By Ikemesit Effiong
Indeed, Nigeria might be in the throes of a regulatory perception problem.
The latest confirmation of this issue comes from the rather puzzling decision by the country’s central bank to sanction Africa’s biggest telecom firm MTN Nigeria and four banks for what it called the “illegal repatriation” of $8.1 billion from the country. The regulator, in dishing out N5.87 billion in fines to the banks, ordered the company to return the sum to its coffers.
The Nigerian units of South Africa’s Standard Bank, the U.K’s Standard Chartered, and the U.S. lender Citigroup as well as Diamond Bank, according to the Central Bank of Nigeria, committed a “flagrant violation of extant laws and regulations …including the Foreign Exchange (Monitoring and Miscellaneous Provisions) Act, 1995 and the Foreign Exchange Manual, 2006” in improperly issuing certificates to convert shareholders loans in MTN Nigeria to preference shares in 2007.
As a result, dividends paid by MTN Nigeria to the parent company between 2007 and 2015 – amounting to $8.1 billion – are deemed illegal, and should be returned, Nigerian regulators argue.
This is not the first time that MTN has had an issue, direct or otherwise with Nigerian regulators. The firm was fined $5.2 billion in 2015 by the Nigerian Communications Commission for failing to disconnect unregistered SIM cards on its network. The fine was later reduced to $1.7 billion with an option to list its shares on the Nigerian Stock Exchange.
Puzzled industry watchers, anxious investors and bewildered stakeholders have watched as the company, deeply entrenched (the Nigerian unit contributed almost 40% of the Group’s revenue in the first half of 2018) and a private sector giant (by one measure, it, directly and indirectly, supports half a million Nigerian jobs) has weathered a number of regulatory storms since it began operations in 2001. With this week’s development, investors might be beginning to lose faith in the resilience of foreign-owned businesses aiming to operate in Africa’s largest economy.
The negative investor sentiment which caused MTN’s share price to descend to near decade lows on Thursday quickly spread to other South African stocks with Nigerian exposure because of regulatory risk concerns. Standard Bank, the continent’s biggest lender, saw its share price fall almost 4%, Shoprite, Africa’s biggest supermarket retailer, fell 4.8%, while Naspers, whose MultiChoice Nigeria pay-TV business is grappling with its own regulatory issues, shed 6.4%. The Public Investment Corporation of South Africa, which manages the pensions of South African public-sector employees and owns about 15% of MTN Nigeria’s parent company, lost more than R5 billion (N123.6 billion) alone.
Nigeria, despite its promise of high returns, has been a graveyard for companies unwilling to do their homework and willfully underestimating the rigours of operating in this environment. In 2015, Tiger Brands sold its stake in UAC Nigeria’s flour business to Africa’s richest man, Aliko Dangote for $1, after buying it for $200 million in 2010; it never made a profit from the investment.
Sun International bought 49% of the Tourist Company of Nigeria in 2006, giving it part-ownership of the flagship Federal Palace Hotel in Lagos. By the time it pulled out of the country in 2016, earnings had fallen 58% and occupancy rates at the property dipped to 42%. Retailer Woolworths closed its three stores in Nigeria in 2014, a mere year and a half after it first entered the market. The firm said at the time that shuttering its Nigerian unit would not hamper its Africa expansion plan. Telkom had to abandon its investment in Nigeria’s Multi-Links, which had bet on code division multiple access (CDMA) technology, which is preferred in North America but nowhere else.
MTN’s travails raise wider questions about Nigeria’s regulatory climate, chief of which appears to be a divide between regulators and oversight bodies. In November 2017, Nigeria’s upper legislative house approved a report largely exonerating the company from accusations that it illegally repatriated $14 billion out of the country. The Senate, instead, indicted the CBN for granting extensions and exemptions to financial regulations, opening the door to potential “sharp practices by commercial banks.”
There are also political and economic considerations at play here. The government is under pressure to generate more non-oil revenue months after emerging out of a recession that saw economic output almost halve in late 2016 and much of 2017. International credit rating agency, Moody’s Investors Service says the country’s key challenge remains improving its ability to generate revenue away from its key export – oil. It called the authorities’ efforts to increase non-oil revenue since late 2015 “largely unsuccessful” and says it will remain a “key weakness” for the country as it approaches crunch elections next year.
Despite its economic challenges and heightened regulatory risk, Nigeria remains on a growth path, a proposition which will continue to make it attractive to investors. Despite this, Dobek Pater, director at the research firm, Africa Analysis thinks it is not all gloom. “Nigeria is still worth it for MTN,” he told Business Day TV. “While half of its 190 million plus people live on about $2 a day, from a 10, more like a generational 20-30-year perspective, it will grow in terms of disposable income levels of the consumer, in terms of business requirements for telecommunications, IT services and content consumption,” he added.
But, as with many things concerning Nigeria, the necessary caveats apply. “It’s just that it is becoming an increasingly risky environment to do business in and that is what, I think investors are worried about,” Pater added. David Shapiro, Deputy Chairman of Sasfin Wealth, a private wealth manager said the country’s actions reinforced his “very sceptical” stance towards investments in the rest of Africa where “you have governments that are largely unpredictable”.
Ikemesit Effiong is a research analyst and public affairs commentator. He writes from Lagos.