No Nexit with MTN’s fate tied to Nigeria

With the country being its largest market, the telecom giant has no choice but to smile through the currency pain, analysts say

MTN has announced that it is exiting Guinea-Bissau and Guinea-Conakry in a bid to leave some markets in West Africa. But the telecoms giant can’t make a similar escape from Nigeria, which has dealt the company a costly currency-related hit.

Africa’s largest network operator by subscriber base released its annual results for 2023 earlier this week, reporting a slump in earnings as it suffered a blow from Nigerian naira’s devaluation.

Headline earnings decreased 72% to R5.7 billion for the year compared to an increase of 15.3% to R196. 5 billion the year prior. 

Nigeria sharply devalued its currency for the second time in eight months in January. This was done to unify the country’s system of exchange rates and attract investment. 

Nigeria has operated multiple exchange rates for the naira, with the official exchange rate dictated by the central bank. But a higher unofficial rate determined the price of imported commodities.

The currency devaluation cost MTN R21 billion in foreign exchange losses. 

“They cannot exit Nigeria,” said Makwe Masilela, of Makwe Fund Managers. “They don’t want to exit Nigeria. It’s their biggest market.” 

MTN, which began operating in Nigeria in 2001, is the country’s largest operator with more than 50 million subscribers. Nigeria is an important market for MTN as it accounts for about a third of the telecoms profit.

The company’s annual results show that service revenue in Nigeria increased by 22.1% from R60.4 million to R73.8 million. In South Africa the service revenue increased by 2.5% from R40.8 million to R41.8 million. Moreover, while subscribers in the latter country grew 2.4% to 36.5 million, in Nigeria they grew 5.3% to 75.6 million.

“The devaluation of the currency can happen at any time. It would not be reason enough for MTN to exit Nigeria,” Masilela added. 

Masilela noted that countries devalue their currencies for various reasons, citing China, which devalued the yuan in 2015.  “[I]t’s not a bad thing to happen,” he added. 

China devalued its currency three times, knocking 3% off its value, to boost exports. By devaluing its currency, China lowered the price of its exports and gained a competitive advantage in international markets. A weaker currency also resulted in costlier imports, encouraging the production of substitute products at home to assist domestic companies.

The prospect of a Nigeria exit has come up many times over the years, as MTN endured successive run-ins with regulators.

In 2016, MTN received a $1.6 billion fine for failing to disconnect about five million mobile subscribers. At the time, Nigerian authorities were cracking down on unregistered SIM cards in the country that could be used for criminal purposes. 

Four years later, MTN agreed to pay a $53 million fine, which settled a long-standing tax dispute with Nigerian authorities relating to dividend repatriation in breach of foreign exchange rules. 

Peter Takaendesa, head of equities at Mergence Investment Managers, said the time to think about exiting Nigeria is when the currency is strong, not when the currency has been devalued. 

“MTN would want a chance to recoup some of the value it lost and it cannot do that now. So it has to hang on for a while,” Takaendesa said. 

He said MTN still thinks it has some value in Nigeria and is optimistic about its long-term position in the country. The telecoms company will stay in the country until the government or regulator becomes unreasonable to the extent that it is no longer possible to extract value from it, he added.

“I think both sides understand very well that they need each other and they always tread carefully,” he said. 

MTN is the second biggest corporate taxpayer in Nigeria after the Dangote Group. Because of this, losing MTN is a costly prospect for the Nigerian government, Takaendesa said.