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

Finweek English Edition - - NEWS - By Marcia Klein

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

Newspapers in English

Newspapers from South Africa

© PressReader. All rights reserved.