Nigeria's Fines on MTN, Banks Shows Buhari Under Fiscal Stress

Updated on
  • MTN still in talks with Nigerian regulator over fine
  • Nigerian president has yet to appoint a finance minister

Nigeria is tightening rules against investors in a move analysts say is evidence of a government struggling to cope with fiscal pressures in the face of plunging oil prices, creating more unpredictability for Africa’s biggest economy.

MTN Group Ltd. was fined $5.2 billion by Nigeria’s telecommunications regulator last week, more than 20 percent of the mobile-phone company’s market value, for failing to comply with an order to disconnect customers with unregistered phone cards. In the same week, regulators also imposed fines on Standard Bank Group Ltd.’s Nigerian unit, United Bank for Africa Plc and First Bank of Nigeria Ltd.

Muhammadu Buhari

Photographer: Bertrand Guay/AFP via Getty Images

“It’s worrying, the bank fines, the telecommunication fines,” Clement Nwankwo, executive director of the Policy and Legal Advocacy Centre, said by phone on Monday from Abuja, the capital. “I don’t get the sense of what the economic direction is. If Nigeria is broke and agencies are fining companies to make up for the shortfall in oil revenues then that is something that we should be worried about.”

Nigeria has no finance minister or clear economic policy five months after President Muhammadu Buhari took office on pledges to combat corruption, end an insurgency by Boko Haram militants and bolster the economy. He has had to do that with dwindling resources after oil prices fell 55 percent since June last year. Nigeria is Africa’s biggest crude producer, with oil making up more than two-thirds of government income.

MTN Slump

“The fiscal headwinds facing Nigeria has resulted in an increasingly assertive regulatory regime in Nigeria,” Martyn Davies, managing director of emerging markets and Africa at Deloitte & Touche LLP in Johannesburg, said in an e-mailed reply to questions. “These fiscal pressures are resulting in greater pressure on companies, local but particularly multinational, to comply.”

Gross government revenue fell 57 percent to 435 billion naira ($2.2 billion) in June from a year ago, according to data from the central bank. Revenue in the first six months of 2015 was 3 trillion naira compared with 4.8 trillion naira in the same period of 2014.

MTN shares have slumped 22 percent since Oct. 26, when the company said it’s facing a fine. The stock rose 0.6 percent to 148.99 rand as of 12:10 p.m. in Johannesburg after the company said the Nigeria Communications Commission renewed its operating license.

Tony Ojobo, a spokesman for the NCC, said on Oct. 29 that investors are required to comply with the rules or face penalties. He said on Monday that there’s no update to be disclosed on the MTN fine. Femi Adesina, a spokesman for Buhari, said by phone the MTN penalty is not a matter for the Nigerian presidency, referring queries to the NCC.

The penalties signal “that the new government is serious about compliance, which, over the medium term, should be beneficial for business,” Cobus de Hart, an analyst at NKC Independent Economists, said by phone from Paarl, near Cape Town. “However, given the understandably fickle investor sentiment currently in the country, being too strict too quickly will adversely affect the business environment and investors may become even more anxious.”

Slowing Economy

Investor confidence has slowly eroded this year. In September, JPMorgan Chase & Co. said it will remove Nigeria from its emerging-market bond indexes, as foreign-exchange restrictions imposed by the central bank to help stabilize the naira and reserves caused liquidity to dry up. Buhari has backed the central bank’s currency controls even though they are hurting importers and growth in an economy that expanded at the slowest pace this decade, at 2.4 percent, in the second quarter.

Buhari is yet to disclose the portfolios of his 36 cabinet nominees, who were all approved by the Senate last week during confirmation hearings.

“Certainly it is important that the regulatory agencies are active and taking action against companies that violate the rules of business,” Nwankwo said. “But it is always useful that this be done in the context of a national economic policy.”

(Updates with revenue figures in second paragraph after MTN Slump sub-headline.)
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