Vodacom Boss: On why tax and data price reforms are necessary

Wednesday June 09 2021
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Vodacom Tanzania chief executive officer, Hisham Hendi during an exclsuive interview with Mwananchi Communications Limited journalists in Dar es Salaam recently. PHOTO | SAID KHAMIS

By Mpoki Thomson

Dar es Salaam. The Citizen Managing Editor, Mr Mpoki Thomson recently held an exclusive interview with Vodacom Tanzania Chief Executive Officer, Hisham Hendi to talk about the telecom company’s financial outlook after recording a loss of Sh30 billion for the year to March 31, 2021

Vodacom Tanzania reported a net loss for the first time since it was listed on the Dar es Salaam Stock Exchange in August 2017. As the CEO what is your financial forecast this year?

Answer: It’s important to unpack that loss a little bit so I can give you the forecast: The reason behind the loss is our compliance to government directives. First quarter of 2020 we had to adhere to the government requirement that every customer has to have biometric registration of their SIM card. As a result 2.9 million of our customers who hadn’t registered were barred/disconnected. So that had a very high effect on our revenues.

Secondly, nationally there were about 7 million customers of simcards that were disconnected, so immediately there was a war on the ground trying to mitigate the loss.

There was also an issue of pricing on data as a result of the regulations by the Tanzania Communications Regulatory Authority (TCRA) that impacted the overall growth of revenue. So, what that means is that today as an industry, as per the TCRA, the data price cost in Tanzania is an average of Sh6 – 7 per megabyte, but it is being sold at Sh1 to 1.2 per megabyte. This means that the entire industry is actually selling data at loss; that is not very healthy for business – investors are looking at it, and so are the shareholders. Why would you invest in data in Tanzania while it’s being sold at loss? The regulations need to be fixed.


The third part that contributed to the loss is that compliance to such regulations requires a humongous cost and investment, so we incurred a lot of costs last year buying devices that are biometrically capable, pushing back our distribution, investing into the channel to bring awareness, and so forth.

To add to that, taxation was also really high throughout last year. Our advertising tax increased over 160 percent, which also heavily contributed to the costs. So, low revenue growth and high costs contributed to that decline.

Looking to the future, I think we are having really healthy conversations regarding the regulations with the TCRA and Minister for Communication and Information Technology. We’ve had conversations as well with the parliament committee during the budget process. I believe that there has been really good understanding of where we are today as an industry and there’s good support whereby we’ve been invited to talk about our issues and how we can fix the industry. At the end of the day, if we are able to accelerate investment, it’s good growth with more taxes, customers are going to get the benefit, and not only that, today, economically, who else could be the ambassador for Tanzania investment other than multinational big companies operating in Tanzania? If we are growing at high single digit, double digit growth, that on its own would be a great message to the international arena, that would attract more investors into the country.

Vodacom is also one of the biggest taxpayers in the telecommunication industry. So, if we are able to get some reform it will enable us to plan future prospects.

Also, smartphone taxes are quite high; if the government is able to reduce that or remove it completely it will help more customers afford smartphones, meaning more people will be able to have access to data.

If we are able to sort out these main points for the industry and for the consumer, I think the future will definitely be positive for our industry.

After our talks with the government over the last six months, we are waiting to see the changes in this budget. If this happens then at least I will be able to say that we are in the right direction.

Focusing on unresolved tax issues with the Tanzania Revenue Authority, it is evident that the longer this remains unchecked the more Vodacom will suffer? Is that a fact?

I will say it’s a fact, and also not a fact: It all depends on the new reforms that will take place in the taxation space, these will help with the reduction of losses, but also, if we increase the topline growth it will definitely help to balance our profit and loss. So it is dependent on what could possibly happen.

If things remain the same to where we are today, it’s definitely not a good perspective.

Most of the plans that can potentially make Vodacom profitable again are dependent on government reforms. In what position does that put Vodacom Tanzania as a company?

I will be very honest with you, I think it’s a two-way partnership; we need the government as much as the government needs the private sector. I think we are continuously aligned toward one objective, and Her Excellency has reiterated that in many forums – that basically we need to reach the target where 80 percent of Tanzania has broadband coverage. If that is the government’s goal, who is going to help in this? We are eager to meet the government objective and even accelerate it, we can deliver it even sooner. But this depends on the policies and regulatory reforms. We all need to work together.

Vodacom’s mobile data revenue grew by 3.3% as indicated in your financial report. It is the only service that registered growth. Since it is a loss making service, will you pivot into something else?

3.3 percent is very low growth for data. If you benchmark that across all the mobile operators today across Africa in major markets it’s 20 plus per cent growth year-on-year. So to answer your question, I think we will see how much more we can invest in digital service to be part of this growth so we can innovate in that space even further. I think the foundation has to be fixed – which is the pricing reform. What we want is to be a sustainable company.

Vodacom is banking on digital and financial growth to improve profitability of the Group in the new financial year. What do you think is a precursor to achieving such strategic growth?

Vodacom Tanzania’s growth pillars are very straightforward; Connectivity is very critical. In the last decade we have invested about Sh1.9 trillion in network enhancements and last year alone we invested Sh122.5billion in expanding our 4G coverage and improving the quality of network. Our priority is to ensure we have strong network connectivity.

The second one is mobile money platform M-Pesa, we continuously bring the latest technology and investment into the platform. In the past five years we have innovated the financial space by putting different innovations to provide online services such as partnership with MasterCard, digitising Vikoba – M-koba, and providing loan and insurance services. We are trying as much as we can to digitize these industries, which is in line with the government’s goal.

Data growth is our third pillar, there is a huge area of opportunity in Tanzania. We believe that the growing number of customers that are using data in Tanzania makes this one of the most promising services regardless of the challenges.

The level of disposable income among Tanzanians has taken a hit as a result of Covid-19 impacting the economy. As a telco company how do you grapple with such economic instability to ensure that your customers continue to benefit from your services?

Answer: We remain very close to our customers and we listen to them. Last year during to Covid-19 we saw how the pandemic affected people, especially those in tourism due to lockdowns in other countries. So there is a need to connect these people with their daily interests. For example students, we provided for them zero rated education platforms, we’ve also connected with people in the health sector such as doctors and nurses, where we’ve provided them with affordable bundles that are specially made for them. This was also scaled to the small and medium enterprises that were also impacted by the pandemic.

Despite the few challenges that plague the telecom industry, it seems some operators out there still see the market as a cash cow as evidenced by the recent announcement that a Madagascan firm would acquire a local telco. What is your take on this?

Answer: I think there are challenges and opportunities. When it comes to opportunities, if you look today, the data, smartphone and digital penetration in Tanzania is still very low. So if you’ve got investors that are keen to look at the future prospects in Tanzania, definitely there are opportunities that can be exploited even further.

On challenges, this is where the investors will really assess whether to accelerate the opportunity now or will I split my investment over ten years? I think the short answer is policy writers – government and parliament need to ensure we accelerate technology in Tanzania and not to slow it down. An example of that would be, if we look at the last five years, the telecom industry in Tanzania grew in lower single digits, if you compare it to different emerging markets in African or in Asia where the growth is in high single digit or double digit; it’s not really a good indication. Part of the reason for such dismal growth is that, in Tanzania we have about seven mobile operating companies, unfortunately that brings really tough competition –tough competition brings about very aggressive price wars, which means that profitability declines with very little growth. So investors will be looking to accelerate investment, but also expecting returns. So with an industry that has got the opportunities but isn’t getting the returns, investors will be weighing their investment options and how much they put to accelerate the investment. So this is where the dilemma is in Tanzania.

I think we need to find the right balance in the regulatory space where we put certain reforms that can protect the industry and ensure that it is a profitable industry so it can accelerate investment and not only attract investment in Tanzania.

12. Vodacom has invested in the startup ecosystem, with initiatives such as Vodacom Digital Accelerator; what’s the drive behind such investment and collaboration with tech companies?

Answer: Three years back we talked to some of the digital startups in Tanzania and we recognized that there is a gap when it comes to the startups flourishing regionally or even globally. As a global company, we thought it is really important to provide support in mentoring and coaching some of these startups. In this endeavor we have partnered with some of the tech hubs in the country, such as Smart Lab where we launched the digital accelerator that availed us to very ambitious startups. These startups have the energy and vision for the digital space in Tanzania, something that I was personally inspired with and thought it is really important that we commit to support these startups. I encourage my colleagues in other companies to join a similar approach.

How secure, in your opinion, is the future for young techpreneurs in Tanzania?

Answer: I think there is a huge opportunity in Tanzania, there is a lot of untapped opportunities in that space. With that said, I would encourage all the young digital entrepreneurs to engage with one another. There are a lot of relevant solutions to the issues plaguing Tanzania and you will be surprised at how much digital space can solve these issues in different parts of the country; in health space, agriculture, e-commerce, there is a huge opportunity. The good thing is we can learn from other countries around us whether it’s Europe or the US, the solution can be brought here and digitized.

14. Technology is people, and people are technology. This is a line closely associated with your brand. What do you think will be the next big innovation in the telecom industry?

Answer: There are several opportunities in Africa and Tanzania. Given the fact that agriculture is one of the core incomes in several countries in Africa, I totally believe that digitalizing agriculture is an opportunity; and sure there are a lot of innovations happening in that space, that’s why we are leading M-Mkulima here in Tanzania and we are very excited about the growth.

Health is also another element that can be digitized – you could digitize the health services across Tanzania. For example, if you look today, we have the mobile vaccination platform that has been launched in several of our markets and we are very keen to launch it here in Tanzania and we will be able to use our technology to distribute vaccination. This will help hospitals and also help accelerate the health agenda in Tanzania.