Mobile operator MTN‘s bottom line has been hit on numerous occasions in Nigeria, and a recent set of financial demands threaten to derail the company’s future in the West African nation.
Shares in pan-African mobile operator MTN jumped significantly with the news that the Nigerian Central Bank may be softening its stance after accusing the company of illegally moving money out of the country.
Nigeria is huge for MTN, accounting for 27.2 percent of the Johannesburg-based group’s revenue in 2017. Nigeria is MTN’s biggest market, with more than 54 million customers.
At the end of August, Nigeria ordered MTN to refund $8.1 billion it believes was illegally expatriated by the country’s biggest mobile operator in the eight years leading up to 2015. Meanwhile, Nigeria is also trying to collect $2 billion in taxes from MTN.
The mobile operator’s share price plunged, while plans for an initial public offering (IPO) were placed in serious jeopardy. MTN will need regulatory approval for such a move. The plans for the IPO were made as a result of another multibillion-dollar fine two years ago over unregistered SIM cards.
Back then, MTN was handed a $5.2 billion fine by the Nigerian Communications Commission (NCC) for missing the deadline to disconnect subscribers with improper SIM card registrations. Nigeria said 5.2 million lines should have been deactivated, and fined MTN $1,000 for each unregistered SIM. This resulted in a host of high-level resignations at MTN including CEO Sifiso Dabengwa. MTN was able to reduce the fine to about $1.7 billion with a promise to list on the local Nigerian stock exchange.
Thecla Mbongue, senior research analyst at Ovum, says two institutions are now requesting funds from MTN.
“On one hand, the Nigerian attorney general has calculated that MTN Nigeria should have paid approximately $2 billion in taxes relating to the importation of foreign equipment and payments to foreign suppliers over the last 10 years. According to MTN Nigeria’s own assessment, total payments made to the tax authorities should be $700 million,” she said.
“On the other hand, the Central Bank of Nigeria has ordered MTN to refund $8.1 billion amounting to dividends repatriated by MTN Nigeria between 2007 and 2015. According to the Central Bank, Certificates of Capital Importation (CCIs) issued in respect of the conversion of shareholders loans in MTN Nigeria to preference shares in 2007 had been improperly issued. According to MTN, the issues surrounding the CCIs had already been the subject of a thorough enquiry by the Senate of Nigeria.”
For their part, MTN denied the claims.
“The re-emergence of these issues is regrettable as it damages investor confidence and, by extension, inhibits the growth and development of the Nigerian economy,” MTN said of the accusations. “We will engage with the relevant authorities and vigorously defend our position on this matter and provide further information when available.”
That process seems to be going reasonably well, with the Nigerian authorities saying MTN has now provided additional information that may lead to an “equitable resolution”. But what is behind the issues, and might they lead to MTN quitting the country altogether?
The situation, of course, is innately political. The government is trying to demonstrate that no company – however powerful – is above the law. Nigerians strongly feel that key parts of their economy should not be controlled by outsiders, hence the government insisting on an IPO. With falling oil revenues, it is also looking for ways to keep more of the money generated by MTN in the country.
Mbongue said there is every chance the Nigerian institutions might be right in their calculations, but added that it was unfortunate that their feedback or cross-checking was only known years after the periods assessed.
“It is sending the wrong signals to both local and international investors, impacting negatively the trust in authorities meant to represent fairly the Nigerian government and taxpayers,” she said.
So what future does MTN have in Nigeria? Mbongue feels that although the amounts requested are significant and can upset MTN’s budget, there are few grounds to believe it would pull out at this stage.
“As indicated by MTN, the company will most likely engage with the relevant authorities to resolve the matter. We might be heading towards settlements involving partial payments,” she said.
“On the other hand, local authorities are aware that MTN is a huge investor in Nigeria. It is also a huge operation, which no new investor would be able to take over overnight. It would be more sensible for them to stick to the “devil” they know.”
As long as Nigeria continues to make a huge contribution to MTN’s revenue, a withdrawal is unlikely. But the Nigerian authorities must be careful they do not play with fire, and tempt MTN into departure by hitting their bottom line too hard.
Tom Jackson is co-founder of Disrupt Africa, a news and research company focused on the African tech startup ecosystem.
