Nigeria’s decision to order South African telecoms giant MTN to repay billions of dollars that it had allegedly illegally repatriated over a period of eight years could sour investor sentiment towards the country as it still struggles to recover from a deep recession two years ago, analysts say.
In a shock announcement last Wednesday, the Central Bank of Nigeria (CBN) ordered MTN to repay $8.13 billion because it had not obtained the necessary permission to repatriate the funds between 2007 and 2015. The four banks involved in transferring the funds from MTN’s bank accounts in Nigeria to those in South Africa were fined a combined 5.87 billion nairas ($16.2 million, 14 million euros).
With the economy still fragile after a deep recession in 2016 and elections looming early next year, many private sector players in Nigeria believe the move could dent investor sentiment at an already difficult time for foreign investment in the country, analysts said. “Anything of that magnitude, particularly given the timing ahead of an election... is certainly going to raise suspicions from international investors,” said Alastair Jones, analyst at London-based New Street Research. For Peter Takaendesa, Cape Town-based portfolio manager at Mergence Investment Managers, the situation was untenable.
“Investors want certainty in terms of laws. There’s no way MTN will find $8 billion to put in Nigeria. There has to be a resolution,” Takaendesa said. For the time being, MTN does not appear to have any intention of reviewing its presence in Nigeria, which is by far its biggest individual market and makes up a huge chunk — 27% — of its revenues. It boasts double-digit growth rates there and has more than 52 million subscribers in 2017 — 42% of the Nigerian market. MTN Nigeria has already earmarked investment of 180 billion nairas ($497 million) this year for the expansion of its network.
“Of course, Nigeria is their biggest market, they can’t leave today,” said Nonso Obikili, a Nigerian economist based in South Africa. Nevertheless, the CBN order to repay the cash could give MTN pause for thought and could even at some point persuade them to reconsider, the economist suggested.
“The message they’re (the CBN) sending to possible investors is a bigger loss and at some point MTN will say ‘this is the end’,” he said. South Africa-based independent telecoms expert Spiwe Chireka pointed out that another South African telecoms giant, Telkom, had also experienced difficulties in trying to move into the Nigerian market. Telkom “went in and spent who knows how many billions and ended up having to sell it for $10 million and having to get out of there,” he said.
Telkom acquired a majority stake in the private Nigerian operator Multi-Links in 2007 and then bought full control in 2009.
But the Nigerian firm has never made a profit, compelling Telkom to make massive writedowns on its investment. Chireka said that while Nigeria “has a lot of business potential, it is one of the most difficult markets to operate in.” Riddled with corruption, offering little legal protection, and burdened by protectionist economic policies inherited from various military dictatorships, Nigeria ranks 145 out of a total 190 on the World Bank’s Ease of Doing Business index.
The CBN decision is not the first time that MTN has been sanctioned by the Nigerian authorities. In 2015, MTN was fined $5.2 billion by Nigeria’s telecoms regulator NCC for failing to disconnect unregistered SIM cards on its network.
The fine was later reduced to $1.7 billion after a series of negotiations with the Nigerian government. Aurelien Mali, risk analysis expert for Africa at Moody’s, said that “by attacking MTN, the Nigerian regulator wants to show that investors can’t simply do as they want.”
In theory at last, the order to repay the funds does not automatically translate into a financial loss for MTN. But in reality, the exact loss depends on how far the naira has fallen during the period in question. In this case, the naira has lost around half of its value between 2007 and 2015, meaning MTN stands to lose around $4 billion.