JOHANNESBURG — Nigeria, with a population of just over 180 million people who have an incredible enterprising spirit, should be in theory one of the hottest markets in the world. However, it’s riddled with corruption, ineptitude and outright mischievousness among its political class – a major factor that has kept that country back. While the economic situation in South Africa itself is bad, it’s also not so great in Nigeria where growth for 2018 is expected to be below 3%. The West African country is also struggling with falling oil revenues. The result is a government that is desperate for money for the fiscus – and turning to extraordinary lengths to get its hands on it. – Gareth van Zyl
By Ryan Cummings and Ronak Gopaldas*
Shockwaves reverberated through Nigeria this week following the news that MTN Nigeria owes the Nigerian government $8.1bn due to illegal repatriation of funds and $21.bn in unpaid taxes.
The heavy-handed approach by Nigerian authorities towards MTN Nigeria – not for the first time during President’s Buhari’s tenure – has spooked investors, clouded the policy outlook and created a business environment of mistrust in Africa’s most populous country. The scale and nature of the interventions, along with uncertainty and the motives behind them have triggered a market selloff with the share price declining over 30% on the JSE on the back of the news. And with MTN Nigeria’s most recent skirmish with regulators from 2015 still fresh in the minds, the latest developments, combined with growing election-related anxiety, has dealt a body blow to investor sentiment.
Indeed, jittery investors, in addition to questioning the merits of continuing to do business in Nigeria, are now attempting to establish whether the latest episode is a result of incompetence, crude opportunism or part of a more sinister political agenda.
The reality is that it is a combination of these factors. But to understand recent developments, they need to be placed in the appropriate context.
First, a pattern of behaviour by Nigerian authorities is emerging, whereby the state is targeting entities in the private and public sectors for politically expedient purposes. Although the MTN case is the highest profile of these; these come on the back of other instances of across both the public and private sector involving the likes of DSTV, Krispy Kreme and Zenith Bank. Although these cases were each different, they seem to have one thing in common – a conspicuous political subtext.
Indeed, in recent weeks, Nigeria’s financial institutions have increasingly purveyed the regulatory adherence of entities operating both within its public and private sector and punished transgressors with a degree of rapidity which has raised eyebrows. Second, the developments coincide with President Muhammadu Buhari’s efforts at reinvigorating the anti-corruption policy vehicle upon which his initial election in 2015 predicated. Third, the timing of these actions is not coincidental – Nigeria goes to the polls in what will be a hotly contested ballot in February 2019 and it would be naïve to think that these actions are not an attempt to derive both financial and political currency ahead of the election.
Starting with the misadventures of MTN – evidence of these dynamics is on clear display.
On 29 August, the Central Bank of Nigeria (CBN) accused telecommunications provider, MTN, of transgressing regulatory policy in repatriating dividends. As per the CBN, MTN repatriated the monies through the conversion of shareholders’ loans to preference shares between 2007 and 2015 in a manner which violated local extant laws and regulations. The CBN has also accused Standard Chartered Bank, Stanbic IBTC Bank, City Bank and Diamond Bank of being complicit in the illegal fund repatriation and who are subsequently facing a cumulative fine of $16 million. However, the latest alleged transgression on the part of MTN Nigeria is not the only charge that the Nigerian state has raised against the service provider. On 04 September, Nigeria’s revenue authority noted that it is seeking $2 billion in backdated taxes from MTN Nigeria.
Three years on from its first major debacle with the state – when MTN Nigeria was fined an initial $5.2 billion for not disconnecting unregistered SIM cards – the company again find itself in a tight spot, with opaque regulatory requirements again at the heart of their challenges. The burning question now is whether political machinations are behind the Central Bank of Nigeria’s (CBN) declaration. Speculation abounds that the repayment of the remittance by MTN Nigeria to the CBN could bolster the country’s dwindling reserves and provide the Buhari administration with the cash injection it may need to manage a successful electoral campaign. Moreover, the debacle provides the Nigerian state with a scapegoat for its recent economic embattlement. As per a statement by EFCC officials, the illegal repatriation of foreign currency by banking institutions was cited as a major contributor to the Naira’s depreciation which was a factor in recent local commodity price increases.
The moves also placate powerful voices within the APC movement, which are endorsing President Buhari’s hard nosed anti-corruption stance and calling for greater economic nationalism in a bid to lay the blame of much of the country’s socio economic malaise at the doorstep of foreign companies and global market dynamics.
By any metric, the fine appears excessive. For their part, MTN has responded by denying the allegations of wrongdoing and also relaying that the current dispute will not adversely influence the company’s investment in Nigeria, which remains its largest and most profitable across the African continent. This may explain some of the rationale behind the latest move on the part of the Nigerian authorities: with MTN unequivocal that it remains in Nigeria for the long term, the company represents a “sitting duck” and thus an easy target and source of revenues for politicians to exploit. With MTN also unlikely to want to resolve the issue via a protracted legal battle, making a spectacle of the company, and using it to whip up nationalistic and anti-business sentiment is a deliberate, and potentially effective tactic by Nigerian politicians to drawing them negotiation table and extracting concessions.
However, this strategy has not been confined to the telecoms sector. Earlier in August, Nigeria’s Consumer Protection Council (CPC) secured a court ruling stopping South Africa-based broadcast satellite service, DStv, from increasing its subscription prices. The CPC substantiated its judicial petition on the premise that it was investigating DStv for arbitrarily increasing subscription costs to ‘offset’ losses it has incurred in other countries in which it provides the service. However, the measures undertaken by the CPC have been described as regulatory overreach given that the body has no mandate to regulate pricing within any given sector.
The CPC’s actions came in the same month as the regulatory body – in collaboration with the National Agency for Food and Drug Administration and Control (NAFDAC) – stormed and shut down an outlet of Krispy Kreme in Victoria Island on suspicion that the franchise was producing confectionaries using expired products. The outlet – one of 20 which the US-based retailer planes to open in Nigeria over the next five years – was reopened on 24 August after the CPC and NAFDAC found the outlet to be compliant with all health and safety standards.
The measures undertaken by the CPC against DStv and, to a lesser extent, Krispy Kreme, have been identified as a long-standing trend by the Nigerian government to shun free-market policies and seek to influence the operations of corporations when there is a political currency to be derived from such intervention. The practice is known to become particularly commonplace in the lead-up to electoral periods when the state’s indulgence of populist consumer demands – and its ability to rile up nationalist sentiment through its economic interventionism – renders it more susceptible to undertake punitive measures against multinational corporations.
In the public sector too, this sleight of hand has been evident. On 27 August, the Economic and Financial Crimes Commission (EFCC) questioned Zenith Bank Chief Executive, Peter Amangbo, about financial irregularities involving Nigeria’s second-largest bank. Specifically, the EFCC alleges that Zenith Bank’s executive structures overlooked suspicious transactions executed on behalf of the Rivers state administration which – over a three year period – had amounted to around $323 million.
Whilst perhaps indicative of the scale of corruption which exists in Nigeria’s public sector – and which President Buhari has pledged to stamp out – it should be noted that the anti-corruption undertakings by incumbent have also had a political pay-off. For one, Nigeria’s River state is not only one of the primary bases of the opposition People’s Democratic Party, but also serves as the financial epicenter of the movement. In this regard, the state – alongside its governor, Nyesom Wike – is widely expected to serve as the PDP’s primary financial benefactor in financing an electoral campaign which seeks to unseat President Muhammadu Buhari and the ruling All Progressives’ Congress (APC). Should EFCC’s investigation prove malfeasance between Zenith and the Rivers state administration, a recent decree signed into law by President Buhari allows his administration to effectively freeze the accounts of financial transgressors and which could leave the PDP without a financial war chest ahead of the ballot. Convenient.
So, all things considered what does this leave us?
At worst, they again show the tendency of the Nigerian state to make unpredictable and costly interventions in the Nigerian economy for political gain. The concern is that it is a strategy which could be employed more frequently and haphazardly as the election date nears, particularly amid the continued strengthening of the PDP opposition movement at the expense of Buhari’s APC-led administration. In addition, targeted entities will remain those thought to be in breach of opaque regulatory requirements and whose market-share is sufficient enough that any penalties or revenue losses will be insufficient to prompt longer-term disinvestment.
But for existing and new investors, the impact is extremely damaging. For some, it is a case of once bitten twice shy and for other this is the final straw – they are no longer willing to tolerate erratic policy and see value of their investments eroded on the whims of politicians and regulators. The short-term damage of this potential strategy by the Buhari administration is likely to pale in comparison to the longer-term repercussions. The damage to Nigeria’s business environment, and strains on its reputation will be far reaching unless the matter is quickly addressed.
It is very difficult to decipher the logic of the economic strategy currently being employed by Nigeria. Some might describe it as “Penny wise and pound foolish” whilst others may draw on a more colloquial Nigerian expression, arguing that is simply an attempt an attempt to “chop da money” of MTN for political purposes. An accurate description is a cross between the two of these – neither of which have positive connotations.
- Ryan Cummings is a director of Signal Risk. He is an independent consultant to various international news media outlets including the New York Times, TIME magazine, the Associated Press, Al-Jazeera, AFP and Deutsche Welle. Ronak Gopaldas is a director of Signal Risk. His work focuses on the intersection of politics, economics and business in Africa. He was previously the Head of Country Risk at Rand Merchant Bank (RMB).