Publications
Partners
There is no indication that the recent imposition of a
$5.2bn (R74.6bn) fine on MTN by Nigerian authorities played any role in the
decision by Tiger Brands on 16 November to cease funding its Nigerian
investment, although the timing is remarkably congruous.
But there is little doubt that the imposition of the potentially crippling fine on MTN and censure of Standard Bank – just two in a string of companies finding the going tough in Nigeria – have been interpreted as evidence of the unpredictability of investment in Nigeria and even, perhaps, its singling out of South African companies for censure.
This has raised concern over other investments in the country – a concern which is, arguably, unnecessary.
MTN’s success in stalling the imposition of its fine in Nigeria (which was due 16 November) until negotiations with the authorities are completed is a small victory in what many commentators believe is a daunting battle for South African companies trying to operate in an already challenging environment.
There is some concern of increased scrutiny and focus on South African companies since the new government under Muhammadu Buhari, who was sworn in in May, has been in place.
On 16 November, Tiger Brands, which has written down close to R1bn of a R1.5bn investment in Nigeria, told shareholders it has decided to not provide further financial support to its Nigerian operation, and that it is exploring options with regard to the investment.
The plight of other SA companies in Nigeria
But closer inspection of these companies’ travails reveals it is not as simple as it looks.
In fact, the fines may be an indication that the new government is moving fast to regularise business relations and is intolerant of breaches of regulations in its attempt to create a more stable and predictable business environment.
There are numerous South African companies operating in Nigeria with varying degrees of success, including Shoprite, Pep, Sun International, Sanlam, Nedbank, FirstRand, Southern Sun, Liberty, Imperial and Mr Price.
Some have come unstuck – Woolworths pulled out of Nigeria citing an inability to make a profit, while companies like Tiger Brands, Vodacom and Telkom have made massively expensive mistakes, so investors may be correct to assume that Nigeria carries substantial risks.
MTN’s $5.2bn fine for failing to deactivate unregistered sim cards is the most significant event in SA/Nigerian business relations as it is potentially devastating for the telecoms company, which is a major presence in Nigeria.
MTN derives 37% of its revenue and 48% of its earnings before interest, tax, depreciation and amortisation from Nigeria.
Nigeria is by some way the biggest single contributor to the group’s revenue and profit.
But Nigeria is not singling it out arbitrarily. The Nigerian Communications Commission (NCC) warned telecoms companies to deactivate unregistered sims, and gave them a deadline, which other companies met.
Despite stating in its last annual report that “to ensure compliance with regulations, MTN Nigeria rigorously monitors the KPIs set by the Nigerian Communications Commission”, it did not do so.
In fact, the NCC has accused it of “wilful non-compliance”. MTN has yet to explain its thinking behind its non-compliance.
Standard Bank’s issue is more complex. Nigerian subsidiary Stanbic IBTC has been involved in a fight with the Financial Reporting Council of Nigeria over reporting standards after it was accused of accounting irregularities and poor disclosure.
Standard Bank has announced that the Governor of the Central Bank of Nigeria had sent a letter to the FRCN that was critical of the FRCN’s administrative sanctions and it declined a request by the FRCN that the central bank take disciplinary action against Stanbic IBTC, which has filed suit in the Nigerian courts against the FRCN.
In July MultiChoice’s Lagos offices were reportedly raided by Consumer Protection Council officials after various accusations of poor service and obfuscation, and counterclaims that the council was asking for personal subscriber information.
This is an excerpt from an article that originally appeared in the 26 November 2015 edition of finweek. Buy and download the magazine here.
