppliers to cut prices by 15 percent or get blacklisted

Zimbabwe’s largest mobile phone operator Econet Wireless has demanded that its supplies cut prices by 15 percent or risk being blacklisted, as the telco feels the effects of government enforced tariff cuts on voice services and a flat-lining economy.

An underperforming economy characterized by company closures and weak aggregate demand has seen most companies effecting cost reduction measures such as salary cuts and scaling down of operations to remain afloat.

Econet and its rival, Telecel — the local unit of Dutch telco VimpelCom — have also announced salary cuts after earnings declined.

In May Econet warned of job cuts after reporting a 41 percent decline in after-tax profit for the year-ended February 2015, as a government-decreed voice tariff cuts and taxes on airtime and mobile handset sales ate into revenue.

Government taxes —  a five percent excise duty on airtime sales, a 25 percent duty on handsets, and a five cents levy per transaction on mobile money transfers — compounded by a 35 percent voice tariff reduction effected last year has hit the telecommunication sector hard.

Econet’s net profit for the year was $70.2 million, down from $119.4 million in 2014, although revenue levels largely held at $746.2 million, nearly one percent lower than $752.7 million previously.

The firm’s overlay services, mostly anchored on its mobile money services Ecocash, helped offset revenue losses through the tax and tariff measure but these typically carry lower margins.

“Any supplier who sells goods or services to Econet Wireless Zimbabwe, must cut prices by at least 15 percent or will be blacklisted as a supplier with effect from the end of July,” said Econet in a statement today.

Econet Wireless Zimbabwe chief executive Douglas Mboweni confirmed the new measures, saying: “We ourselves were forced to lower our prices by 40 percent, so if our suppliers don’t cut their own prices, we will go out of business. We do not think 15 percent is too much to ask others for.”

“We have carefully analysed the prevailing economic situation, and we have taken the corrective measures to protect the business. We urge others to emulate our example by being proactive rather than to just sit and watch helplessly.”

The group-wide cost cutting initiatives are expected to go on for several months, the company said adding that its subsidiaries such as Steward Bank and Mutare Bottling Company, had also been ordered to cut costs.

“Econet has also cut its capital expenditure programme by 25 percent for the current financial year whilst staff have voluntarily had their salaries cut by 20 percent,” the telco said but made no mention of job cuts.-The Source

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