Last week on Wednesday, the Zimbabwe Revenue Authority gave Econet Wireless an award for customs and excise compliance at a Taxpayer Appreciation Day marking the agency’s 25th anniversary.
The ceremony is not the interesting part.
The interesting part is what it reveals about the relationship between one company and the state.
In the fiscal year ended February 2024, Econet paid ZWL3.8 trillion to the government and statutory bodies, up from ZWL2.1 trillion the previous year. Those payments amounted to 26 percent of the company’s turnover.
Not 26 percent of its profit.
Twenty-six percent of everything it earned.
A government should not look at that figure and see only a successful taxpayer. It should see a warning.
Econet is not an ordinary company in Zimbabwe’s economy. It is the country’s largest mobile network operator, with roughly 70 percent of the market. For much of the past decade, it has also ranked among the most valuable companies on the Zimbabwe Stock Exchange.
Its influence extends beyond telecommunications.
At times, Econet has accounted for roughly a quarter of the stock exchange’s entire market capitalization. Its dividend payments have been large enough to move the exchange’s headline performance.
When one company can materially influence both the country’s tax revenues and its stock market, the economy has a concentration problem.
That is not a compliment to Econet.
It is a diagnosis of the economy around it.
A healthy tax system does not depend on one company making enough money to matter. It depends on thousands of businesses generating enough economic activity that the failure of one company does not threaten the public finances.
Zimbabwe has built something very different.
The formal corporate sector is too small. Too many businesses struggle to obtain capital, navigate regulation, manage currency instability or survive the costs of doing business. Only a small number reach a scale at which their tax contributions become nationally significant.
Econet is one of them.
The result is a fiscal system that has become unusually dependent on a handful of large companies.
That dependence creates a problem that an awards ceremony cannot solve.
What happens when Econet has a bad year?
Its earnings can fall because of currency instability, regulatory changes, weaker consumer spending or higher operating costs. The company has experienced sharp declines before. In 2014 and 2015, its profits fell by 42 percent and 10 percent, respectively, after changes including government-mandated tariff reductions and new excise duties on airtime and handsets.
Those policies may have been justified on their own terms.
But the episode exposed something that governments should take seriously: Policies imposed on a dominant taxpayer can eventually affect the government that collects its taxes.
That is the uncomfortable relationship between a large corporation and a small formal economy.
A government that relies heavily on one taxpayer has an incentive to keep that taxpayer healthy. Over time, that can distort regulation.
The concern is not that Econet is doing something wrong. There is no need to make such an accusation.
The problem is structural.
A dominant company that is also an important source of government revenue has greater economic and political significance than it would have in a more competitive market. The state has an interest in its continued success. That does not mean regulators will favor it. It means the incentives are there.
Good institutions are designed to survive those incentives.
Zimbabwe has spent years allowing the concentration to deepen instead.
There is another reason this matters.
Econet’s success is itself evidence of what Zimbabwean companies can become under difficult conditions. The company built and maintained a national telecommunications network through sanctions, hyperinflation, currency collapse and repeated economic crises.
Zimbabweans use its services every day.
The point is not to punish a company for succeeding.
The point is to ask why so few companies have been able to succeed at comparable scale.
That is where the government’s attention should be.
If starting a company is difficult, financing one is expensive, regulation is unpredictable and currency risk makes long-term planning nearly impossible, businesses remain small or leave the formal economy altogether.
The state then collects less tax.
It becomes more dependent on the companies that remain.
Those companies become more important.
And the cycle continues.
That is not a sustainable tax system.
It is a concentration of risk.
A country’s fiscal health should be almost boring. Revenue should come from thousands of businesses across different sectors and regions. No single company should be large enough for its earnings to become a matter of national fiscal concern.
The same should be true of the stock market.
A diversified exchange should reflect the performance of an economy. It should not rise or fall because one company’s dividend is large enough to move the index.
Zimbabwe has spent too long treating this concentration as evidence of Econet’s success.
It is also evidence of the economy’s failure to produce enough companies of comparable scale.
So the question for ZIMRA is not whether Econet deserves recognition for complying with its tax obligations.
Of course it does.
The more important question is why the state has so few other taxpayers capable of making a comparable contribution.
That is the problem worth discussing at the next Taxpayer Appreciation Day.
Not the trophy.
The tax base.
Post published in: Business