The Nigerian central bank's demand for MTN Nigeria to repatriate $8.1 billion (R119 billion) back to the country could end up hurting the West African nation's economy.
According to Nigerian publication, This Day, Nigerian minister of finance Zainab Ahmed admitted the demand imposed on MTN Nigeria and four banks, by the Central Bank of Nigeria, over alleged foreign exchange infractions has had a negative impact on investor confidence in the economy.
She was speaking on a panel at the 24th Nigerian Economic Summit in Abuja, and said the government could not afford to allow a repeat of the development because of its implications for the economy.
"Unfortunately, this was negative for us but it's now being sorted out and we are bearing the cost of it. We have been engaging investors and trying to explain what is happening," This Day quoted her saying.
MTN and the central bank have been in a dispute since August over the transfer of the funds which the bank said the company had sent abroad in breach of foreign-exchange regulations. The central bank alleged MTN used improperly issued certificates to transfer funds out of Nigeria after the telecoms giant converted shareholder loans in its Nigerian unit to preference shares in 2007. MTN denies the allegations.
Earlier this month, central bank governor Godwin Emefiele told Reuters the sum would likely be reduced but couldn't say whether it will be dropped completely.
A hearing in the court case between MTN and Nigeria's central bank has reportedly been set for 30 October. A separate hearing between MTN and the attorney-general over an alleged $2 billion unpaid tax bill has been scheduled for 8 November at the same court, an MTN lawyer told Reuters.
This week, MTN renewed its cautionary announcements from August and September, saying MTN Nigeria "continues to engage with the relevant Nigerian authorities to ensure a mutually acceptable resolution to the matters concerning the Central Bank of Nigeria and the attorney-general of the Federal Republic of Nigeria". Shareholders were once again advised to continue to exercise caution when dealing in the company's securities until a further announcement is made.
When asked for further comment, MTN told ITWeb the cautionary announcement was the only update it could share at this stage.
Shaky confidence
"Nigeria is currently facing tough economic conditions and its perceived attack on large foreign-owned companies such as MTN, by imposing hefty sanctions, may be seen by potential investors as an attempt by government to cushion the impact of these tough economic conditions, by targeting healthy revenues generated by multinationals that are flourishing in that market," says Ofentse Dazela, director of pricing research at Africa Analysis.
He says while companies in all markets are subject to rules and regulations, the noise coming from Nigeria around compliance is now a cause for concern for stakeholders with vested interests in that market.
This is not the first time MTN has been in hot water in Nigeria. It was hit with a $5.2 billion (R71 billion at the time) fine from the Nigerian Communications Commission (NCC) in October 2015. This after the telco failed to meet a deadline to disconnect 5.1 million unregistered SIM cards on its Nigerian network.
On 10 June 2016, MTN finally reached an agreement with the NCC and promised to pay 330 billion naira over three years; the equivalent of $1.671 billion or R25.1 billion at the time.
"The latest fine will be perceived as undue punishment of MTN, which does not bode well generally with regards to Nigeria's image as a favourable investment destination. Typically, investors prefer stable and predictable environments when placing their money and do not appreciate situations where frequent government interference is common," says Derrick Chikanga, research analyst for telecoms, media and IOT, Africa at IDC.
Nigeria accounts for a third of MTN's annual core profit and the fine is over three-quarters of MTN's current market capitalisation of R156.5 billion.
The latest troubles in Nigeria have hurt MTN's shares on the Johannesburg Stock Exchange, with the share decreasing by almost 30% over 12 months. This morning, the stock was trading 2.5% down at R80.95 per share.
Adversarial relationship
Dazela points out the "adversarial nature" of the relationship the Nigerian government has with multinationals such as MTN, Standard Chartered and Stanbic could make some South African companies, that are seeking to expand their operations across the African continent, think twice before committing large sums of money to that market.
However, analysts believe MTN will continue to stick it out in Nigeria rather than cutting and running.
"Nigeria is MTN's biggest mobile market, constituting approximately 25% of the group's overall subscribers. Hence, MTN is highly unlikely to withdraw from Nigeria in the short- to medium-term, as this will have a serious impact on their revenues and growth. As a result, MTN will likely negotiate a way forward with the Nigeria government in terms of how to improve relations going forward," Chikanga says.
Dazela agrees that Nigeria is one of the most lucrative markets for the MTN group; however, he says the multiple sanctions imposed on the company in that market will erode the overall value this subsidiary brings to the group in the future.
"While this is cause for concern, I do believe MTN will opt to ride out the storm despite these challenges and is unlikely to exit this market. It would likely strive to resolve these issues and will continue to focus on guiding this subsidiary out of its troubles by ensuring compliance with rules and regulations in that market," Dazela concludes.
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