Bruce Whitfield
  • MTN’s Nigeria travails are looking more like a witch hunt.
  • MTN needs to play hardball and be willing to walk away if its negotiations go sour. 
  • MTN runs the risk of perpetually trading at a “Nigeria discount”. 

Executives at MTN must surely be having serious conversations about their long-term future in Nigeria.

Even if they succeed in convincing authorities that they had the permission they claim they were given to move $8.1 billion in dividends out the country and even if they manage to prove that their tax affairs are in order despite a $2 billion demand this week from that country’s government, investors will constantly be wondering where the next brickbats will be coming from.

MTN needs to play hardball and be willing to walk away if its negotiations go sour. Even if that country’s demands are withdrawn, investors will remain wary of exposure to the country.

The Nigerian economy, like South Africa’s, has been practically stagnant for the past three years. Its business there is looking more like a liability on the books of MTN than an asset. Nigeria is a notoriously tough place to do business. Lots of SA companies have got burned there. Even battle-hardened Nando’s eventually fled the coop and Sun International, which ten years ago had ambitious expansion plans, disclosed this week that just 1% of its group has exposure to Africa’s biggest economy. Also, it's in withdrawal mode.

Photo by Dan Kitwood/Getty Images

While the Nigerian government might have proven its case two years ago when MTN faced a $5.2 billion fine for failing to register SIM cards in that country, the current efforts to extract cash from the South African based firm feels like an epic shakedown. MTN finally settled with the Nigerian government after the fine was reduced to $3.9 billion. 

Nigeria discount

Now though, directors of the firm must assess whether their investors should bear the risk of exposure to that economy long term. MTN runs the risk of perpetually trading at a “Nigeria discount” if it stays. It may not capitalise on a possible recovery in the value of the business in the event of an economic turnaround there.

Last week saw the share lose nearly a quarter of its value in a single day. Tuesday saw a further 17% fall, taking the firm to R72 a share, its lowest levels since October 2008. MTN is worth R135 billion on the JSE, a far cry from the more than R400 billion valuation it achieved when its share price peaked exactly four years ago at R260 per share.

The value of the current claims by the Nigerian government at R150 billion outstrip the total value of all the shares in MTN listed on the JSE.

Sources at MTN echo official statements from the firm that in these two most recent cases it has done nothing wrong. CEO Rob Shuter, in the hotseat now for the past 18 months, assured investors that he is pulling out the stops to end the uncertainty around its finances.

Investors, including long suffering empowerment shareholders badly stung in the last round of demands, need to tell management precisely what they need to do next.

Nigeria may pose infinite growth possibilities, but if the firm is going to be subjected to regular demands for handouts beyond taxes and local regulatory requirements then it may be better off taking its custom elsewhere.

The SABMiller example 

The company formerly known as SABMiller (now AB Inbev) grew a single country brewer into a high-flying emerging markets beer play, into a global giant. It used fast-growing developing economies to accelerate its growth before becoming a global player.

Its acquisitions of Miller, Peroni and Fosters didn’t deliver the returns or the stellar growth of its Eastern Europe, China or Africa businesses - but they provided a solid base for the business on which it could build.

MTN’s strength during its rapid expansion till now has been that it has been creating new industries in the territories in which it operates. Now some of those territories are vulnerable: Iran to US sanctions and oil-dependent Nigeria on a single export commodity looking for alternative revenue sources. It needs to be careful.

As South Africa is learning to its cost, if you are not nice to FDI (foreign direct investment), it ups sticks and finds a new place to live.

Bruce Whitfield is a multi-platform award winning financial journalist and broadcaster.

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