Nigeria Risks Investment It Can't Afford to Lose With MTN Fine

  • Penalty of $5.2 billion is more than 20% of MTN's value
  • Economy already struggling to cope with falling oil prices

Nigeria’s government is at risk of scaring off investors it can’t afford to lose after imposing a $5.2 billion fine on MTN Group Ltd., the nation’s biggest mobile-phone company, that analysts say is excessive.

With an economy struggling to cope with sliding oil prices, currency restrictions and no finance minister, authorities are doing themselves no favors by penalizing one of their biggest foreign investors, according to fund managers including David McIlroy of Alquity Investment Management Ltd. The fine equates to more than 20 percent of Johannesburg-based MTN’s market value.

“It’s the last thing Nigeria needs, given the economic and political struggles it’s contending with at the moment,” McIlroy, chief investment officer at Alquity, which oversees $100 million of frontier market stocks, including MTN shares, said by phone from London. “It’s concerning for MTN and in terms of the wider implications for foreign investment.”

Nigeria’s telecommunications regulator this week fined MTN for failing to disconnect customers with unregistered SIM cards and having incomplete data, causing the shares to post their biggest four-day plunge in Johannesburg since 2008. Nigeria is MTN’s biggest market, where it had 62 million customers by September.

“The magnitude of the fine doesn’t seem to bear any relation to the scope of the alleged offense,” said McIlroy.

Slowing Economy

Confidence in President Muhammadu Buhari is slowly eroding. The ex-military leader is yet to name his cabinet five months after taking office, creating a policy vacuum in Africa’s biggest oil producer at a time when the economy is reeling from falling crude prices. He has also backed foreign-currency controls imposed by the central bank that have led to an overvalued naira and restrictions on imports.

The economy expanded 2.4 percent in the second quarter from a year ago, the slowest pace this decade, as oil revenue fell. Crude makes up about two-thirds of government income and 90 percent of exports. Foreign-exchange reserves have dropped 30 percent since the beginning of last year to $30 billion.

“That fine is really punitive,” Amy Cameron, a senior telecommunications analyst for Middle East and Africa at BMI Research, said by phone from London. “It is enormous and just the impact of that enormous fine on MTN’s ability to invest in Nigeria as well as its wider African footprint will be huge.”

MTN said on Oct. 26 that the penalty relates to the timing of the disconnection of 5.1 million MTN Nigeria subscribers in August and September and is based on a fine of 200,000 naira ($1,005) for each unregistered subscriber.

Respecting Laws

Nigeria’s telecommunications regulator said companies doing business in the country must comply with rules.

“Are investors not supposed to respect the laws of the land where they are operating?” Tony Ojobo, spokesman for the Nigerian Communications Commission, said by phone from Abuja, the capital. “It is in accordance with our regulations and guidelines that if service providers don’t comply they’ll face a penalty.”

The telecoms industry contributes about 10 percent of Nigeria’s gross domestic product and MTN is the nation’s largest mobile operator with 42 percent market share.

The timing of the fine has raised questions because it comes before MTN is set to renew its license next year.

“Turning the screws on a multinational company right before they need to renew their license, sort of holding them to ransom with an incredible fine -- I’m not saying that’s what the motivation here is -- but its the kind of thing that will raise red flags for foreign operators,” Gareth Brickman, an Africa analyst at ETM Analytics NA LLC, said by phone from Stamford, Connecticut.

“The enforcement of the law is good and important but I think beyond that, the big issue here is one of perception,” he said. “And the perception is that foreign companies in particular are going to face very punitive regulatory levies for certain practices.”

Security Risks

MTN said it’s in talks with Nigeria’s telecommunications regulator to help resolve the dispute. South Africa’s embassy has also reached out to MTN to assist, Lulu Mnguni, high commissioner in the West African nation, said by phone from Lagos, the commercial capital.

One of Buhari’s key priorities since taking office is improving security in a country where kidnapping for ransom is rife and the government is struggling to end an insurgency by Boko Haram militants in the northeast. The stricter rules imposed by the telecommunications regulator was linked to that goal, said Yinka David-West, a senior fellow in Information Systems at Lagos Business School.

“This registration exercise started because of a security issue,” she said by phone on Wednesday. “It’s not just about having a database of names and numbers. It’s a tool that is supposed to help fight terrorism, kidnapping, money laundering and all sorts of issues.”

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