(a)

Economic Factors
There are a number of economic factors in Zamora that pose serious threats to business operations and these include:

• High interest rates – the interest rate regime in the country is high, second highest in the world. This means that businesses looking to raise debt capital would have to pay high cost and this can negatively affect businesses relying on debt.
• Growing budget deficit – the increasing budget deficit coupled with the government heavily relying on domestic money and capital markets to make up for shortfall, the government is essentially competing with the private sector for limited credit. This will crowd out the private sector and push up cost of credit and this will deprive businesses of needed capital for investment.
• Concerns raised by international financial organizations about the need for financial discipline. The government needs to contain expenditure so as to reduce worsening budget deficit.

         Legal
There are some issues that have legal underpinnings, and these include the following factors:

• Introduction of taxation – the introduction of taxes on the mobile money services will obviously increase the cost of doing business. For the agents to remain profitable as before the introduction of taxes they may be forced to increase the charges on remittances.
• Law to regulate operations of mobile money – With the passage of new law the KYC requirements have been made stringent, and this places higher burden on both the agents and operators. This to some extent is likely to limit the number of people who can do agency since if you have prior criminal record, you may not be allowed to be an agent.

        Socio-cultural Factors
A number of factors can be considered here:

• Low Savings culture – there is generally low savings culture among the citizens of Zamora. This has implication of capital formation and deposit mobilization by the financial sector. This limits amount of credit that will be available to deficit/spending units in the country.
• Financial Inclusion – a sizeable number of the citizens of Zamora remained outside financial services sector. This could be one of the factors accounting for low savings culture in the country.

           Technological factors

• Inadequate technological infrastructure – the mobile network operators have failed to match the growing subscribers and the attendant demands on the mobile infrastructure resulting in network instability as well as down time. This is impacting mobile money service negatively.
• Innovation – Mobile money started in the country largely with two products – airtime purchases and domestic remittances for small amounts. With the passage of time, mobile money service offerings have expanded to include bill payments, Point of Sales (POS) payments, fund transfers in increasingly larger amounts, and deposit collection by banks and non-bank financial institutions.                                                                                                                                                                                                                                                                                                                                                                                                       (b)

    Threat of New Entrant

  • Capital requirement – the minimum capital required by an agent is ZM₵4,000 which appears to be reasonably within the reach of average Zamoran. This may be deduced from the number of people joining as agent rising from 17,467 in 2013 to 93,376 in 2016 and projected annual rapid growth in the next 3 years.
  • New Legislation and KYC requirements – with introduction of new legislation and KYC requirements, some people who may have questionable record may not be allowed to operate mobile money. But this may not constitute serious entry barrier since once a person does not have any criminal record, he/she can pass the KYC test.
  • Switching cost – since the mobile money appears to be standardized service and not differentiated it will not cost customers anything to switch from one agent to another hence new agents can always attract customers and will not constitute any significant entry barrier.
    From the above analyses entry barriers are generally low and this will make competition much keener as more new agents join the fray.

  Rivalry among existing agents

  • Number of agents – there are large number of agents, and the number is increasing and therefore competition for customers is going to be very intense all things being equal.
  • Sector/industry growth rate – the mobile money service looks to be in growth stage. Given the number of agents joining the business one can assert that the segment is yet not at maturity or declining stage. With the potential for growth competition is likely not to be intense as compared to maturity or declining stage.
  • Pending implementation of mobile interoperability – successful implementation of intended mobile interoperability which will allow transactions across all the four networks, this is likely to intensify the competition among the agents.
  • Standard nature of service – the mobile money service is not differentiated in any way among the various networks. The fees charge is the same across the four networks hence this is likely to intensify competition since a customer can walk to any nearest point and get the service.
  • Low switching cost – due to low switching cost there will be intense rivalry among mobile money providers.

  Bargaining Power of Customers/Buyers

  • Self-service – the customers are able to do a number of mobile transactions by themselves including airtime purchase, transfer from one mobile wallet to another, pay utility bills etc. The only point that mobile money agents are most needed is where a customer wants to either put money on his or her wallet or physically withdraw from the wallet. This makes customers somehow powerful and effectively deny agents some fees.
  • Low switching costs – the customers really are not facing any switching costs hence mobile agents are at their mercy and can choose to transact business with any agent at any place of convenience. Perhaps to have repeated business the agents would have to do extra work to encourage customers to always return to them for business. This makes customers very powerful.
  • Access to many agents – the number of agents is increasing, and it is projected to further increase. This gives the customer many alternatives and that makes the customer bargaining power very strong.

  Bargaining power of suppliers

  • Concentrated or Dominant or Few Suppliers – the main suppliers to the agents are the four network providers. These operators are large and can dictate the terms of the relationship. The agents are very small relative to the network operators. Again, most of the fees end up with the operators. Hence the operators are very powerful.
  • There are no alternatives/substitutes – the mobile money service was launched and is being operated by mobile network operators and are leveraging on their existing nation-wide infrastructure. There are no other companies that have nation-wide capability to deliver mobile money solution apart from the four network operators. This even makes the bargaining power of network operators very potent and veritable.
  • The agent group is not an important customer of the network operators’ group – the network operators core business is voice and data which make up the substantial source of revenue. Mobile money service is just ancillary to their main lines of business. This makes the bargaining power of suppliers still very strong.

  Threat of substitute products

  • Less attractive substitute services from banks – given less stringent KYC requirements of mobile money compared to higher KYC requirements, convenience of mobile money compared to the banks, increasingly mobile money services are more attractive. This makes bank services as substitute less of a threat to mobile money.
  • Low/zero switching cost for customers – it does not cost customer to switch to mobile money for remittances and other transactions executable on the mobile money solution. This again makes banking services as substitute no threat to mobile money.                                                                                                                                                                                                                                                                                                                                                                                                                         (c)

    Network reach – there is currently only 65% coverage of Zamora by the network operators. For effective remittances across the whole country, there must be expansion of network to unreached areas.

    Network stability – stable network and zero-down time is a prerequisite for the confidence in mobile money solution. Customers may feel frustrated if the network is not stable. Network instability is one major challenge identified.

    Product offering – continuous expansion of services offered on mobile money will guarantee its long-term profitability and success.

    Mobile Technology Infrastructure – the mobile money runs on the mobile telephony technology provided by network operators without which mobile money solution would be impossible. Mobile money solution survival will depend on the survival of network operators.

    Regulation – to protect customer’s money and build confidence stringent regulations have been called for and that has been put in place effective 1 December 2017. This will ensure long-term survival of mobile money operations in Zamora.                                                                                                                                                                                                                                                                                                                                                                                                                                          (d)

    Capital Allowance Computation

    Year of Claim	Details	Capital	Tax
    		ZM₵’000	ZM₵’000
    1	25% of ZM₵200	50	–
    2	25% of (ZM₵200 – 50)	37.50	–
    3	25% of (ZM₵200 – 50 – 37.50)	28.13	–
    4	25% of (ZM₵200 – 50 – 37.50 – 28.13)	21.09	–
    5	(ZM₵200 – 50 – 37.50 – 28.13 – 21.09)	63.28	–

    Alternative method for computing NPV
    METHOD 2

    Year	0	1	2	3	4	5	6
    	ZM₵’000	ZM₵’000	ZM₵’000	ZM₵’000	ZM₵’000	ZM₵’000	ZM₵’000
    Gross Fees		250	300	350	350	300
    Direct cost and other costs				(215)	(215)	(195)
    Capital Allowance		(50)	(37.50)	(28.13)	(21.09)	(63.28)
    Taxable profit (a)		45	75	106.87	113.91	41.72	–
    Tax @ 25% (b)			(11.25)	(18.75)	(26.72)	(28.48)	(10.43)
    Add capital allowance (c)		50	37.50	28.13	21.09	63.28
    Capital investment (d)	(200)	–	–	–	–	–
    Investment in working capital (e)	(20)	(5)	(5)	(5)	–	125
    Net Cash Flow (a+b+c+d+e)	(220.00)	90.00	96.25	110.25	108.28	201.52	(10.43)
    Discount Factor @ 24%	1.0000	0.8065	0.6504	0.5245	0.4230	0.3411	0.2751
    Present Value	(220.00)	72.59	62.60	57.83	45.80	68.74	(2.87)
    Net Present Value	84.69

    Advice to the Board:
    The NPV of the project is positive at ZM₵84.69 million, indicating that the project is financially viable. The Board of Directors of Prime Tel Solutions Ltd should proceed with the investment, as it is expected to generate value over the five-year period, considering the after-tax weighted average cost of capital of 24%.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            (e)

    • Opening more sales points or outlets.
    • Giving promotional items to customers.
    • Operate with all the available mobile operators.
    • Embark on advertisements and publicity.