Nigeria’s risk profile rising on MTN fine

Nigeria appears to walking herself into an era of heightened business and investment risk while negotiations continue between the nation’s communications commission and MTN over the $5.2bn fine imposed on it for regulatory infraction.

The fine which is well over MTN’s projected profit after tax for the next six years and about a third of the annual revenues of Nigeria’s central government, was imposed by the Nigerian Communications Commission (NCC) after it emerged that MTN had failed to disconnect about five million unregistered subscribers, as the nation battles a deadly Boko Haram insurgency in the north, as well as rising incidences of kidnapping in other parts of the country.

Several global rating agencies, as well as banks and independent market analysts, including Fitch, Standard & Poor’s, Moody’s, and Bank of America Merrill Lynch, have pointed to how Nigeria may significantly raise its country risk profile on account of the staggering fine.

According to the Associated Press, the world’s largest independent news agency, “Nigeria’s fine of $5.2 billion against MTN, Africa’s largest telecommunications company, is billions more than any company has been hit with anywhere in the world and may scare off investors.”

Fitch in a note to investors around the world said, “the fine in Nigeria underscores some of the wider risks associated with emerging markets from macroeconomic risks.”

Standard & Poor’s ratings, in its note, reflected on what it called “the heightened regulatory and country risk in Nigeria” and noted that the fine against MTN “demonstrates the increased oversight in Nigeria’s already stringent regulatory environment.”

In its own note, Moody’s investors’ service said it “notes the challenges faced with the negotiation process between the NCC and MTN Nigeria which is unlikely to be resolved quickly.”

Bank of America Merrill Lynch put forward several possible scenarios, all of which could lead to rising investment risk in Nigeria on account of the MTN fine and noted the “unpredictable timing of any negotiations between MTN and the NCC.”

According to EURASIA, the world’s leading business risk consultancy, “this episode will send a negative to foreign investors about the regulatory climate in Nigeria”.

Nigerian officials prefer to treat the infraction by MTN as a national security issue and while all the analysts agree that the telecoms firm committed the infraction, they however say the size of the fine is unprecedented.

“It is totally out of proportion,” said expert John Strand, an analyst with Denmark-based Strand Consult. “I have never seen any operator receiving a fine of more $100 million and I’ve been in this business for 20 years.”

The Associated Press says until now, the United States tended to levy the highest fines on telecom companies. AT&T is suing the Federal Communications Commission over a $100 million fine, the largest ever imposed by that body.

“There is no comparable fine anywhere in the world,” Roger Entner, of Recon Analytics based in Dedham, Massachusetts, said of the Nigerian sanction. “This is far beyond anything that anybody has ever been levied — by magnitudes.”

MTN ignored other Nigerian rules and had committed a total of 28 infractions, NCC spokesman Tony Ojobo told the Associated Press. MTN officers “have always been flouting regulations,” he declared.

“Fines like this destroy companies,” analyst Entner warned.

A review of Nigeria’s penalties for tax avoidance and cybercrime, and global precedent, led Strand to suggest a fine of $500 million is more fitting and it warned the fine could hurt foreign investment.

“The question is: What is the purpose in giving a company a fine of this amount? Is it just a revenue generator for the government? I think it’s a big message to send to other investors in or looking at Nigeria: Stay out of this country.”

For international companies in Nigeria, the handling of the fine is bound to send their borrowing cost abroad rising even higher as lenders factor in a higher risk premium.

Trouble began for MTN when it received a note from the NCC in August giving it one week ending on the 11th to disconnect 18.6m lines.

The NCC’s order for disconnection did not refer to any specific sims as contained in the commission’s own regulation and the exact subscriber numbers (MSISDN) of the contravening sims had to be searched out and became known after the deadline had expired.

BusinessDay learnt from one of the leaders of the telecoms trade group that during investigation by MTN while working on compliance, it became clear there were many cases of multiple sims and so the company began the process of identifying the unique subscribers, a long drawn out and complicated process that brought the number drastically down to only 5.2 million and finally disconnecting all of them on September 9th, almost two weeks before NCC communicated the fine on September 20.

University teacher, Dele Ake, said he was puzzled by how so quickly “MTN which for many years was the biggest investment ambassador for Nigeria suddenly became the wrong guy. At every investment forum abroad, speakers upon speakers used the MTN success story to showcase Nigeria as an attractive investment climate. Are we now saying oh we were wrong and so don’t to come do business in Nigeria?” he asked.

Bismarck Rewane, a leading economist and a regular speaker at investment gatherings around the world, said while compliance with regulation must not be negotiated and corporate arrogance discouraged, penalties must not be destructive.

Rewane said, “I believe that governments must impose penalties on corporate infractions.  First to send a signal that anarchy will not be encouraged and that respect of constituted authority must be entrenched.

“However, there must be a correlation between the lapse and the penalty.

“The fine imposed on telecommunications and especially MTN is punitive and could be lethal.  International investors are concerned at what is being described as regulatory tyranny.

“The quantum of the penalty in financial terms is likely to be a disincentive to potential and existing investors at a time the net flow of FDI into Nigeria has fallen from $8.1bn in 2011 to less than $1bn in 2015.  This is the time to encourage and not discourage investors. “

One minister who spoke to our reporters on condition of anonymity said MTN may have underestimated the concerns of the new government about insecurity and also the impact of the leadership changes at NCC but noted that it was “important that as a nation that we send out the right signal to investors and I believe this government is committed to pushing back against acts with the potential of presenting Nigeria as a place any more hostile for business than other countries.”

It is still unclear how the NCC is handling the case of all other GSM firms, given that the commission itself had said on August 14 that not one single operator “fully” met the August 11 deadline.

MTN Group listed on the Johannesburg bourse, is Africa’s largest telephone company operating in 23 countries and owns 79 per cent of MTN Nigeria.

By Our Reporters