Ex-Post Monitoring of Japanese ODA Loan Project

Zimbabwe
Matabeleland Telecommunications Network Development Project
External Monitoring Consultant: Katsumi Matsuyama, Nakamoto&Associates Co., Ltd.
1. Project Description

Project Location

Central Management and Operations Center(Bulawayo)

1.1 Project Objective
The project’s objective was to promote the improvement of telecommunications in the major cities
in the state of Matebeleland through installing and expanding telecommunications facilities in theregions, and thereby contributing to the improvement of the living environment and the investment
climate in the region.

1.2 Outline of the Loan Agreement
Approved Amount / Disbursed Amount
Loan

Agreement

SigningDate9,523 million yen/9,189 million yen
/

Final

August 1993 / December 2002

Disbursement Date
Ex-post Evaluation

2004

Executing Agency

TelOne Pvt. Ltd.(TelOne)

Main Contractor

Telecommunication (India),
Itochu Corporation (Japan)

Main Consultant

DETECON (Germany)

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1.3 Background of Ex-post Monitoring
The state of Matebeleland (cf. approximately three times the size of Kyushu in Japan) is located insouthwestern Zimbabwe, and its capital city of Bulawayo (population 500,000 in 1993 appraisal (cf.
nearly the same size at Matsuyama City in Aichi Prefecture in Japan)) is the second largest city inthe country. Matebeleland was a region central to the support of the country’s thriving processing
industry and manufacturing industry. However, at the time of the appraisal, the existing
communications facilities including the switchboards, transmission lines, and subscriber cables wereconspicuously aged. Moreover, there were as many as 23,700 telephone service applications on thewaiting list, which amounted to approximately 30% of the entire domestic waiting list for telephoneservice. Thus, improvement of telecommunications was an important issue for the development of
the industrial infrastructure in the state. Thus, this project installed and expanded
telecommunications network in Matabeleland's Bulawayo and surrounding cities.
At the time of ex-post evaluation (2004) several problems were pointed out as there was an
outflow of workers and difficulty obtaining spare parts. Also, there were concerns over thesustainability of the project. TelOne incurred losses of 184 billion Zimbabwe dollars due to the
inflation which occurred as a result of economic downturn.
Therefore, this project was selected for ex-post monitoring and reviewed under each criterion withthe findings from the field survey and other research activities with a final conclusion being drawn.

2. Outline of the Monitoring Study
2.1 External Monitoring Consultant
Katsumi Matsuyama (Nakamoto & Associates Co., Ltd.)

2.2 Duration of Monitoring Study
Duration of the Study: September 2012 – June 2013
Duration of the Field Study: November 24, 2012 – December 5, 2012

3. Monitoring Results
3.1 Effectiveness3.1.1 Quantitative Effects
3.1.1.1 Operation and Effect Indicators(1) Number of Subscriber Cables
The number of subscriber cables has increased from the time of ex-post evaluation. However, as
shown in Table 1, the number has declined since 2009. According to the interview with TelOne, thisis due to customer outflow by the spread of cell-phones.

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Table 1. Change in the Number of Subscriber Cables in the Project Regions
2004*

2005

2006

Number of
74,04073,51474,317
Subscriber Cables
Source: TelOne *value from ex-post evaluation

2007

2008

2009

(Unit: cables)
2010
2011

72,82073,341

79,91874,56074,165

According to information obtained from Postal and Telecommunications Regulatory Authority(POTRAZ), numbers of subscribership to the three largest mobile operators are: Econet 6.4 million,
NetOne (100% subsidiary of TelOne) 2.5 million, and TelCell: 2 million. As can be seen in Table 2,
the mobile phone penetration rate, which was 7% in 2006, has increased nine times to 61% after 5
years in 2011.

Table 2. Mobile Phone Penetration Rate in Zimbabwe

2006

2007

2008

2009

2011

Penetration Rate (%)

6.78

9.82

13.29

31.99

61.25

Number of Subscribers(1,000 people)

849

1,225

1,654

3,991

7,700

Source: Ministry of Internal Affairs and Communication(2) Landline Telephone Penetration Rate
While the mobile phone is showing rapid spread in the country, landline phone has increased 16%,
between the time of ex-post evaluation and 2011, in the region that showed the most increment. The
other two regions show a decrease. Similar to
subscriber cables, penetration rate of landline
phone is affected by that of mobile phone.
However, there is a difference between theurban area (Victoria Falls, Bulawayo) andrural area (Hwange, Gwanda). According to
the interview with TelOne, reason for thedecrease in the penetration rate of landline
phone in the urban area is the customers'
tendency to switch to rapidly spreading mobile phone. On the other hand, in the rural areas, although
there is a demand for telecommunication, antenna facilities for mobile phone do not exist, and,
therefore, cannot switch to mobile phone. This is the reason for the increase in landline phone
penetration rate between 2004 and 2009.

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Table 3. Landline Telephone Penetration Rate in Zimbabwe
2004*

2009

2010

(Unit: %)Difference(2004-2011)2011

Victoria Falls

14.8

17.0

10.7

9.6

-5.2

Bulawayo

9.7

9.6

9.2

9.1

-0.6

Hwange

2.2

6.3

6.0

6.2

4.0

Gwanda

1.3

18.1

17.9

17.8

16.5

Source: TelOne*value from ex-post evaluation(3) Number of Lines on the Waiting List
According to the interview with TelOne, the number of lines on the waiting list from 2005 to 2011is zero. Since the source of the numbers cannot be identified, it is unknown whether the number oflines on the waiting list was completely solved in 2005, or the number obtained in the ex-post
evaluation was erroneous. Reason for the zero number of waiting lines is the fact that there is stillreserve capacity in the switchboards, although the penetration rate of landline phones are rising in
the rural areas. In addition, it can be conjectured that the decrease in the penetration rate of landline
phones in the urban area has led to a decrease in the required number of subscriber cables.

(4) Switchboard Usage Rate
Switchboard Usage Rate is shown in Table 4. The average switchboard usage rates for the targeted
four regions have decreased since the time of ex-post evaluation. The fact that the numbers decline
after reaching its peak in 2009 reflects the decrease seen in the number of subscriber cables.
Improvement could be seen in the delay in the laying of landlines, which was indicated in the
ex-post evaluation report. After 2004, extension was made to the cable facility, and, compared tobefore, connection area has been extended.

Table 4. Switchboard Usage Rate
2004*

2009

(Unit: %)
2011

2010

Victoria Falls

-

81.8

79.5

71.4

Bulawayo

-

81.3

77.6

77.5

Hwange

-

65.4

63.1

65.2

Gwanda

-

78.5

72.5

71.8

76.8

73.2

71.5

Average

Source: TelOne

75.0*value from ex-post evaluation

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(5) Call Quality
Call quality has improved; call completion rate is almost 100%. This would mean a significant
improvement from 70% in 2004, but TelOne is unsure of the validity of the information from 2004,
and the reason for the improvement is unknown. Table 5 shows the fault rate and the rate of failures
fixed by the end of the next working day. Call completion rate can be calculated by the difference
between fault rate and 100 (100-fault rate). Fault rate is low in all of the regions, and it can be seenthat call completion rate is maintained at a high standard. Rate of failures fixed by the end of thenext working day has also shown an improvement, and maintains a high restoration rate in all of theregions. Failures such as lightning in which Pinpointing the accident location is difficult and arriving
at the accident scene is time consuming make restoration by the next day difficult. Such cases arepreventing the further rise of the rate.

Table 5. Fault Rate and Rate of Failures Fixed by the End of the Next Working Day
2007

2008

2009

2010

(Unit: %)
2011

-

0.02

0.03

0.03

0.25

0.03

-

79

88

89

84

89

0.02

0.03

0.03

0.25

0.03

2004*
Fault Rate
Victoria Falls Rate of Failures Fixed by the
End of the Next Working Day
Fault Rate
Bulawayo

HwangeGwanda

3.8

Rate of Failures Fixed by the
End of the Next Working Day

-

79

88

89

84

89

Fault Rate

-

0.02

0.03

0.03

0.25

0.03

Rate of Failures Fixed by the
End of the Next Working Day

-

79

88

89

84

89

Fault Rate

-

0.02

0.03

0.03

0.25

0.03

Rate of Failures Fixed by the
End of the Next Working Day

-

79

88

89

84

89

Source: TelOne*value from ex-post evaluation

Although improvement can be seen in the call quality and number of lines on the waiting list,
penetration rate of landlines and number of subscriber cables is decreasing. In Zimbabwe, mobile
phone is spreading more rapidly and widely than landline phone, and the effect of mobile phone canbe considered substantial.

From the above indicators, the effect of this project can be judged to be limited. Although there
are indicators such as “call quality” which have improved since the time of ex-post monitoring,overall landline penetration rate has decreased as a result of spread of mobile phone. In the rural
areas, the landline penetration rate is increasing. However, it can be conjectured that this is due to a

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passive motive that the mobile phone facility has not been constructed in the area. Since it isforeseeable that the cell-phone service will be available for the rural area in the future, further spreadof landline phones cannot be expected.

3.1.1.2 Internal Rates of Return (IRR)
According to the interview with TelOne, the facilities installed by this project are only in a part ofMatabeleland, and it is impossible to calculate the revenue by each facility. Therefore, financial IRR
will not be calculated. Regarding economic IRR, the calculation will not be performed since theeconomic IRR was not calculated at the time of ex-post evaluation.

3.1.2 Qualitative Effects
See Impact for optimization and facilitation of the industry.

3.2 Impact
3.2.1 Intended Impacts
3.2.1.1 Contribution to the Improvement of Investment Environment
Ex-post evaluation reported that foreign direct investment was fluctuating yearly since 2000.
However, according to the information obtained through this study, the amount of foreign direct
investment from 2009 to 2011 is zero. The reasons are as follows: First, following the Lehman Crisis
in 2008, many countries suffered from global economic crisis. As a result, government loan
programs were reduced. Second, Zimbabwe economy was unstable; Zimbabwe has experienced
repeated hyper-inflation and currency devaluation, and switched its national currency to U.S. Dollars
in 2009. Third, developed countries are keeping a distance from the tyrannical government of
Zimbabwe, and the countries are paying attention to the outcome of the general election to take placein 2013.

3.2.1.2 Contribution to the Improvement of Living Environment
According to the interview with the Customer Service Department of TelOne, there are no
significant problems with the call quality, and there are no problems which might hinder the living
environment. However, data concerning customer satisfaction could not be obtained, andcontribution to the improvement of living environment could not be ascertained.

3.2.2 Resettlement, Land Acquisition, and Other Impacts
According to the interview with TelOne, there have been no resettlement or land acquisitions
resulting from this project since the ex-post evaluation. There are no other positive or negative
impacts.

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As mentioned above, impact of this project could not be confirmed. Furthermore, foreign direct
investment in Bulawayo continues to be zero. However, since factors such as economic instability,
which the period of recovery cannot be determined, are involved, prediction of the future impacts ofthis project is difficult.

3.3 Sustainability
3.3.1 Structural Aspects of Operation and Maintenance
There is no change in TelOne's status of shareholders or the organization of Customer Service
Department since the time of ex-post evaluation. 100% of TelOne's stock is owned by thegovernment of Zimbabwe, and there is no plan of privatization. Operation and maintenance isconducted by Central Management and Operations Center (CMOC) in the Customer Service
Division under the Commercial Department of TelOne. It is responsible for new installation of
telephone, maintenance and inspection, telephone fee collection, and directory assistance. At thetime of ex-post evaluation, insufficient manpower as a result of the economic downturn was
indicated, but currently, there are no shortages of personnel. There is always an application to fill thevacant position, and there are no problems. According to "Zimbabwe 2012 Facts and Figures"
published by World Food Program, Zimbabwe's unemployment rate is 60%. Therefore, there shouldbe plenty of applicants, and TelOne is equipped with a training facility. From these facts, it isconceivable that there is no shortage of personnel. Regarding the shortage of workers reported in the
ex-post evaluation report, TelOne had no knowledge of the problem.

3.3.2 Technical Aspects of Operation and Maintenance
There are no significant changes in the procedure of sharing technical information or the level oftechnical skill concerning the telecommunications system installed by this project. Regarding theoperation and maintenance of telecommunications system installed by this project, there are
maintenance manuals, and knowledge concerning operation and management is being spread bysharing of technical skills between workers at the workplace. Training on new technology such as
optical fiber or technical training for new services is conducted at TelOne Training Center in Harare,
when entering the company or when there is a change in personnel.
During nighttime, CMOC uses computers to conduct centralized management. However,computer's operating system and hardware of the computer management system installed by thisproject have become obsolete. Storage medium for the hardware are no longer in production andnew storage cannot be obtained. There is a possibility to obstruct business performance.

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3.3.3 Financial Aspects of Operation and MaintenanceAt the time of ex-post evaluation, operating profit ratio was 4.1%. Currently, consolidated
operating profit ratio, including NetOne, is 2%, and have worsened since the time of ex-post
evaluation. In 2011, Revenue was 150 million US dollars (13.5 billion yen / 16% decrease fromprevious year), total comprehensive income was 3 million US dollars (260 million yen / 50%
decrease from previous year), and balance in equity was insolvency of 160 million US dollars.
Operating loss was 30 million dollars. The main reasons for the loss are decrease in revenue due tothe expansion of the mobile telephone market, constant appropriation of bad debt loss, and increases
in personnel expenses resulting from the inflation from the switching of national currency in 2009.
Loss for a single fiscal year has decreased by 20 billion yen from the time of ex-post evaluation, but
this is due to the fact that temporary factors such as inflation and currency devaluation were notpresent in 2010. Although TelOne has an insolvency of 160 million US dollars, 150 million US
dollars which amounts to 90% is ODA loan from the Japanese government. 40 million US dollars isa loan from African Development Bank.
It is very unlikely that TelOne will suspend its business. TelOne is a state-owned enterprise, and isengaging in an investment negotiation from a foreign company (South Africa). Its subsidiary is
NetOne (established 1996), which is the second largest mobile phone company in Zimbabwe.
However, the company's operating funds are insufficient, that obsolete switchboards cannot be
replaced immediately. Furthermore, according to the interview with TelOne, landline telephonebusiness is currently dominated by TelOne, but within the next few years, a foreign
telecommunications company is planning to move into Zimbabwe. The company has madepreparations

for

constructing

cable

facilities.

Since

cooperation

betweentheforeigntelecommunications company and TelOne’s landline phone business cannot be expected, there isconcern over the worsening financial status of TelOne from price competition.

Switchboards: empty slots can be seen

Mini-disc drive used as storage medium

8-83.3.4 Current Status of Operation and MaintenanceAt nighttime, CMOC uses computers to conduct centralized management of operation andmaintenance. However, operating system and hardware of computer management system installedby this project has become obsolete. Storage medium for the hardware are no longer in production
and new storage medium cannot be obtained. Since new storage mediums are unavailable, CMOC isconstantly reusing the existing mediums. In addition, new computer applications cannot be used dueto the obsolete operating system. These factors cause problems which obstruct businessperformance.
Switchboards installed by this project consist of the main component and the backup component,
which operates in case of the failure of the main component. However, backup component iscurrently not functioning due to the lack of spare parts. This would mean that if the main component
fails, telephone of the region covered by the switchboard will go down. The lack of spare parts is theresult of Fujitsu closing its Zimbabwe office in 2004. The local manufacturer for the switchboard has
also stopped its production. Problem with obtaining spare parts has persisted since 2005. Also, since
there are also difficulties in obtaining other spare parts, the operating capacity of the facility has
decreased to 70%.

From the above, concerning sustainability, technical skills of workers have been maintained fromthe time of ex-post evaluation, and no problem was detected. The number of workers is sufficient. As
for financial aspects, although there are external factors such as economic instability, because
TelOne is a state-owned business, and plus, it is the parent company of the country's second largest
mobile phone company, it can be said that the continuity of the company is secured. However,
TelOne’s constant state of deficit has impeded the prompt upgrading of the equipment. Agedfacilities and equipment are hindering the conducting of business as a telecommunications company.
No solutions have been presented, and concerns remain.

4. Conclusion, Lessons Learned and Recommendations
4.1 Conclusion
Operation status of facilities installed by this project is unsatisfactory due to aging and lack ofspare parts. The project has contributed to the improvement of telecommunications in the region
since the installed facilities increased its capacity. However, its contribution to the improvement ofliving environment and investment climate in the country is unclear. TelOne is continually in a
deficit, and this has led to negative effects in its operation such as its inability to promptly replaceobsolete switchboards. In a few years, a foreign telecommunications company is planned to enter the
Zimbabwe telecommunications market, and further losses by TelOne is expected as a result ofcompetition. On the other hand, there is sufficient number of workers, and communication of

8-9technical knowledge is effectively done through seminars and utilization of training centers.
Although outflow of workers to rapidly growing mobile phone industry can be seen , TelOne has
been constantly hiring new workers to fill the vacant posts, and there is no problem. At the time of
ex-post evaluation, outflow of workers due to inflation was indicated, but in this study, no suchoutflow was detected. Also, concerning the problem of the lack of spare parts, the primary factor is
not inflation, but the withdrawal of the parts vendor from Zimbabwe.
The effect of the spread of mobile phone on this project is prominent. Mobile phone is spreading
rapidly. Between 2006 and 2011, the mobile phone penetration rate has risen nine times to 61%. On
the other hand, the penetration rate of landline phones of the target area of this study was 17% in thehighest region, and in almost all the regions, the numbers show a decrease after 2009. Zimbabwe's
telecommunication demand is changing, and the penetration rate of the landline phone is notexpected to increase dramatically in the near future.

4.2 Recommendations
None.

4.3 Lessons Learned
None.

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Comparison of the Original and Actual Scope of the Project
Item

Original

Actual

1. Output(1) Switchboard renovations andnew installationsa) 4 locations in cities-Bulawayo-Hwange-Victoria Falls-GwandaTotal: 75,000 lines
67,000 lines
3,000 lines
2,000 lines
3,000 lines

Total: 95,000 lines
83,000 lines
4,000 lines
4,500 lines
3,500 linesb) 3 locations outside cities-Bulawayo-Hwange-Victoria Falls-GwandaTotal: 1,180 lines
500 lines
180 lines
500 lines

Total: 10,000 lines
7,000 lines
1,500 lines
500 lines
1,000 linesa) In city(in Bulawayo city)

Optic cable 53 km

As plannedb) Outside city(between Bulawayo,
Hwange, and Victoria Falls)

Digital microwave 674 km
Optic cable 18 km

As planned(3) Installation of Subscriber
Cables239,400 pairs

388,769 pairs

233 M/M
August 1993 – March 1998
(56 months)

438 M/M
August 1993 – September 2002
(110 months)(excluding additional output of
84 months)

9,523 million yen
2,204 million yen(ZW$87 million)
11,727 million yen
9,523 million yen
US$1＝ZW$4.97=125 yen(March 1992)(unclear) million yen(unclear) million yen(local currency)(unclear) million yen
9,180 million yen
US$1＝ZW$27.94＝ 114 yen(average of rates from 1994 to
2002)(2) Installation of Transmission
Lines(4) Consulting Service
2. Project Period

3. Project Cost
Foreign Currency
Local Currency
Total
ODA Loan Portion
Exchange Rate

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