The Nigerian state currently stands her backs against the wall with dwindling oil revenues, a growing budget deficit, an impending recession and a weakened currency. As regulatory authorities try to stem the tide with foreign exchange restrictions amongst other actions, the impact has been a relatively stable currency with the Nigerian Central Bank pulling the weights and banks following suit. The big question still remains: what is the way forward for growth and stability of the Nigerian economy.
Call it outrageous or a sinister way to increase revenues or a witch hunt of foreign-owned companies or simply the clean-up crew trying to sanitize an ailing economy bedridden by years of corruption and all sorts of fraudulent activities. The current fine of $5.2 billion levied on the telecommunication giant paints the picture of a country in desperation to find other sources to support its falling revenues. But whatever may be the case the issue is its effect on wooing foreign direct investments into the country.
MTN is Africa’s largest mobile operator with 233 million subscribers across the continent and a 62.5 million customer base (as at September, 2015) in Nigeria making it its biggest market. After its entrance into the Nigerian market in 2001, the company has grown into the market leader in its industry. But in the wake of its violations of the Nigerian Communications Commission’s (NCC) directive to deactivate unregistered subscribers the mobile operator is facing a $5.2 billion fine.
NCC’s Stance
The Nigerian regulator; the Nigerian Communications Commission (NCC) noted their efforts at engaging Mobile Network Operators (MNOs) on compliance with the commission’s laid down rules on registration of mobile subscribers and ensuring only registered numbers are active on their networks. But despite their efforts at ensuring compliance they highlighted various cases of violations by the MNOs. So in a bid to fully ensure compliance coupled with the security concerns in the country the commission decided to apply fines to ensure compliance. In the wake of its renewed commitment to take action, it slammed a $5.2 billion fine on MTN for non-compliance.
Nigeria’s Gain
The fine stands at approximately $5.2 billion calculated on the base value of $1,000 per unregistered subscriber for a total of 5.1 million subscribers. That is a whooping N1.04trn in revenue to be gained by the Federal government to support is falling revenues. Also, the fine exceeds the total crude oil and gas receipt of $3.420 billion for the eighth-month period of 2015 according to NNPC reports and represents 20% of forecast expenditure, over 60 per cent of forecast revenues and approximately 23% of the nation’s 4.493 trillion Naira budget for 2015.
MTN’s Dilemma
Nigeria is MTN’s biggest market with a customer base estimated at 62.5 million customers as of September, 2015. MTN is as such heavily invested in Nigeria with a significant share of its revenues also following from the green white green state. The fine dispute is as such a critical issue as analysis shows that it exceeds sales of almost $3.9 billion that the operator made in Nigeria in 2014. Also, with the average revenue per user (ARPU) each month in Nigeria steadily declining to around $4.99 in the three months to September 2015, the $1000 base value does not match the potential return and cost of a sim card. This red flag has thus seen the Group CEO, Sifiso Dabengwa in Nigeria to discuss and negotiate a fair deal for the company. As an unfavourable outcome would mean the company stands to lose more than double the group’s estimated net income for 2015.
MTN has until November 16 to pay the fine.
Investor’s Reaction
As investors react to the announcement by the Nigerian Communications Commission (NCC), the company’s share price has taken a dive and its market value gone down by almost 20%. In response trading in MTN shares was temporarily suspended but as soon resumed on the Johannesburg Stock Exchange (JSE) after the telecoms firm issued a cautionary statement on its shares.
Furthermore, with the many shortcomings of the Buhari led government investors’ confidence continues to take a dive as the MTN fine drama unfolds. According to Mark Bohlund, an economist with Bloomberg Intelligence in London; “It reinforces the impression that the Buhari administration does not have the political clout to cut back spending nor any creative ideas to take the country forward and stimulate other sectors of the economy. Slapping such a large fine on one of the most successful foreign-owned enterprises would likely deter inward investment.” This is definitely highlighting the risk of doing business in Africa.
Decision Point for MTN
A fall in shareholders wealth and investor confidence stemming from the announcement of the fine raises concerns of the “competence” of the management of the Nigerian arm of the telecommunication giant. Failure to comply with regulatory requirements exposes a firm and undermines a firm’s market share and investor’s outlook. In as much as a company must protect its market share, in this case 5.1 million subscribers, efforts must be taken to either reach a comprise with the regulator or a heightened level of effort from the company to ensure compliance. Organisations must learn not to undermine the brand in a bid to save market share as that may eventually lead to a loss of the cherished market share.
So the telecommunication giant must either pay up by November 16 or simply engage the commission in talks to reach a fair amount for the fine. Hopefully with the presence of the Group CEO, Sifiso Dabengwa in Nigeria, a fair outcome can be reached.
This is a critical point for the company as we watch the drama unfold.
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