Behind the Telecel Zimbabwe saga

The Telecel Zimbabwe (“TZ”) case study is pregnant with lessons that at the very least require critical analysis in order to appreciate the inherent contradictions in the ideology and practice of the post-colonial experience.

By Mutumwa Mawere

Telecel Zimbabwe is the remaining company that bears the name of Africa’s first mobile network operator, Telecel International.
Indeed, Telecel International launched the inaugural network operator in Africa in 1986.

The late Miko Rwayitare and has partner, Mr. Joe Gatt, founded Telecel International, the first African multinational telecommunications company.

The history of Zimbabwe’s mobile telecommunications industry is a story on its own suffice to say that Telecel was an integral part of the evolution of the struggle to democratize the telecommunication space that was monopolized by the then state-controlled, Posts and Telecommunications Company (“PTC”).

The two men who would emerge as the private driving forces of the private sector licensed actors, Messrs James Makamba and Strive Masiyiwa, were at one stage part of Telecel-led bid to be licensed as the first operator of a mobile network operator in Zimbabwe.

It did not matter that Messrs Rwayitare, Masiyiwa and Makamba were all black African business actors. The Mugabe-led administration had a different view as to how the telecommunications industry should be structured, owned and operated.

The government of Zimbabwe’s (“GOZ”) view was that only the state should be the provider of mobile phone services.
This view was challenged by Masiyiwa and the dispute became the subject matter of a protracted legal matter that culminated with the granting of a license to Econet by the then Supreme Court of Zimbabwe.

Following the ruling by the Court that the position of the GOZ that the state should be sole provider of mobile telephony was unconstitutional, the GOZ took the view that only two licenses would be issued i.e. one to a state-owned operator and the other to a private sector operator.

A tender was then floated in which TZ and Econet were applicants. The tender was granted to TZ. Econet approached the Court to review and set aside the tender award. This then led to the court challenge which the GOZ eventually lost.
Notwithstanding, the GOZ represented by the former Vice President Mujuru, changed the rules by granting the license to TZ and complying with the court order to also grant a license to Econet.

As a result, three licenses were granted.

At the time, Hon. Mujuru who hails from Mashonaland Province, the same province that Makamba and Masiyiwa also call home, was presumed to be close to Makamba not only because Makamba and her late husband were business partners.

It was known at the material time that Telecel International was the financial sponsor of TZ as the indigenous shareholders representing a consortium of organisations and individuals had no financial capacity to help finance the project.

Makamba and Rwayitare had a personal relationship that facilitated the capitalization of TZ. In order to differentiate Telecel from Econet who driving force was an individual, Makamba constructed the consortium in line with the NEC structure that controlled MTN.

The indigenous consortium was put together simply on the basis of a plan to convince the government that the license would be controlled by indigenous actors.

However, it was known then as it is now that no meaningful funding, if any, would come from pockets that were thin at best or zero at worst.

The fact that Telecel ended with an equity stake of 60% in TZ is not accidental but a reflection of the fact that Telecel’s obligation was to finance 100% of the project with its return limited to only 60% of the distributable earnings of TZ.

Against this background, the financing of TZ had to be structured in a manner that allowed Telecel to recoup its financial investment before any distribution of earnings could be made to the holders of the remaining 40% of the shareholding.

In the premises, compliance with the country’s indigenization laws was not feasible from the outset yet before Telecel could even recoup its investment, the GOZ under pressure from the carried indigenous shareholders, decided to push for full compliance without any regard to the true nature of the transaction.

The recent comments by President Mugabe regarding the Kalangas and the subject of xenophobia clearly exposed many doubting persons that his is out of touch with the real world and the true condition of the Zimbabwean political economy.

On the question of indigenisation, it cannot be said that President Mugabe has yet to understand the complexities of driving transformation using propaganda and slogans.

The TZ case study provides a concrete example of the absurdity of implementing policies that are fatally flawed and inconsistent with the dictates of a market system.

The demise of VP Mujuru who is generally perceived to be a silent shareholder of TZ necessarily had to have implications especially given the internal squabbles that have visited ZANU-PF.

One of the untold stories behind the recent actions against TZ must be the Mujuru factor. So the decision made last week by Potraz to shut down TZ’s operations was not unexpected.

However, the purported reasons for the decision were disingenuous to say the least. It was alleged that the decision was partly based on allegations of breach by TZ of black economic empowerment laws.

It is worth noting that the ownership of Telecel has changed hands over the years from Rwayitare, to Orascom and now to VimpelCom, based in the Netherlands, the current ultimate controller of the 60% equity stake in TZ.

In respect of mining and banking, the GOZ has conceded that the impracticalities of blindly pushing for indigenisation not backed by liquidity especially having regard to the fact that the experiences of the generality of Zimbabweans after independence has not resulted in cash being in their hands.

It cannot be said that the experiences of President Mugabe and people close to him have exposed them to what ordinary people have to endure to bring food to the table let alone have access to any surplus to invest.

In President Mugabe’s world, it is easy to capitalise the God-given resources as equity and more importantly to use the law to tilt the balance of ownership to people who have nothing in their purses.

Although Zimbabwe’s indigenisation law compels foreign companies to cede majority shares to local partners, it was clear from the outset that the reason the balance was titled in favour of Telecel was to make the project financeable and implementable.
Notwithstanding the protracted attempt to comply with the laws of Zimbabwe, the reality on the ground is that under the prevailing market conditions no local shareholder has any capacity to take control of TZ.

The world was told on 28 April 2015 by Potraz that the TZ was license was cancelled. TZ is a going concern operating in accordance with the laws of Zimbabwe as a separate and distinct juristic person.

TZ is separate from its shareholders. It is TZ that is the license holder and not its shareholders yet in this case, the reason partly used to cancel the license is the fact that the shareholding is not in line with the indigenisation law, a law that is administered by another department of state.

The cancellation comes against a background when President Mugabe has been pushing for the participation of blacks in the economy. Makamba and his fellow shareholders are black.

Without the support of Telecel, TZ would have remained a dream yet in this case, the majority shareholder does not even get a pat on the back for helping advance the cause of blacks in giving them a carried interest of 40%.

The decision by Potraz was on the back of a warning by Information and Communication Technology Minister, Supa Mandiwanzira, in March of Telecel’s impending closure for a breach of the black empowerment law and failing to pay a licence fee as follows: “Our position that Telecel has been operating without a licence and failed to honour local empowerment laws is the same position that has been adopted by Cabinet.”

It is also worth noting that a cabinet committee led by the Minister of Indigenisation was tasked with resolving the TZ matter. However, before the committee has finished its task, Potraz has already acted.

The consequence of the Potraz’s decision is that TZ’s subscribers will be freely handed over to Econet and Netone and to make functional equipment redundant. It is significant that the equipment in question is financed and it is not clear what will happen to the creditors of TZ.

Without the equipment, it cannot be said that TZ would have been able to acquire more than 2 million customers who by an act of state have been left in the cold.

The decision to cancel the license is self-created as no rational foreign investor would pay a license fee without seeking clarity on the adverse impact of blindly implementing an indigenisation directive devoid of any commercial merit.

Reversing the current shareholding matrix has consequences on TZ as the creditors of the company would necessarily have relied upon the fact that the shareholding is tilted in favour of the party with deep pockets.

It is self-evident that if the shareholding was to be tilted in favour of the indigenous shareholders, the company would collapse.
The abuse of state power is inherent in the approach used in pushing for two contradictory outcomes. The need for clarity regarding indigenisation cannot be overstated before any push to pay the license fee.

It is also clear that VimpelCom has been placed in an invidious position where it is asked to both give up control and pay for the license fee. In addition, the value of VimpelCom’s shareholding has been reduced to zero by an act of state which action is tantamount to a covert nationalisation.

What national interest is served by the actions of Potraz? Only an insane person would assert that it is the business of government to induce corporate failure.

There can be no better time to pause and reflect on the continued abuse of borrowed power to advance indefensible actions and decisions.

It has been argued that the role of a leader like President Mugabe is to run the country. I have always argued that no human being can never be trusted to run anything but his own personal affairs.
If it has taken more than 35 years for people to discover that President Mugabe may be living in his own 24/7 protected world, it must also be obvious that his understanding of the limitations and true extent of governmental power has been shaped by the false reality that he operates in.

By using examples like Telecel, we all can learn to remove the ZANU-PF wool that has been used to blind the majority into believing that the state and its actors can be relied upon to advance the interests of the majority.

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