Can diplomacy save MTN in Nigeria?

2015-11-10

The US$5.2 billion fine that Nigeria has slapped on telecommunications company MTN for failing to disconnect unregistered users has sent shockwaves through the South African business community.

This is especially true for those with interests in Nigeria. How this drama will unfold will reveal much about the new government of president Muhammadu Buhari, and about relations between South Africa and Nigeria.

The fine, announced on 26 October, was handed to the cell phone giant by the Nigerian Communications Commission for failing to comply with an order to disconnect over five million unregistered subscribers, which hampered Nigeria’s fight against terror. The Nigerian regulators argue that groups like Boko Haram could use these unregistered phones. Experts say that while MTN was certainly at fault, the fine – close to a quarter of Nigeria’s budget – is disproportionate.

The action against MTN has evoked much popular interest. MTN has a massive presence in Nigeria – with 62.5 million subscribers – and has been a pioneer in the country’s telecommunications industry. When it won a licence in 2001, for what was then considered the huge amount of US$285 million, it was the first big and very visible South African investment in a difficult and challenging market of this type.

MTN was instrumental in shaping the telecommunications regulatory framework in Nigeria

‘Nigeria was literally virgin territory,’ writes MTN’s former CEO and group president, Sifiso Dabengwa in a 2013 book called Business in Africa, compiled by South African expert Dianna Games. MTN’s success far outstripped expectations, with mobile phone users in Africa increasing by 20% per year.

Yesterday morning, 9 November, MTN announced that Dabengwa had resigned with immediate effect. In the 2013 book, however, he explained how MTN played a major role in shaping the regulatory framework for telecommunications in Africa. ‘Without multiple players, there was no need for the regulation you see today’. The regulatory institutions that MTN helped to set up have now come back to haunt it, it seems. Commentators, however, point to inconsistency in enforcing these regulations.

The action against MTN has also once again brought to the fore salient problems between Nigeria and South Africa. Have South African companies in Nigeria lost their ‘political capital,’ which is so important for doing business outside of one’s borders?

Speculation is rife whether the MTN fine will be addressed on a government-to-government level. On Wednesday, 4 November, South African Deputy President Cyril Ramaphosa, also a wealthy businessman and former MTN board member, told Parliament in Cape Town that ‘if this fine is indeed imposed as it is, it is going to impact on South Africa as well, as our revenue fortunes from a taxation point of view are going to be lower.’

However, he said ‘we would like our companies to comply with the laws and regulations of countries where they operate’ – a statement that South Africa’s Business Day said was an indication that the government may leave MTN to fend for itself in efforts to get the fine reduced.

Minister in the Presidency Jeff Radebe later said the MTN fine would not affect relations between South Africa and Nigeria, and that South Africa hopes negotiations around the issue will bear fruit. ‘The relations between our two countries are excellent. Our understanding is that the President of Nigeria is very serious about fighting corruption in his country,’ Radebe said, according to the South African government news agency.

Meanwhile, South African High Commissioner to Nigeria, Lulu Mnguni, last week told South Africa’s Talk Radio 702 that the government is following the issue closely, but did not confirm whether government was participating in any negotiations. Nigerian media last week reported that Vice-President Yemi Osinbajo was heading negotiations with a delegation from MTN, but this was later denied by the presidency.

Have South African companies in Nigeria lost their 'political capital'?

The optimism expressed by South African officials belies the reality that 2015 was yet another difficult year for relations between the two countries. This followed the xenophobic attacks in South Africa in April that prompted the temporary recalling of the Nigerian high commissioner in South Africa.

At the time, South Africa hit back with an extraordinarily strong statement that dragged a number of old skeletons out of the closet, including the strained relations that followed the death of over 80 South Africans in a church collapse in Lagos at the end of last year. There was hope that Buhari’s election in April this year would be an opportunity for the two countries to start afresh. Indeed, Buhari’s presence at the African Union summit in Johannesburg in June was seen as a positive sign of improved relations.

Games, who had compiled the Business in Africa book and who is also the honorary CEO of the SA-Nigeria chamber of commerce, hinted that the MTN fine saga could negatively impact on this relationship. ‘If the fine stands as it is, it would not be an auspicious start to a new era of relations [between South Africa and Nigeria],’ she told the ISS Today on Friday.

Games says it is not clear whether there may be talks behind the scenes to resolve the MTN issue amicably. ‘I don’t think the South African government can be seen to be protecting MTN, as their actions are indefensible. But the punishment hardly fits the crime and it is there that diplomacy can play a role,’ she said.

Anti-Nigerian sentiment about the fine has appeared on social media once again, with some South Africans claiming the fine is meant to prop up the ailing Nigerian economy. Africa’s biggest oil producer is suffering huge losses due to the fall in the oil price by over 50% in the past year. Foreign revenues have dwindled and growth has dropped from record highs these last few years to just 2.5% this year. Some therefore see the action as a way for the authorities to fill their coffers.

The MTN fine saga could negatively impact on South Africa-Nigeria relations

That South African group Standard Bank was also the object of a crackdown by Nigerian regulators these past few weeks compounded this view, and has created a sentiment that South Africans doing business in Nigeria are being singled out.

Standard Bank, trading as Stanbic IBTC in Nigeria, was ordered to pay a US$5 million fine and fire a number of its directors in the country due to alleged misstatements on its financial accounts – an allegation disputed by Standard Bank.

The Central Bank of Nigeria, however, stepped in and reprimanded the Nigerian Financial Reporting Council for acting without consulting it. The Federal High Court in Lagos confirmed the position of the Central Bank, according to the Nigerian newspaper This Day.

Stanbic is not the only bank in Nigeria feeling the wrath of the regulators, however. The First Bank of Nigeria Ltd. was, for example, fined US$9.4 million at the end of October for non-compliance; an issue that is still under discussion. The fact that other companies have also faced stringent action by regulators should prompt a more nuanced view and dispel the idea that only South African companies are targeted.

Before taking power in May, Buhari made it clear in his election campaign that he will be running a tight ship, and that corruption will not be tolerated. The problem comes in with the uncertainty around which regulations will be enforced, when this would happen, and who possesses the authority to do so.

Foreign investors have, in fact, been jittery even prior to the MTN saga given that Buhari took more than five months to announce the names of his cabinet ministers. ‘Technocrats are making the decisions and companies don’t know who to deal with,’ said a South African economist last month.

The names of those included in the government have now been released, and portfolios are expected to be announced within the next few days. So, if there are to be high-level diplomatic negotiations on MTN and other South African business interests in Nigeria, South African government officials will soon know whom to turn to. The Nigerian telecommunications regulator has given MTN a deadline of 16 November to pay the fine.

Liesl Louw-Vaudran, ISS Consultant

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