Resisting political corruption- the story of Econet- Part Eight

Econet was quick to launch its prepaid cellular service. The combination of this innovative product and the goodwill it had accumulated with the people of Zimbabwe over the five years of court battles for the license would take it to a position of market leadership in just three months, even though PTC’s cellular service (Net One) had been launched nearly two years earlier in September 1996.

“Every spare moment I have, I read. What that does – I mean, I’m reading everything, brochures, what people are doing, what’s going on in the game. Look, it’s a big industry, but one of the things that helped me was that because of that, I saw where prepaid was going very quickly, even before your Vodacoms and what have you, I figured out what prepaid was going to do.

“I remember going to look for a prepaid platform. We couldn’t find one. People were saying: But it’s still a conceptional thing. We said: No, no, we must have prepaid. So prepaid was to play a pivotal role in giving us market leadership, because what we recognized was the fact that the African consumer was the perfect consumer for prepaid, because the issues of credit management, credit control, credit cards, all this was not relevant. That doesn’t mean that somebody doesn’t have money, you know.” …

“And so prepaid for me was an incredible strategic tool when it came through, and so we were very quick in spotting it. We had to go to Israel to get prepaid technology, because the Israelis were the ones who were playing with it and had the cutting edge”

Masiyiwa also recognized that marketing was the key to success in the cellular business – he had Orange of the UK as the model to emulate. His second in command, Zachary Wazara, was recruited from the advertising agency Lintas.

“For example, the prepaid product was branded Buddie, which soon became the generic term for all prepaid products. The product targeted to the business segment was called Excel, and it allowed customers to have two cellular numbers on one phone.

“Other products that were new to the Zimbabwean market were introduced quickly, such as voicemail, faxmail, the Short Messaging Service (SMS), and the News on Demand, for which the content was provided by CNN. The company was also the first to offer a 24-hour customer care service.

The IPO itself took place in September 1998 and was hugely successful – it was oversubscribed. However, just the month before, when Econet’s IPO campaign was in full swing, Mugabe’s government decided to send Zimbabwean troops to the Democratic Republic of Congo (DRC) to support President Kabila against rebels, who were being backed by Rwanda and Uganda.

“The IPO went very, very well. It was oversubscribed, and I remember at the beginning of the IPO we were looking at all the things that could go wrong were political, because we were dealing at that stage with what we thought was an irrational President. We didn’t realize at that stage how irrational. What he did was he went to war in the Congo, in the middle of the IPO”

The decision to intervene militarily in the DRC only exacerbated the already severe economic problems of the country. The Zim$/US$ exchange rate, which had hovered around 18 in July 1998, fell sharply to 30 by mid-September when the Econet share started trading on the Zimbabwe Stock Exchange, and continued to deteriorate to 38 by end September.

Considering that Econet was heavily dependent on imports to finance its network development, this fall in the value of the Zim$ reduced the purchasing power of its IPO proceeds by half.

“It affected our roll out very dramatically. Simply, the equipment that we thought we could buy we could no longer buy, so it affected coverage, not so much in the cities but the rural area coverage it would have been given didn’t take place. And then with time and the very rapid uptake of subscribers, we had congestion problems in the cities and, that was also – our capacity was affected by – we just had to buy less equipment”

“If we’d had that (our original purchasing power of our listing) our roll out would have been brilliant. And of course, from that moment we were working from the back foot, and they still are. They’re under-configured, the network is so congested. They need capital. It was such a pity. If they’d had that start – you know, what I really as well resent, is that – and I think the Government made such a faux pas for the country – is that if they’d allowed Strive to start up when he applied, we would have an incredibly efficient network now. We would have been able to buy at a decent price, we would have had the whole infrastructure in before all this economic hardship started hitting the ground”

In spite of this difficult macro-economic environment, Econet had 63,000 subscribers by the end of its financial year June 30, 1999, which was 85% higher than the original forecast of 34,000, and which gave it a market share of 55%. Agreements had been signed with the 20,000 member Government Workers Association, and the 30,000 member Civil Service Cooperative Society. Revenues stood at Zim$ 434 million. The company also achieved the very unusual feat in the telecommunications business of reporting a profit in its very first year of trading; the average time to profitability in the capital-intensive cellular business was considered to be three years.

The Econet share was quoting at approximately Zim$ 4.50 by the end of June, giving the company a market capitalization of Zim$ 3.26 billion (US$ 86 million).

In November 1999, Masiyiwa was named one of the top 10 outstanding young global leaders by the International Junior Chamber. Past recipients of the award had been the late US President John Kennedy, slain Filipino leader Benigno Aquino, ice hockey star Wayne Gretzky, and former US Secretary of State Henry Kissinger.

The Zimbabwe Independent cited telecommunications experts who believed that the competitive spirit unleashed by Masiyiwa in Botswana and Zimbabwe had contributed to the highest cellular penetrations in Africa, with cellular phone numbers exceeding fixed lines35.

Due to foreign exchange being unavailable, Econet’s management could not expand capacity as projected, and decided during 2000 to concentrate on the more profitable contract users. They consequently curtailed the sales to new prepaid customers.

In February 2000, the government conducted a referendum in which people were asked to vote in favor of or against proposed constitutional reforms.

Mugabe’s party aggressively campaigned for a “Yes” vote, stating that the reform would introduce checks and balances in the political system and reduce the powers of the President. A few days before the referendum, a six-word text message started to circulate on the Econet cellular phones – “No Fuel No Forex Vote No.”

Soon the message was being sent from subscriber to subscriber hundreds of thousands of times. Masiyiwa immediately ordered an investigation into the origin of the messages to ensure that no one in Econet could be accused of starting this political campaign. He concluded that the messages had originated with the subscribers themselves. Mugabe’s party lost the referendum, the first time it had been defeated in a public vote.

According to newspapers and government sources, Masiyiwa’s name was mentioned in several cabinet meetings. The President believed that there was a political motive behind the messages, and that Masiyiwa was supporting the Opposition party Movement for Democratic Change (MDC).

Masiyiwa was informed that Mugabe had said that he should be eliminated. The government denied any such comment by Mugabe. Security police sympathetic to Masiyiwa recommended that he should leave the country because his life was under threat.

The government then introduced a bill, the Postal and Telecommunications Bill, which would give it sweeping powers to eavesdrop on telephone conversations and to intercept e-mail messages between individuals and companies.

Pastor Gatsi encouraged Masiyiwa to leave the country. The Econet Board had been looking at ways to reduce the company’s exposure to the volatile Zimbabwean economy (see below). Masiyiwa decided to move to Johannesburg, and his family soon followed him.

To be concluded tomorrow:

Editor’s note: We have decided to publish this series in the public interest. This should not in any way be viewed as endorsing Econet or authenticating the veracity of the study.

Part One

Part Two

Part Three

Part Four

Part Five

Part Six

Part Seven

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