The Comparative Case Study of Federal Government of Nigeria-MTN Fine Row
Launched in 1994, the MTN Group is a leading emerging market telecommunication operator, connecting subscribers in 22 countries in Africa, Asia and the Middle East. The MTN Group is listed on the JSE Securities Exchange in South Africa under the share code: “MTN.” As of 30 June 2016, MTN recorded 232.6 million subscribers across its operations in Afghanistan, Benin, Botswana, Cameroon, Cote d’Ivoire, Cyprus, Ghana, Guinea Bissau, Guinea Republic, Iran, Liberia, Nigeria, Republic of Congo (Congo-Brazzaville), Rwanda, South Africa, Sudan, South Sudan, Swaziland, Syria, Uganda, Yemen and Zambia.
On October 25, 2015, Federal Government of Nigeria through the Nigerian Communication Commission (NCC) announced that it has fined Mobile Telecommunication Network (MTN), the leading telecommunication giant in Nigeria, the sum of N1.04 trillion (approximately $5.2 billion or about $1,000 per unregistered user) for violating regulations relating to SIM Card registration and gave the company till the end of December to pay the fine.
When the fine is broken down, it reveals interesting metrics. For instance, Nigeria’s 2015 budget proposal submitted to the Senate in December of 2014 has aggregate revenue of N3.602 trillion made up of oil revenue of N1.918 trillion and non-oil revenues of N1.684 trillion according to PWC. This means that in US dollars, that will be estimated oil revenue in 2015 of $9.5 billion, while the non-oil revenue estimates (primarily made up of taxes) will be approximately $8.5 billion.
The MTN fine of $5.2 billion (if it stands) is already 60% of the expected non-oil revenue for the year 2015 and approximately 30% of the expected entire 2015 Nigerian revenue.
The fine “would exceed the revenue the Nigerian government made from oil in the second-quarter [of 2015], and be more than double the state’s non-crude proceeds.” according to bloomberg.com. The table below tells the story better.
Noticing that Nigerian Government meant business and is not willing to budge, MTN paid the sum of N50 billion as a sign of good faith while it entered into another round of negotiation with the Nigerian Government in an attempt to reduce the fine. The Nigerian Government also slightly bent backward and reduced the fine by 25 per cent. MTN also embarked on a re-registration exercise for its teeming subscribers, free of charge and even gave bonus of free airtime to its customers. Through this re-registration exercise, MTN was able to de-register all the numbers (about 5 million) allegedly associated with national security threats from Boko Haram insurgents and criminal gangs. MTN promised to strengthen its cooperation with the Nigerian security agencies in the quest to stamp out criminal activities in the country.
The fine impacted negatively on the revenue and profit base of MTN Group. The company issued a press release on August 5, 2016, showing the reviewed condensed consolidated interim financial results for the six months ended 30 June 2016. The release shows that the cash inflows generated by operations decreased by 9,2% to R23 870 million mainly as a result of the down payment of R5 870 million relating to the Nigerian regulatory fine during the period.
The Group’s underlying performance was impacted by weak macro-economic conditions affecting consumer spending, according to the press release, including the withdrawal of regulatory services in MTN Nigeria from July 2015 until May 2016 and disconnections of subscribers related to subscriber registration requirements, mainly in Nigeria. MTN Nigeria disconnected the last batch of 4.5 million subscribers in February 2016. MTN Uganda and MTN Cameroon were also impacted by subscriber registration requirements. This resulted in significant free minutes provided for subscriber re-registration campaigns, contributing to a 12,2%* decline in the effective voice tariff. The Group’s performance was further impacted by aggressive price competition and under-performance of MTN South Africa.
Finally, the report disclosed that MTN Nigeria’s competitiveness was compromised by the mandatory disconnection of subscribers and the suspension of regulatory services until May 2016 when the operation attained the necessary approvals to introduce market-related pricing plans and promotions.
What caused the fine to be imposed on MTN in the first instance? Can the fine be defined or described as part of the aggressive revenue drive by the federal government consequent upon revenue shortfalls that the country was experiencing during the period? How was the sum arrived at? What are the implications of the action of government on foreign and local business outfits operating in Nigeria? Why did MTN refused or failed to enlist on the Nigerian Stock Exchange prior to the imposition of the fine? What specific message was the Nigerian Government sending to the business community? How were other government agencies drawn into the battlefront between the two main parties: NCC and MTN? How was the public relations and perception managed by both parties? What lessons can we draw finally from the episode? What lessons can be learnt from the episode?
First, it is necessary for foreign companies operating in Nigeria to be aware of domestic business regulatory framework and environment and try to abide by the associated rules and regulations. MTN Group could have saved itself the fine and the associated public embarrassment if it had complied with the appropriate rules and regulation regarding registration of subscribers SIM cards. MTN Group’s flouting of Nigeria’s laws was its undoing. It often pays to be law-abiding. The second lesson is the fact that before the imposition of the fine, Nigerian regulatory framework and environment have been porous which allows foreign companies to operate with impunity in flouting the country’s laws from time to time. Regulatory institutions must not wait until extensive damage has been done to national security or economic interests of the nation before acting as showing by the FGN-MTN conflict. Regulatory institutions must be proactive in enforcing regulations all the time.
MTN is not a Nigerian-owned company. It is a South African company operating in Nigeria. While MTN is not listed on the Nigeria Stock Exchange, it is so listed in South Africa through Johannesburg Stock Exchange. MTN is the largest private telecommunication company in Nigeria and indeed Africa. Nigeria has the largest subscribers’ base for MTN in the world.
This punitive action against the telecommunication giant followed similar actions that have been taken by certain Nigerian regulatory authorities against erring private companies operating in Nigeria within the same period. For instance, the Financial Reporting Council of Nigeria (FRCN) indicted and fined Stanbic IBTC, one of the leading banks in Nigeria, the sum of $5 million for misrepresenting its expenses in its annual report. Similarly, National Agency for Food and Drug Administration (NAFDAC) found fault with Guinness Nigeria Limited and fined it the sum of N1 billion ($5 million) for administrative charges for various clandestine violations of NAFDAC rules, regulations and enactments over a long period of time and was ordered to pay the fine within two weeks.
But the fine dished out against MTN, the largest telecommunication company in Nigeria was the biggest. It constituted the biggest confrontation between the Nigerian State (Federal Government of Nigeria) and a private conglomerate doing business in Nigeria. It also marked a critical stage in the contemporary history of Nigeria regulatory authorities in their renewed efforts to re-engineer themselves for effective service delivery to the public consequent upon regime change that took place in the country through the 2015 general elections which brought a new political party to power both at the national and state levels.
MTN naturally resisted, ran from pillar to pole, in an attempt to wriggle out of the looming crisis that is capable of eroding its financial base for a long time to come. It deployed instruments of diplomacy without success. When diplomacy failed to achieve anything for the company it headed for court to seek legal redress. The court decision was not also favourable. The President of South Africa, Mr. Jacob Zuma also came to plead on behalf of MTN. This did not also succeed to sway the Nigerian Government.
The complexity science analysis of this crisis in the telecom sector must seek to understand the legal and institutional framework through which the Nigeria Communication Commission took the decision to impose the fine on MTN. In the current case of Etisalat, the NCC is playing a different role: that of a peace-maker. Similarly, the foreign exchange policy of the CBN escalated the crisis for Etisalat by inhibiting its ability to service its loan suites because of the high exchange rate – then turn round to soothe the nerves of Etisalat by its tepid intervention.
The impact of the Etisalat crisis on the image of Nigeria is not lost on keen observers of the unfolding events. It is not only Etisalat that has suffered a damaged brand name from public perception of the disaster that came to land at its door at its own invitation – but more so the country and its regulatory institutions that were not able to resolve the crisis before it blew up on the faces of the parties concerned. The pull-out of Emirates Telecom Corp from Etisalat Nigeria is a snub on the Nigerian political economy even when we are proclaiming to the heavens that the economy is now recovering from recession.
The telecom sector is still going through an evolutionary process through which some of the service providers have gone through metamorphosis from one entity to another, changing names and brand identities in the process of this evolution or metamorphosis. ECONET went through its own crisis and/or evolutionary pains to become AIRTEL that it is today.
The big question for Etisalat is: what is on ground to show that it has judiciously deployed the suite of loans it obtained from the banks for the very purpose for which the loans were obtained? This question is pressing to disabuse the mind of the public that it did not misuse the funds. Was Etisalat losing its market share of the increasing subscriber base without telling the public? If Etisalat is losing its market share through intense competition why then was it not making profits to offset its loan or to be able to service the loans regularly?
Critical interrogation and analysis would not be unmindful of the prevailing business environment. The harsh operating business environment including internal corporate mismanagement, but not so much as a result of policy inhibitions, have largely contributed to the difficulties of the telecom sector. The economic recession since 2015 provides empirical evidence of the harsh operating environment. The lenders were hard on Etisalat because they in turn were under pressures to recover the bulk of the loans to the borrowers in order to balance their account books that are visibly cracked open. The banks’ balance sheets for 2016 showed a huge impairment of fund i.e. funds trapped as bad (toxic) or non-recoverable loans. That is the ultimate deciding factor that dragged Etisalat by the cuff and had it thrown into the furnace of financial inferno.
The debt crisis faced by Etisalat is a symptomatic expression of a deeper malaise afflicting the Nigerian political economy as a whole especially in the post-military era: how to scientifically manage debt peonage in a nexus of growing and contrasting economy (or in an emerging or frontier economy). Nigeria is just slowly out of a debilitating economic recession. Debt recovery such as provided by the empirical case-study of Etisalat is part of the overall economy recovery. It is easy in this case because Etisalat is a private sector entity. If it had been a public sector entity, the music would have been different because such a public sector entity would have received overt or covert backing of the Federal Government. For instance, if all the public sector entities pay what they owe the private electricity companies; this would have impacted positively on the energy service delivery.
The economic recession has contemporaneously put both public and private sector entities through different (or similar) experiences, mode or trajectory of change (belt-tightening measures), success results and ratios, and/or outright failures. Such a contemporaneity provides the empirical and theoretical foregrounds for case-by-case or collective management study of business failures and successes in times of economic crisis/recession.
Both the NCC and CBN could not stop Etisalat from being bullied and kicked around by its coterie of Shylock money lenders. Etisalat paid with its pound of flesh and pints of blood by having its core investor, ETS, pulled out, by having its Management disqualified publicly and thrown out of the boardroom unto the streets. The Management Team was matched out into the raining season. Hope it was given umbrellas to cover their heads!
The withdrawal of Emirates Telecom Corporation from Etisalat Nigeria at the time the latter needed it most was the last straw, a devastating blow to the solar plexus where it is most painful. It was an end-game movement on the chessboard! It was first of all a vote of no confidence in the Management Team headed by Hakeem Bello-Osagie. It was also a snigger on the Nigerian economy as a whole. Ominously, it is telling us something about the recovery from recession that is being trumpeted about by government officials in the last few months. The recovery is paper-weight! The economy is still flat-footed!
Etisalat may have been badly knocked on the head but it was not knocked out. It burnt its fingers but the fingers were not amputated because they were given plastic surgery! The hope is that Etisalat has learnt its lessons from this shocking episode.