MTN has reduced the risk of a material regulatory penalty in Nigeria, but the telco is not off the hook, as it still has to overcome more hurdles in that country, according to analysts.
They say MTN is not yet off the hook in Nigeria, given the tax case has been referred to other parts of government and the central bank is still holding back on granting a mobile banking licence.
The telco recently received a fresh lifeline in Nigeria, following the decision by the attorney-general to withdraw a $2 billion tax claim.
At the time, MTN stock surged 5.3% on the Johannesburg Stock Exchange on the news that the 16-month-long battle between Africa’s largest mobile telephony company and authorities in its biggest market had ended.
The development was viewed as a turning point for MTN’s fortunes in Nigeria, a country where it has had long-running battles with authorities.
In August 2018, the Central Bank of Nigeria (CBN) demanded MTN repatriate $8.1 billion (R117 billion) to Nigeria, which the bank said the company had sent abroad in breach of foreign exchange regulations.
MTN denied the allegations.
In December of the same year, MTN agreed to make an almost $53 million payment to resolve the dispute. At the time, it was agreed MTN would pay a notional reversal amount of $52.6 million, without admission of liability.
This was for a 2008 private placement remittance worth around $1 billion that the CBN found was based on certificates that did not have final approval.
Almost three years ago, MTN agreed to pay more than $1 billion to settle a dispute over SIM cards in Nigeria. This was after the telco failed to meet a deadline to disconnect 5.1 million unregistered SIM cards on its Nigerian network.
However, last week, MTN senior executives, led by chairman Mcebisi Jonas and group CEO Rob Shuter, met with Nigerian president Muhammadu Buhari and announced R23 billion fresh capital investment in the West African country.
On the same day, MTN applied to have the tax legal action struck off and the request was granted by the court.
Penalty pause
Now, analysts say this new “controversy-free environment” for MTN in the West African country may be short-lived.
“We believe the risk of a material regulatory penalty on MTN has reduced significantly given these improved relations. However, we believe it is still early to conclude that MTN is now off the hook in Nigeria, given the tax case has been referred to other parts of government and the central bank is still holding back on granting mobile banking licences to MTN and Airtel,” says Peter Takaendesa, head of equities at Mergence Investment Managers.
“The business has seen a good recovery operationally, with revenue growth in low double-digits and improved profitability, but investors remain concerned about the uncertain regulatory environment in Nigeria, given developments over the past few years.”
Petri Redelinghuys, founder of Herenya Capital Advisors, believes there’s still a long way to go for the company to enter a “controversy-free” phase.
“Surely you’re not talking about the same MTN that stands accused by the US Justice Department of making payments to the Taliban terrorist organisations for the protection of their cell tower infrastructure, because if it’s the same MTN, then I don’t see this controversy-free MTN of which you speak,” he says.
MTN stands accused of violating US anti-terrorism laws.
The complaint alleges MTN paid bribes to al-Qaida and the Taliban to avoid having to invest in expensive security for its transmission towers.
The alleged payments helped finance a Taliban-led insurgency that led to the attacks in Afghanistan between 2009 and 2017, the accusations say.
The telco responded to the allegation, saying: “MTN is reviewing the details of the report and is consulting its advisers but remains of the view that it conducts its business in a responsible and compliant manner in all its territories and so intends to defend its position where necessary.”
Sabelo Dlamini, senior research and consulting manager at International Data Corporation South Africa, says the most important thing now “that MTN has been able to resolve its challenges with the Nigerian government, is for the telco to wholly focus on its core business of connecting people.
“Every business, either local or foreign, needs government backing to succeed, and in MTN’s case, continue to succeed and break new ground. This ‘new phase of controversy-free environment’ enables MTN to do just that.”
Mobile money bet
The analysts, however, believe new opportunities now exist for MTN with the “balanced relations” in Nigeria established.
According to Dlamini, MTN will be able to focus on offering the best customer experience to subscribers.
“Even as mature as the Nigerian telecoms market is, excellent quality of service leading to excellent customer experience is still a key differentiator. This is a unique area MTN can focus on to maintain its position as market leader.
“The telco recently launched mobile money services. It’s a step in the right direction and the market is ready for such products; however, MTN needs to strategically position mobile money to meet the needs of the different demographics that exist in the market,” he explains.
Takaendesa agrees: “Mobile data revenue remains a big opportunity that requires a significant investment for the operators in Nigeria. The most attractive opportunity in terms of profitability is mobile money, but unfortunately, the authorities are holding back on granting full services licences that are required to fully extract value out of this segment.
“MTN Group has already connected close to 30 million mobile money customers in 14 countries and Nigeria remains the biggest potential mobile money market in its portfolio.”
He believes MTN can do a bit more to prevent further controversies in other countries where it has a footprint.
“They have already started to address the key issues, and most of the problems they are dealing with now are legacy issues. Increasing local ownership, listing subsidiaries in relevant countries and having more local people on the boards of subsidiaries are some of the most effective ways of dealing with the issues MTN has been experiencing.
“However, the company also faces a challenging requirement to keep complying with very uncertain regulatory environments in a number of African countries.
“If you take Nigeria as an example, there are multiple layers of tax authorities and the AG has even tried his hand at it recently. To be fair, the government of Nigeria is now trying to assist the telecoms industry with some of these issues, as evidenced by the recent intervention to stop unjustifiably high increases in right-of-way charges and increased protection for telecoms infrastructure.”
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