South African cellphone giant MTN Group suffered stock losses after being fined $5.2 billion by the Nigerian government.Sunday Alamba/The Associated Press
Seven months after a dramatic election that toppled Nigeria's government, the world is still waiting for a clear economic policy to emerge in Africa's most populous country. But its shocking decision to demand a $5.2-billion (U.S.) fine from a cellphone company is offering some early hints of change.
The fine has triggered turmoil and stock losses at MTN Group, the South African cellphone giant, which is frantically struggling to get the size of the Nigerian penalty reduced. It also sheds light on the stern disciplinary attitude of President Muhammadu Buhari, the retired army general and former coup leader who won the March election.
Mr. Buhari still has not named a finance minister or settled key questions about Nigeria's embattled currency. The country has slumped to its slowest growth in a decade because of falling oil prices.
But, as the biggest economy on the continent with vast oil wealth and a population of nearly 180 million, Nigeria remains a fascinating target for foreign investors, who see it as a potentially important consumer market in the future.
That is why so many investors have been rattled by Nigerian regulators' stunning announcement that they had fined MTN $5.2-billion for failing to cut off unregistered SIM cards. Few people doubted that MTN had violated the regulations, but the sheer size of the fine caused an uproar.
MTN, the biggest mobile phone company in Africa, with 62 million subscribers in Nigeria alone, has seen its stock plunge by about 25 per cent since the fine was announced last week. On Monday, the Johannesburg Stock Exchange suspended trading in MTN shares for several hours because the stock was being hammered by reports that the company had agreed to pay the entire fine. The company denied the reports, insisting it is "engaging" with the Nigerian government to reach a "mutually agreeable" solution.
Nigerian officials have expressed concern that criminals or terrorists could use MTN's unregistered SIM cards – numbering more than five million – as a way of evading police surveillance. The huge fine is seen as evidence that Mr. Buhari's highest priority is not the economy but national security and the battle against the Boko Haram terrorist organization, which has killed thousands of civilians with bombs and bullets in recent years.
The MTN fine, along with smaller ones against two Nigerian banks for violating banking regulations, is also seen as an indication that Mr. Buhari will demand strict enforcement of regulations that were often ducked in the past. Nigerian officials have accused MTN of ignoring repeated warnings to deactivate all SIM cards that were not properly registered with the photos and fingerprints of the owners.
Corruption and lax regulation have long plagued Nigeria, allowing revenue to leak from official channels and keeping most of its people poor while a politically connected elite became rich. But the crackdown on MTN suggests Mr. Buhari wants to run a tighter ship. He has already moved to take tougher action on corruption in the oil industry.
"This is a government that won't tolerate business as usual," said Dianna Games, head of a Johannesburg-based business advisory firm, Africa@Work, and a specialist in Nigeria's economy.
"This is a wake-up call to investors. It's a very strong lesson for MTN and other companies that the government won't tolerate these violations of regulations."
But the massive size of the MTN fine has fuelled allegations that the government is simply making a cash grab at a time when it lacks budgetary funds for its election promises. The $5.2-billion amount is equal to more than one-third of the Nigerian government's total revenue in the first half of this year and it would wipe out MTN's global profit for the past two years.
"The punishment doesn't fit the crime," Ms. Games said in an interview on Tuesday. "The issue is the unpredictability of it. The size of the fine seems shocking and unreasonable. Surely the intention is not to bankrupt one of Nigeria's biggest investors."
MTN gave investors some reassurance on Tuesday when it announced that Nigerian regulators had agreed to renew the company's operating licence and operating spectrum for five years for a fee of about $94-million. The licence and spectrum had been due to expire in February. An MTN spokesman said the five-year extension was "a demonstration of confidence" from the regulators.
Despite the MTN turmoil, other foreign investors are still interested in Nigeria. At an Africa business conference in Johannesburg on Tuesday, an executive of U.S.-based Kellogg Co. praised the Nigerian market. "It's a really diverse economy, not just driven by oil," said Gerald Mahinda, managing director for sub-Saharan Africa for Kellogg, which recently invested $450-million in a Nigerian food sales company.
"Over the long term, you can manage the risks, because the returns on investment are so high," he said.