Nigeria’s tighter business controls the ‘new normal’
Various South African companies, including Telkom, Standard Bank, and more recently MTN and Tiger Brands, have learnt expensive lessons in Nigeria. Some say Nigeria’s tightening of the regulatory environment highlights the unpredictability of doing busine
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.
“Under Buhari, this is the new normal. Applying regulations to companies is more stringent – it is not a kneejerk funding gap reaction.”
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 t el e c oms c ompanies t o 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 noncompliance”. MTN has yet to explain its thinking behind its non-compliance.
Standard Bank’s i ssue i s 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 t he Nigerian c our t s 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.
Examining the government’s motives
These events have led commentators to say that Nigeria’s government, straining under the effects of oil price pressure and a devaluing naira, is extracting funds from South African companies in a desperate attempt to close its funding gap.
Tara O’Connor, executive director of Africa Risk Consulting, disagrees. “One of the things I can assure you is that under Buhari, this is the new normal. Applying regulations to companies is more stringent – it is not a knee-jerk funding gap reaction, it is about Buhari dealing with the rot endemic in the environment. He is cleaning up business and ensuring that regulations are implemented correctly.
“Overall the big picture is that it is good for business, full stop. Any attempt to get rid of the corruption that blighted the economy will improve the business environment in Nigeria,” she says.
“The i mplications for South African and other businesses is that this is a good thing. This is a new broom. But you must know what implications it has for you,” O’Connor states.
She says there is an irony to what happened to MTN as it was instrumental in helping setting up the regulations. “The best practice it helped establish has not been followed.”
There are countries in which it is more difficult for foreign companies to operate due to regulatory requirements, and where corruption is more pervasive, like Kenya. If you do your proper due diligence, it is perfectly possible to operate there cleanly, as companies like Exxon Mobil have done for decades, she says.
This is not necessarily a target on South African companies. Financial services firm KPMG has been affected by the new broom as well. “This is much more to do with a new policy agenda and an intention to make policy changes in a short period of time.”
NKC analyst Cobus de Hart says South African companies do not need to be more wary as a result of recent events. He says, however, that Nigeria’s investment climate is not that good, with pressure on oil, forex restrictions and the naira exchange rate. There is widespread belief that the fines are reflective of the need to boost fiscal revenue as Nigeria’s fiscus is under considerable strain. He believes this may be a reason why authorities are stricter, but it is not simply a measure to raise funds.
Tightening up of regulation of the financial sector is more understandable, De Hart says, as the sector has had previous shock periods and is currently in the midst of another shock. Ensuring that the financial sector abides with regulation is crucial, but in the case of telecoms and MTN, it could have an effect on the economy and government would be mindful of that fact. MTN could use this as leverage to attempt to reduce the fine.
“Buhari has come out pretty aggressively on corruption, but we are not looking at corruption here, it is compliance. Obviously this is good for compliance and business going forward. But again, the fine is very large and we cannot just exclude the possibility that fiscal pressure had something to do with it.
“I don’t think this will prompt South African companies to rethink, but companies will certainly be more wary about following the regulations. But having said that, companies entering the Nigerian economy won’t be affected by this as long as they comply,” De Hart adds. A more pressing issue for potential investors is the state of the Nigerian economy, and how that will affect their investment.
Nigeria. for MTN in Lagos, past a billboard A man walks
Muhammadu Buhari President of Nigeria