FACULTY OF COMMERCE

DEPARTMENT OF INSURANCE AND ACTUARIAL SCIENCES

INVESTMENT AND PORTFOLIO MANAGEMENT (CIN4203)

BACHELOR OF COMMERCE IN RISK MANAGEMENT AND

INSURANCE

ALLAN ZIMHONDI K

N0188365Y
ASSIGNMENT QUESTION: IDENTIFY A COMPANY OF YOUR CHOICE AND
EVALUATE ITS ATTRACTIVENESS AS AN INVESTMENT OPPORTUNITY. USE
FUNDAMENTAL ANALYSIS
 ECONET WIRELESS

PORTER’S FIVE FORCES ANALYSIS

Bargaining power of suppliers

Suppliers of Econet Wireless in the Telecommunication industry in Zimbabwe have strong

bargaining power. This means that the suppliers of Econet Wireless have more power than
Econet. The main supplier at Econet Wireless is ZETDC. All Econet Wireless operations depend
on electricity sources. Since ZETDC is the main supplier of Econet Wireless, it has power over
the influence of electricity prices because of Econet Wireless’s dependency on ZETDC. Since
Econet Wireless’s suppliers have a strong bargaining power it means that switching costs for
Econet Wireless are high and there are no close substitutes.

Rivalry amongst firms

There are only three registered Telecommunication companies in Zimbabwe that engage in
cellular network operations. The three companies are Econet Wireless, Netone and Telecel. This
industry does not have many competing firms because of strict regulations calling for barriers to
entry into the Telecommunications industry. Econet Wireless is the largest and most competitive
Telecommunication company in Zimbabwe among others therefore, it has a better competitive
position than rival firms. Being competitive promotes awareness and market penetration,
therefore, the more the competition, the more the awareness of the product. When the
competition rises, it pushes an idea so much that the idea catches on, and the product then
receives a better acceptance in the market (Bruijl, 2018).

Bargaining power of buyers

Buyers at Econet Wireless have weak bargaining power because there are many buyers relative
to suppliers. This implies that there are many buyers in the market, buyers have high switching
costs, buyers are not able to get similar products or services from other suppliers and substitutes
are not available.

The threat of new entrants

The Telecommunication industry in Zimbabwe has barriers to entry that are determined by
stringent working capital requirements in the industry. Therefore, due to barriers to entry into the
Telecommunication industry in Zimbabwe, Econet Wireless is not subject to the threat of new
entrants thus reducing the number of competitors in the industry. Reduced competition implies
that Econet Wireless can determine the prices of its goods and services. A low threat of new
entrants in the Telecommunications industry makes the industry more attractive and increases the
profit potential for Econet Wireless.

The threat of substitute products

There is no threat of substitute products in the Telecommunications industry because there are
few players. The Telecommunications industry is dominated by three players only therefore, the
threat of substitute products is low unless there is an intervention from the international market
even though the Telecommunication industry is very difficult to be reached by the international
market due to geographical limitations.

PESTEL ANALYSIS

Political and Legal Environment

There has been a lot of infighting within the ruling party in Zimbabwe since 2014 with limited
time being given to policy formulation. However major political and legal developments that
might affect the business are as follows:

 Forced implementation of the infrastructure sharing policy could largely be meant to benefit
government-owned competitors Telone and Telecel in which the government recently
acquired significant shares (Hayashida, 2018).

 Upcoming elections in 2023 might result in foreign financial institutions limiting funds
destined for Zimbabwe because of higher political risk or charging premium interest rates
due to rising political risk.

Economic Environment

Since the end of the unity government in the year 2012, the Zimbabwean economy has been very
brittle and experiencing deflation. The following are the major characteristics of the economy:
 Liquidity challenges: resulting in a slowdown of cash sales in the retail sector. This could
have affected and will continue to affect the purchase of airtime recharge cards and hence
revenue.

 A notable improvement in the country’s investment climate as shown by the improvement in

the Ease of Doing Business ranking from 171 in 2015 to 155 in the year 2016 (Chinamasa,
2016) has made Zimbabwe a good destination for capital. This means that foreign investors
might still be attracted to the Econet counter.

Technological Environment

 The use of computers and cell phones has been on the increase with internet subscribers
increasing to 6 575 591 in 2015 in a country with a population size of just over 14 million
people.

Social Environment

 The use of social media as a way of communication has been on the increase as witnessed for
example in the # this flag campaign by Pastor Evan Mawarire.

SWOT ANALYSIS

Strengths

 A wider customer base promotes mass production of airtime recharge cards as well as
generalised advertising.

 Mobile money transfer facility that is widely used in Zimbabwe and linked to individual bank
accounts.

 Ability to access cheaper funding (loans obtained from overseas abroad being charged at 6%

 A strong brand in the telecommunications industry in Zimbabwe

Weaknesses

 The absence of a contract billing system due to systems failure has limited large co-
operations from subscribing with EWZL as well post-paid phone calls.
 Bullying attitude towards its customers as tariffs are increased haphazardly resulting in
disgruntlement of customers.

 The absence of a marketer on the Board of Directors might result in a lack of understanding
of consumer demands.

Threats

 The decline in voice calls due to expensive tariffs.

 Liquidity crunch affects the ability of Ecocash agencies’ to receive and issue cash outs
resulting in a decline of agencies as well as revenue options as the number of transactions
declined.

 The introduction of a government policy enforcing sharing of infrastructure would increase

the level of competition with Telone and Telecel. This might also encourage other
competitors to enter the industry as the level of capital investment declines.

 Shortage of foreign currency to liquidate foreign loans as the government through the
Reserve Bank prioritises payments of raw material supplies as well as food importation.

 Phasing out of old gadgets such as Nokia E72 for example from accessing the WhatsApp
platform will impact the volume of data usage by customers and hence revenue generation
capacity (Senju and Johnson, 2016).

 Ecocash agencies doted all over the country might cause a bigger threat by failing to
maintain expected service standards expected of Econet.

 Lack of security in most of the areas where agencies operate might attract criminals to
pounce on service providers for cash.

Opportunities

 Increase client base for data services for the internet and WhatsApp users by offering credit
facilities to buy new cell phone gadgets that can be run on new platforms.

 Optimise revenue generation using current infrastructure before sharing is made mandatory
 Promote usage of Ecocash services and link members’ cell phone lines to their respective
bank accounts.

 Develop a new billing system to promote post-paid services for voice call customers with
emphasis on corporate clients to increase revenue (Shantia, Aflaki and Masini, 2015).

 Make use of the company’s large numbers of subscribers to offer significant promotions that
have potential price out competition.

FINANCIAL RATIO ANALYSIS

ACID TEST RATIO

2021 2020
Current Assets 14361297 8142140
Closing stock 1985760 989900
Current Liabilities 9901775 10023627
Acid-test ratio 1.25:1 0.71:1

The acid test ratio has improved from 2020 to 2021 as the corporation has purchased more assets
to offset its obligations. They are, nevertheless, required to maintain a ratio of 1:1 so that no
current assets remain idle. Higher acid-test ratios are preferable to lower acid test ratios.

TOTAL ASSET TURNOVER

2021 2020
Net sales 66883487 66067766
Total Assets 34876374 28242482
Total assets turnover 1.92:1 0.24:1

It is worth noting that the total asset ratio turnover has improved, implying that total assets were
more successful in producing sales in 2021 than they were in 2020.

DEBT RATIO
 2021 2020
Total liabilities 20860423 23924501
Total assets 66883487 66067766
Debt ratio 0.31:1 0.36:1

The debt ratio fell from 2020 to 2021, implying that Econet wireless was less debt-financed in
2021 than it was in 2020. The lower the equity ratio, the better.

NET PROFIT MARGIN

2021 2020

Net Profit 836525 5704047

Net Sales 34876574 28242482

Net Profit ratio 0.02:1 (0.02:1)

ECONOMY, INDUSTRY AND COMPANY (FUNDAMENTAL ANALYSIS)

ECONOMIC OUTLOOK

Econet Wireless remain committed to our founding vision of providing services to all without
exclusion. As Econet Wireless transform our business to a digital services provider from being
primarily a communications service provider, they aim to develop resilient business models that
are relevant to our customers and our operating environment. Econet wireless services are
gradually changing as they pivot the business to the new realities that we see emerging, as
consumers demand a different digital experience as the world evolves and technology changes to
cater for the new needs and expectations of our society. The group believe that they will play a
part in the resurgence of Zimbabwe’s economy through providing world class services to support
the enhanced growth and digitalization of the economy.

Economic challenges

ECONOMIC CHALLENGES
The weakening Zimdollar, high inflation and foreign currency shortages present their challenges.
They need spares for repairs, new machinery etc and so to be able to maintain high quality
service is quite the challenge.

Then comes the load shedding. Some people live in neighbourhoods where the moment ZESA
cuts them off, service dramatically deteriorates. This is because Econet’s base stations need
power and when there is load shedding, they have to run generators if there is no solar power
option at the particular station. With the high frequency of load shedding, it becomes hard to
ensure every single station is powered 24 hours a day. You don’t need reminding about the
challenges and costs of acquiring fuel in Zimbabwe. To remember also is the need to maintain
those generators. Econet is upgrading their stations to solar and diesel but it takes time and
money to cover the whole nation.

INDUSTRY

• Econet wireless is the best and dominating company within the Telecommunication
industry. Its major competitors are Netone and Telecel.

• There are barriers to entry because the industry is capital intensive where there minimum
capital requirements needed are very high, thereby reducing market players in the
industry.

• There are no threats to substitute products in the Telecommunication industry thereby

making Econet Wireless more competitive in the Telecommunications industry.

COMPANY

Financial Performance

Revenues up 95% to ZWL$29.6 billion

As lockdowns were a feature in the six months from March through August, we expected both
data and voice traffic to increase (Hrazdil, Kim and Li, 2022). All because more people were
forced to work from home and to settle for distant socialising. Indeed both are up, there was a
56% increase in data traffic and a 29% increase in voice traffic. With EcoCash now a separately
listed entity, these two are the bread and butter of Econet. Data is becoming more important to
the company’s profitability. The 56% increase in data traffic resulted in a 136% increase in data
revenue. Whilst the 29% increase in voice traffic led to a 92% increase in voice revenues.
Meaning data’s contribution to total revenue in percentage terms increased. This all led to a 95%
increase in revenues, from $15.2b to $29.6b

A crazy 5259% increase in profit

Econet posted a profit of $6.6 billion in the period, as opposed to a loss of $128m in the same
period last year. That makes it a 5259% increase in profit. We saw that revenues were up 95%
but that cannot be enough to see a 5259% increase in profit. It so happens that costs were down
too. The major factor being the 96% decrease in exchange losses, from $15.2b to $481 million.
The exchange losses are paper losses, not realised losses. They occur because Econet has
obligations that are in USD, and so when converting them to ZWD to prepare financial
statements, the value is affected by the exchange rate movements.

Business Model

 Innovation
 Customer
 People
 Organisation and capacity
 Risk and compliance
 Stakeholder and sustainability management

It is clear from Econet Wireless's business model that the company has dabbled with market
segmentation. Marketers have a significantly better chance of success when they separate a
market based on key features and tailor their tactics based on that knowledge than if they build a
generic campaign and try to apply it across all segments (Cho et al., 2018). The Econet strategy,
which is always on the cutting edge of business, is powered by seven pillars that enable us
embrace a digital future and allow our clients to keep up with global technological
transformation trends.

Corporate Governance

Risk management is an integral part of ensuring value creation for our stakeholders and
customers. Econet Wireless have adopted the ISO 31000 framework for management of risk
across the businesses, with periodic reviews of our risk management guidelines to enhance our
responsiveness to the VUCA environment (Malak-Rawlikowska, Milczarek-Andrzejewska and
Falkowski, 2019). The company’s commitment is demonstrated by a top-down approach, with
the Board having overall responsibility for managing risk. We have put in place appropriate
support structures towards risk management to ensure a positive risk culture across the
organisation. They have implemented Scenario Planning as a risk management tool to forecast
future worst or best cases events and proactively put in place appropriate mitigation plans (Koo,
2022).

SUMMARY OF ANALYSIS

From the fundamental analysis done, it can be noted that Econet Wireless is lucrative for a
prudent investor because the Net profit margins of the company improved in 2021 as compared
to 2020 when the company incurred losses and the profit for the year improved for the two
consecutive years.
REFERENCE LIST

Bruijl, G. H. T. (2018) ‘The Relevance of Porter’s Five Forces in Today’s Innovative and
Changing Business Environment’, SSRN Electronic Journal, (December). doi:
10.2139/ssrn.3192207.

Cho, W. et al. (2018) ‘An Exploratory Study of Firms’ Bargaining Power and Cash Liquidity
Performance during the Financial Crisis’, Journal of Supply Chain and Operations Management,
16(1).

Hayashida, K. (2018) ‘Bargaining Power between Food Processors and Retailers: Evidence from
Japanese Milk Transactions Bargaining Power between Food Processors and Retailers Evidence
from Japanese Milk Transactions’.

Hrazdil, K., Kim, J.-B. and Li, X. (2022) ‘Customers’ Risk Tolerance and Suppliers’ Investment
Inefficiency’, Journal of Risk and Financial Management, 15(2), p. 63. doi:
10.3390/jrfm15020063.

Koo, P.-H. (2022) ‘A Capacity Cost-Sharing Contract for a Two-Stage Supply Chain with a
Risk-Averse Supplier under a Bargaining Power’, Sustainability, 14(4), p. 2279. doi:
10.3390/su14042279.

Malak-Rawlikowska, A., Milczarek-Andrzejewska, D. and Falkowski, J. (2019) ‘Farmers’

bargaining power and input prices: What can we learn from self-reported assessments? 1’, Social
Sciences, 8(2). doi: 10.3390/socsci8020063.
Senju, A. and Johnson, M. H. (2016) ‘BIROn - Birkbeck Institutional Research Online by’,
Behavioral and Brain Sciences, 33(6), pp. 458–459.

Shantia, A., Aflaki, S. and Masini, A. (2015) ‘Energy Efficiency Contracting in Supply Chains
Under Asymmetric Bargaining Power’, SSRN Electronic Journal, (September). doi:
10.2139/ssrn.2660055.