Nigeria’s already beleaguered business and finance leaders caught up in one of the world’s most unfriendly business environments, according to the World Bank annual ranking, are waking up to a new, vicious threat to their operations – regulators some say are running amock.
The Nigerian Communications Commission (NCC) the country’s telecommunications regulator, last week slapped mobile-phone operator MTN Nigeria, with an unprecedented $5.2 billion fine, triggering negative market sentiments wiping away almost 20 percent off its market value over the space of four days.
While Johannesburg-based MTN is in talks with Nigerian authorities over the penalty imposed for failing to disconnect customers with unregistered SIM cards and having incomplete data, failure to negotiate a lower sanction means the company will be paying away more than double the group’s estimated net income for 2015.
To further put it in context, the fine also exceeds sales of almost $3.9 billion that the operator made in Nigeria in 2014, and it is about 37 percent of total revenue.
“While not condoning acts of non-compliance by private sector firms on regulatory pronouncements, it is imperative that whatever sanctions are imposed have a sense of proportionality between infraction and penalty,” said Muda Yusuf, director-general of the Lagos Chamber of Commerce and Industry (LCCI) in response to questions.
“The government must establish proper guidelines as to how regulators, who are often accusers and judges, should impose sanctions,” Yusuf said.
Only about 20 countries have business environments worse than Nigeria’s, according to the latest World Bank ease of doing business rankings.
“Slapping such a large fine on one of the most successful foreign-owned enterprises would likely deter inward investment,” Mark Bohlund, an economist with Bloomberg Intelligence in London, said in an e-mailed response to questions. “It reinforces the impression that the Buhari administration does not have the political clout to cut back spending nor any creative ideas to take the country forward and stimulate other sectors of the economy.”
The dispute with MTN, the market leader with more than 62.5 million customers, comes as the Nigerian economy struggles to cope with oil prices which have been cut in half, currency restrictions, the absence of a finance minister, the lack of an economic direction and unsurprisingly, growth at its slowest pace this decade.
Some investors have become impatient with President Muhammadu Buhari, who has yet to swear in his cabinet, five months after taking office, with the latest regulatory actions adding to the burden of businesses.
“The discussion with every private sector board and shareholder body is of a worried nature,” the chairman of a multinational consumer goods manufacturer told BusinessDay, anonymously.
“We are very worried about the regulatory environment, including threats by some of our partners who have intimated of cancellations of two projects where their shareholders are suspending Nigerian investments.”
MTN Chief Executive, Sifiso Dabengwa, flew to Abuja to try to negotiate a reduced penalty over the fine imposed for failure to disconnect users with unregistered SIM cards, sources close to the matter said yesterday.
“The company reiterates that engagements with the Nigerian authorities are continuing,” MTN said in a statement.
The fine on MTN comes as a rash of anti-business regulations and fines hit major firms operating in Africa’s largest economy.
Proposals by the Financial Reporting Council of Nigeria (FRCN) to become a super/apex regulator for the Private Sector in both financial reporting and non-financial reporting issues, a proposed 5 percent security tax on all registered firms’ profits, and recent fines on Stanbic IBTC, UBA and First Bank, are all seen as squeezing businesses.
“It’s worrying, the bank fines, the telecommunication fines,” Clement Nwankwo, executive director of the Policy and Legal Advocacy Centre, said by phone on Monday from Abuja. “I don’t get the sense what the economic direction is. If Nigeria is broke and agencies are fining companies to make up for the shortfall in oil revenues, then that is something that we should be worried about.
“Certainly it is important that the regulatory agencies are active and taking action against companies that violate the rules of business,” Nwankwo said. “But it is always useful that this be done in the context of a national economic policy.”
Analysts say Nigerian regulators need to understand that rather than operate as business killers, they should instead nurture business so they can create jobs and wealth.
The unprecedented size of the MTN fine compared with a recent example of HSBC Holdings Plc, which was fined $1.9 billion by United States regulators for providing banking to money launderers and sanctions-dodgers with US national security implications, is also raising questions about the proportionality of the fine and the telecoms firm’s future in its largest market, especially its plans to list its operations on the Nigerian bourse.
“Going forward, MTN will have to weigh its options as to the benefits of listing its business against the backdrop of the need for capital or funding,” Abiodun Keripe, head of research and strategy at Elixir Investment Partners Limited, said in an email response to questions, amidst suggestions it may have been treated differently if it had been listed on the Nigerian exchange.
The International Monetary Fund predicts 4 percent growth for Nigeria this year, down sharply from 2014 as consumers across the $540 billion economy retrench from spending due to falling oil prices.
Economic growth in the second quarter of 2015 of just 2.4 percent year on year, was the lowest since the rebasing of national accounts.
The fine against MTN represents 20 percent of forecast expenditure for the Federal Government this year, leading to speculation that it was imposed as a means of generating revenues.
“We note the risks associated with a build-up of regulatory pressure in Nigeria, as seen in the telecoms and banking sectors,” Renaissance Capital analyst Vladimir Sklyar, said in a recent note to investors.
Analysts who fail to find any precedence for the NCC fine are now asking how the regulator arrived at the figure of N200,000 per subscriber line.
Large oil firms which fall foul annually of Nigeria’s regulations against gas flaring, get away with less fines, say analysts. Some also expect that the fine may further complicate the South African Nigeria bilateral ties which dipped earlier this year, following the seizure of Nigerian funds found aboard a private jet on a mission to buy arms.
PATRICK ATUANYA
