🔒 MTN’s woes in Nigeria: Analyst Dobek Pater on what’s gone wrong

JOHANNESBURG — The situation for MTN in Nigeria continues to be fluid as the company indicated on Monday that it will be turning to the West African country’s courts to fight $10bn in claims from the government. Nigerian officials have accused MTN of illegally transferring $8.1 billion out of the country and owing a further $2 billion in back taxes. MTN has disputed the claims. But this battle between MTN and the Nigerian government is nothing new. Back in 2015, MTN faced the world’s biggest ever telecommunications fine of $5.2bn for allegedly selling unregistered SIMs – a fine that the country’s regulators then dramatically drew back to around $1bn. Could this latest fight then be another case of high-stakes negotiating on the part of Nigerian authorities? Dobek Pater, from Africa Analysis, has been studying the African telecoms market for years and is an expert on what the situation on the ground is like in Nigeria. In this interview, Pater gives us a greater understanding of whether or not this is a shakedown and what the forces at play are in Africa’s biggest mobile phone market. – Gareth van Zyl

On the line is Dobek Pater, who is the director of business development at Africa Analysis. Dobek, when it comes to MTN’s troubles in Nigeria this week it feels like déjá vu. In fact, in 2015 MTN received a massive fine in Nigeria, just over $5bn, probably the biggest telecoms fine ever. Back then regulators completely drew down on that fine to about $1bn. So, with the allegations with MTN that they illegally repatriated funds and have unpaid taxes – is this another shakedown from their side?

Shakedown is a bit of a strange word because the last time around – with respect to the fine that you mentioned for operating illegal, non-registered SIM cards in the market – it wasn’t quite a shakedown. It was an execution of the regulatory requirements that weren’t made quite clear to MTN and all the other operators in the Nigerian market. This time around, again, I think it’s unclear whether MTN flouted the regulations knowingly and openly, whether they made an honest mistake or whether there was no mistake made whatsoever? I think it’s a sign, certainly from the Nigerian side, that the Nigerian authorities, (1) are trying to enforce regulations more to exactly what the letter of those regulations say – exactly as they are intended to be enforced and to do what the regulations dictate must be done. I think it’s part of the drive of the Nigerian authorities to combat corruption. Maybe not quite illegal or illicit activities in this particular case. But certainly, non-compliance with the regulatory environment whether it’s telecommunications or in any of the other industries.

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Now, having said that, how much of that execution of that mandate is being applied to large, foreign companies such as MTN versus Nigerian individuals or local companies – I don’t know. So, in other words, I don’t know how fair this is across the board. But I think certainly the Nigerian authorities are trying to do that to enforce the regulations, as they are stipulated, for two main reasons. One, it’s part of the mandate and the promise they made in the last national elections. The politicians made that promise to the Nigerian citizens and they’ve got elections coming up early next year, say within the next 6 months, and I think they need to start demonstrating that they are actively doing something to make progress in that direction. But also, Nigeria has been coming out of a recession. The growth of the GDP is not as strong as it should be for a country of that size. It’s around 3%, where it should maybe 5% to 6%, and they still have a struggle in terms of that.

I think they struggle to meet the budget, in terms of their finances, and they want to improve forex reserves by, for example, increasing the USD holdings that The Central Bank of Nigeria has. And that’s the other reason why they are looking at large companies and trying to see where they can access forex and access additional funds for the Nigerian fiscus, in terms of where it looks like it’s possible or where they actually may have a case.

It’s quite a way for them to go about doing it, isn’t it? Going down the route of fines and threats.

Yes, correct. That particular approach is not surprising, when it comes to Nigerian authorities, and certainly in the telecommunications sector, as far as the Nigerian Communications Commission (NCC) goes. They’ve always wielded and acted on a sort of ‘stick and carrot’ principle, with the stick often being exercised to a greater extent than the carrot. So, as long as you behave it’s fine, as a participant in that market (a stakeholder) but as soon as you are deemed to be not acting in accordance to regulations and the regulator felt that it had to enforce or stamp its authority in the market – they would wield the stick and beat you back into submission. So, slap fines or transgressions… or applying moratoria on gaining additional active subscribers on the network if they felt that the quality of your network as a telecommunications operator was insufficient – and additional subscribers would just add to detract from the quality or further degrade the quality of the network. So, they would prohibit you from actively signing on new subscribers, so effectively new revenue streams and make sure that you spend money on improving the quality of your infrastructure first.

A pedestrian checks his mobile handset as he passes a giant logo outside the headquarters of MTN Group Ltd. Photographer: Nadine Hutton/Bloomberg

So, from that perspective, it’s not surprising. Nigeria is not like SA and many other markets, and maybe in Africa and many developed markets where initially there’s a lot more cajoling taking place and negotiations between the parties. In the case of Nigeria, the first step is often from the authorities that they stamp their feet down, they come out with guns blazing and then get around the negotiating table and discuss it. In the MTN case, when it comes to the $8bn allegedly illegally repatriated out of Nigeria by MTN and the $2bn tax shortfall; it also seems a bit odd that it would take The Central Bank of Nigeria 8 to 10 years to come to the conclusion that there has actually been a transgression of regulations and MTN is at fault. Which means one of two things, either The Central Bank of Nigeria or the tax authorities have not been applying the regulations historically, as they should have been applied – so that they were actually allowing MTN some leeway and allowing it to continue operating as it had in the past without bearing any consequences so, they were at fault – or they were not doing their jobs, and they weren’t actively monitoring what MTN was actually doing. One would think that someone like The Central Bank of Nigeria would not rely purely on submissions from large banks in the market that acted the way MTN acted.

So, with regard to the history of that mega fine, MTN also promised to list in Nigeria. Do you think that the listing will still happen?

That’s a bit of a tricky issue at the moment. I would expect that MTN would want to engage with the Nigerian authorities – both from an MTN Nigeria and even Group level. Firstly, they may want discuss the two more recent developments so, the R8bn repatriation of funds and the $2bn shortfall in tax payments, and put those to bed. So, probably try and, I suspect that again, negations would take place. They would probably try and reduce the tax burden and they would also probably want to stagger the $8bn payment, or maybe try and pay half of it, so $4bn first. Once those two issues have been put to bed, then start addressing the listing of the company in the stock exchange, for two reasons. So, one, you wouldn’t to list under a cloud of irregular behaviour again (in the eyes of the Nigerian authorities), and you probably also want to hopefully, see the share price of the company and the evaluation go up. And then put it behind you, before you progress with the listing. So, yes, we’ll see how it progresses because at this time, officially MTN is saying, “We have done nothing wrong.”

Both parties, at least at face value, are still at opposite ends of the spectrum to each other. The Nigerians are saying, ‘you’ve done wrong – you owe us money.’ MTN is saying, ‘we’ve done nothing wrong.’ They already may have started saying something else to each other, behind the scenes, that’s not public at this time. But I think they are probably still quite a way from arriving at some sort of a meeting of minds in the middle and resolving this situation. So, it could be a while.

Just to give our listeners an idea. How important is the Nigerian market to MTN?

The Nigerian market is important. It’s, in fact, a key market to MTN. There’s about 23 markets across Africa and the Middle-East for MTN and Nigeria contributes, in terms of mobile subscribers, approximately 27% to the total in June 2018, and about 25% of MTN’s revenue. So, it’s a critical market along with SA and Iran. So, SA has a higher revenue contribution but a lower number of subscribers than Nigeria. Nigeria is a quarter of the revenue and the importance of Nigeria is that whereas SA is a mature market from a mobile perspective it’s not quite x growth but the growth is going to be slower from now on, and it’s about increasing ARPU (average revenue per user) through new broad data-based products and other adjacent markets, such as financial services.

In Nigeria the market is still growing. So, the penetration of mobile services is still lower and there’s still room to grow from a subscriber perspective and there’s certainly still room to grow from a revenue subscriber/consumer subscriber and also, importantly, in terms of a business subscriber. So, as the Nigerian economy grows (one hopes), going forward the middle class will slowly start expanding – the disposable income levels will start growing among households and among individuals. They’ll be able to spend more on communications as better data connectivity becomes available through broadband connectivity and with that goes all sorts of other data-based services and products that people use, that drive the average spend per user.

Read also: Naija-nomics: How Nigeria has targeted MTN, DStv and even Krispy Kreme

Then on the business side we expect that businesses over the next few years will also move in the direction of using ICT services and products to a far greater extent for operational purposes. So, they’ll start using products and the cloud, which means using more bandwidth, which MTN can sell to them and sell those cloud-based products and they will start using the internet of things solutions. They’ll start using artificial intelligence, big data analytics and all these new technologies that are beginning to emerge globally, and slowly in Africa as well. So, the opportunities are still quite big for MTN in Nigeria and I think that’s the attraction for a large company. You need to look at a 10 to 20-year timeline from now and see where you could be positioned and what sort of revenue in the market. You’re looking at every few months another payment of a couple of billion dollars and maybe the Nigeran authorities are not completely mistaken and maybe there is some truth to it that MTN was at fault, whether willingly or knowingly as was the case with the lack of registration of some of the SIM cards as we found out.

So, I think, going forward, MTN certainly will make a greater effort to ensure that both them, and the lawyers they hire, and the specialists and experts they hire in the Nigerian market help them ensure that all the regulations are adhered to completely. So, rather err on the side of caution then say, ‘well let’s go ahead and if we’re wrong we’ll find out about it and I’m sure the authorities will let us know.’ That comes, as we find out more recently or finding out now, it comes with increasing penalties for MTN. So, that’s certainly one thing that I think MTN will implement. I don’t think it’s necessarily going to be considering exiting Nigeria at this time but if this continues to happen, for whatever reason, over the next few years and because Nigerian authorities have decided that they need to actually, try and shakedown large, foreign companies for more money than MTN may want to reconsider.

Read also: MTN not giving up on Nigeria despite facing a mammoth $8.1bn demand

But as long as they’re making a lot of money in Nigeria and as long as they’re making good profits – the EBITDA margin is high then they’ll remain in that market. It just means that it becomes a more risky and uncertain market and obviously, with risk and uncertainty investors and stakeholders in that market who provide serves and products who expect greater returns, and they’re more cautious in terms of investing in a market like that. So, if it’s a ploy on the part of the Nigerian authorities, so to speak, to try and gain more forex extracted out of large foreign companies in the Nigerian market because the government needs that forex, they need to plug holes in the budget, and needs to increase its forex reserves. Then it would probably be a silly move because effectively, you are beginning to harass companies that are the biggest contributors to a revenue generation in the market, a job creation, a large tax base. In fact, you are almost starting to kill the goose that lays the golden egg, as a country and an economy.

So, if MTN decides to disinvest from the market somebody will probably come and buy it, another large operator, presumably, but would they be able to achieve the same thing as MTN? Would somebody be as committed as MTN to Nigeria, after starting the MTN experience in the Nigerian market? Or, would it effectively, just be taken out of the market and the country? Nigeria, as a country would be the worst for it.

Just as a last question, Dobek, what about the other telecom operators in Nigeria? Do they experience the same kind of regulatory scrutiny that MTN has?

Not to that extent, for two reasons. One is that they are all smaller than MTN and not problematic. Airtel has problems in Nigeria, mostly from a financial perspective. The operation is not as successful as MTN, as far as profitability is concerned. If we look at Nine Mobile, which was the Etisalat operation which Etisalat exited. Technically speaking, they’re bankrupt and now the banks own them and they now need to pay the banks money to continue operating. So, they’re trying to survive and get back up on their own two feet. The other large operators Globacom Mobile which is a totally, holistically locally operation, which is a bit of an enigma. It’s effectively run by a person called Mike Adenuga, one of the local billionaires who’s making money on oil. And as far as Globacom Mobile goes, no one quite knows where they stand in terms of finances, because it’s a closely held set of numbers by the company.

So, from that perspective, MTN is the easiest to approach by the Nigerian authorities and hope to extract some money out of it and on the other hand, yes, the other operators have also been experiencing strict application of regulations by the Nigerian Communications Commission over the years, but normally, to a far lesser extent. MTN was also in that group where if you didn’t perform in terms of your network quality, for instance, you may get saddled with a small fine but it’s a very small find in the greater scheme of things, in terms of your revenue as an operator. The other operator also, in the case of the sim card fiasco the other operators corrected themselves quite quickly so, when the Nigerian Communications Commission indicated to all the operators that they needed to follow the regulations because all four of them, the large operators, were not in terms of revenue streams or discontinuing unregistered SIM cards – immediately complied to the unregistered SIM cards that were still allowed to use the network, those subscribers, and they ultimately paid the fine for that or paid the price for disregarding  an order from the Nigerian Communications Commission. But mainly, I think it is the most successful telecommunications operator in Nigeria in terms of its size, the number of people, its customers its services and from a financial perspective it’s an easier target so to speak, with a good chance of getting some money out that entity.

Thank you so much for taking the time to chat to me today.

Thank you. The pleasure is all mine.