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Abuja - 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 the economy.
MTN [JSE:MTN] was fined $5.2bn by Nigeria’s telecommunications regulator last week, more than 20% of the mobile-phone company’s market value, for failing to comply with an order to disconnect customers with unregistered phone cards.
READ: MTN confirms $5.2bn fine in Nigeria
In the same week, regulators also imposed fines on Standard Bank's [JSE:SBK] Nigerian unit, United Bank for Africa and First Bank of Nigeria.
“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% 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 in Johannesburg, said in an emailed reply to questions.
“These fiscal pressures are resulting in greater pressure on companies, local but particularly multinational, to comply.”
Gross government revenue fell 57% to 435 billion naira 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% since October 26, when the company said it’s facing a fine. The stock rose 2.09% to R151.27 as of 15:10 in Johannesburg after the company said the Nigeria Communications Commission renewed its operating license.
Tony Ojobo, a spokesperson for the NCC, said on October 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 spokesperson 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 said it will remove Nigeria from its emerging-market bond indexes, as foreign-exchange restrictions imposed by the central bank to help stabilise 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%, 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.”
