Karl Toriola
Karl Toriola, CEO, MTN Nigeria


South Africa owned telecommunications giant, MTN Group, is adopting strategies to mitigate growing risk in Africa’s most populous country, as dollar scarcity in the country continues to affect its ability to repatriate profit, even is political atmosphere is becoming more volatile.
Despite business challenges compounded by the Covid-19 pandemic, the Nigerian branch of the Telecom firm, MTN Nigeria, posted service revenues of of N1.3 trillion ($3 billion) for 2020, to cement its place as the dominant player in the sector.

The firm closed the year with a profit before tax of N298 billion ($781 million), even as it added 12.2 million subscribers which brought to its total active subscriber numbers to 76.5 million almost times two of the 44.4 million of Airtel.
MTN’s active data users also rose by 7.4 million which brought its total number of users to 32.6 million in the year 2020 making it the leader. However, scarcity of dollars in the country has become a clog on the wheel.

Of the N205.21bn profit after tax declared by the firm for the year, an increase from N203.28bn in 2019, more than half, N108 billion ($280 million) could not be repatriated on account of dollar scarcity.

Last week, the company’s president and Chief Executive Officer, Ralph Mupita, during a visit to Aso Rock Villa, Abuja, announced that it plans to sell down 14 percent stake to Nigerians, a move analysts say is aimed at reducing risks in the country.

“Whenever corporate organizations, especially multinationals face foreign exchange risks, there are couple of ways that they try to mitigate it. One of them is to hedge. This, of course, presupposes that you anticipate emerging scenarios and you are able to hedge yourself out of the risks.

But hedging goes with significant costs,” noted Dr. Bongo Adi, economic consultant and senior lecturer at Lagos Business School.

“Of course, it still goes along the lines of what I have already said. Diversifying, bringing in a little bit of equity dilution. Also, it’s a way of mitigating their risks. So, they are not carrying huge equity risk. If they hand over 14 percent to Nigerians, when there is crisis; when it comes to returns, the equity holders are the last to be compensated.

“It’s also a way of selling off a portion of their stake. A significant portion actually. 14 percent is not small. Selling 14 percent to Nigeria is also a way of telling you that they are gradually divesting, so to speak. You may see that as positive, but you can also say that these people are perceiving Nigeria to be a high risk territory.
“So, the best thing is to seek a way out. They are asking, how do we harness our stake and take it out? So, they are kind of offloading risky assets to Nigerians.”

Though oil prices have ticked upwards in the last four months, Nigeria, Africa’s largest producer of crude, still has a crunching forex crisis. Oil accounts for more than 90% of Nigeria’s foreign earnings. Recent rise in crude oil prices to over $70 per barrel ought to be good news.

But for a country that still imports refined products for domestic consumption, rise in global crude prices is both good and bad news. Subsidy payments take a chunk of the crude oil earnings. About 30 percent of dollars earned from selling crude is used to import refined crude.

“What MTN is doing is also in consonance with what we see in the oil and gas sector,” Adi said. “Some of the oil majors over the years, especially as the foreign exchange rate increased, embarked on downsizing their investment in Nigeria; liquidating some of their assets by selling off to Nigerian investors.
“Yes, in a way, it’s opening the door for Nigerians to get into all those assets, but it also a signal to the increased perception of Nigerian risk.”

Of the $53 billion the country spent on importation in 2020, importation of refined oil accounted for $8 billion. Demand for dollars outstrips supply. From January 1, 2021, the naira had gone from N382 to the dollar to N411 to the dollar in the official market. But currently hovers around N500 to the dollar in the open market.

Earlier in the year, Mupita, announced suspension of dividend payments for 2020 partly because of its inability to repatriate profit from Nigeria on account of scarcity of dollars. Mupita had said a revised medium-term dividend policy will be communicated when the 2021 financial results are released in 2022.
“Cash up-streaming from Nigeria remained challenged in terms of securing foreign currency in the market. During 2020, we up-streamed the equivalent of approximately R286 million from Nigeria, with approximately R4.2 billion yet to be repatriated as of 31 December 2020,” he said.

“In light of these material uncertainties, the board has also suspended the dividend policy and anticipates communicating a revised medium-term dividend policy when we announce our 2021 results in March 2022.
“On assessment of the progress of cash upstreaming from Nigeria, ARP delivery and COVID-19 impacts, the board will consider returning further cash to shareholders in the form of special dividends or share repurchases after the release of 2021 results.”

Analysts say the firm is adopting two-pronged approach to navigate the challenges, one being reducing exposure and the other, ploughing back un-repatriated funds into expanding investments in the country.

Last week, the firm announced plans to invest N640 billion (approximately US$1.5 billion) over the next three years to expand broadband access across Nigeria, in line with the federal government’s 2020-2025 National Broadband Plan and in support of MTN Group’s strategy, Ambition 2025: Leading digital solutions for Africa’s progress.

“Nigeria is one of our most important markets. We have a proud history of partnering with Nigeria and Nigerians to drive faster and more inclusive growth through digital transformation,” said Mupita after a three-day visit to Abuja and Lagos, in which he met a number of key stakeholders.

These included President Muhammadu Buhari; Vice President Oluyemi Oluleke Osinbajo; Minister of Communications and Digital Economy Dr Isa Ali Pantami; Executive Vice Chairman Prof Umar Garba Danbatta; as well as Central Bank of Nigeria Governor Godwin Emefiele.

The MTN Group President – who was accompanied by MTN Group Chief Financial Officer Tsholo Molefe, MTN Nigeria Chairman Ernest Ndukwe and MTN Nigeria CEO Karl Toriola – reiterated MTN’s support for Nigeria’s plans to secure 90% broadband population coverage by 2025.

This aligns with MTN Group’s belief that everyone deserves the benefits of a modern connected life and our work to extend digital and financial inclusion across Africa.
The delegation welcomed Nigeria’s plans to auction 500MHz of 5G spectrum: five blocks of 100MHz in the 3500MHz band, which Mupita said would facilitate accelerated broadband access.

The firm also announced plans to sell down 14 percent of MTN Nigeria to Nigerian investors were well advanced and this would happen as soon as conditions were conducive.

MTN Nigeria, in which MTN Group has a 78.8% stake, sought to have the largest retail shareholder base on the Nigerian Stock Exchange, where it has a market capitalisation of 3.4 trillion naira (US$8.2 billion).
“To mark the 20th anniversary of MTN’s operations in Nigeria, MTN Nigeria plans to build a new flagship headquarters in Lagos,” concluded Mupita.

Funsho Aina, MTN Nigeria’s spokesperson confirmed to our correspondents that the firm is targeting over 2million retail investors, and the process will begin “when everything that needs to be in place is in place.”

A combination of insecurity and rash government decisions, such as the sudden decision to suspend, indefinitely, the operations of social media platform, Twitter, analysts say, are sending the wrong signals to foreign investors, and such signals may have caused the Telecom giant to make certain adjustments.

“The environment is not as conducive. You see for instance, the decision by the government to stop SIM registration reduced their number of subscribers,” said David Adonri, Vice President of Highcap Securities Limited.

“As of last month, their subscription figures declined by over 10 million; and like you said, they are finding it difficult to repatriate their profit. Again, from what the federal government has done to Twitter, which is a communication platform, is also a signal to foreign investors that their investment is not really safe in the country. That might be some of the reasons they are trying to reduce their stake in Nigeria.”
But on the flip side, Adonri said the decision to sell more stakes to Nigerians is positive because it will be an opportunity for more Nigerians to partake in the fortunes of the firm.
“They are also giving Nigerians more stakes. You know, MTN is a cash cow. If they increase the number of Nigerians to share in the wealth, it’s good for the country,” he said.

Adonri also explained that the company’s decision to invest N640 billion over the next three years to expand broadband access across the country is a positive development as it suggests that it understands that the present challenges are not permanent.

“The funds cannot be idle, and this is an opportunity to expand their investment. I think they may also understand that the challenges in the country now are as a result of the leadership of the country. And by 2023, if there is a change of leadership, investor confidence will be restored.”

For Adi, the investment is evident that the dollar scarcity is also, in a sense, a blessing in disguise.

“Another option firms take to mitigate foreign exchange risks is to explore how to optimize the value of their assets in the interim. So, one of which ways will be to, like MTN is doing now, try to diversify or expand their offerings within the market they operate,” he said.

“That makes a lot of sense where there are huge opportunities, as there are in Nigeria. There is still huge scope for maximising profit, huge scope for expanding assets. So, there is still huge scope for both economy of scale and economy of scope. Scale in the sense that the expansion of penetration still has a long way to go before the entire nation is covered.

“Scope in the sense that there are so many ancillary or allied products and services that MTN can introduce into their existing service offerings at little or no cost. That gives them enormous advantage to do what they are doing now, to use the opportunity that has been created.

“Of course, this is like an unintended consequence of the inability to repatriate their funds to South Africa. Yes, it’s like a blessing in disguise.

“For Nigeria’s economy, yes, it’s also a blessing in disguise in the sense that the policy makers, whatever they are doing that has caused the exchange rate to continue to oscillate, they never intended that it’s going to have any positive fallout. But that’s what it appears to be as it is right now.”