MTN and the golden eggs

I read the tale of the “goose that laid the golden eggs”, part of Aesop’s Fables, when I was a young child. It’s a story that has been ringing in my head in the past few weeks – a cottager and his wife were fortunate to own a hen that laid a golden egg every day. The family was on the way to wealth and comfort as their daily golden egg could assure them of a decent livelihood. However, the farmer and his wife imagined that for the hen to lay a golden egg every day, it must contain a great lump of gold in its inside; and in order to secure the entire supposed treasure at once, rather than over an undetermined period of time, they killed the hen! Having done so, they found to their surprise that the hen differed in no respect from their other hens. An account of the fable in Wikipedia notes that “the foolish pair, thus hoping to become rich all at once, deprived themselves of the gain they were assured day by day”.

The story, like most fables, fairytales, bedside or moonlight stories, has a clear morale – it’s a caution against precipitate actions motivated by greed or impatience that may turn out unprofitable whereas a patient, considered approach may yield sustained, longer-term benefits. The English idiom warning against “killing the goose that laid the golden eggs” derived from this fable and generally discourages short-sighted actions that destroy the long-term profitability of an asset, enterprise or community!

In Nigeria, MTN has literarily been, over the past decade and a half, a goose that lays golden eggs! The organization has between inception and 2014 paid reportedly over N1.3 trillion in various taxes to government; it is responsible for about 5 percent of all taxes and 11 percent of non-oil taxes paid in Nigeria. In addition, the company pays N4 billion every quarter in regulatory charges to the telecommunications regulator, National Communications Commission (NCC), amounting to N16 billion every year! The telecommunications sector, since 2001 when the digital mobile licence auctions were carried out, has been Nigeria’s star non-oil economy, growing from less than 1 percent of national GDP to approximately 10 percent (that’s the information and communication sector, in which telecommunications is overwhelmingly dominant) and MTN has accounted for roughly half of that sector. By the way, in this season when the imperative of national economic policy is to build a strong non-oil economy, anything which threatens our leading non-oil sectors – telecommunications, manufacturing, real estate, trade and agriculture – may be counter-productive.

Unfortunately, as I mentioned on a Channels TV discussion on January 2, 2016, the trends are actually in the opposite direction. Trade and manufacturing activities are being undermined by foreign currency shortages; the growth segment of real estate, retail mall construction, is threatened since the underlying driver, trade, is impaired; and investment in telecommunications may be impaired by developments around the humongous N5.2 billion (or $3.9 billion) fine imposed on MTN by the Nigerian government and NCC. I do not wish to go into the actual issues around the fine, which being subjudice, will be resolved by the courts, but from an investment point of view, while effective regulation is critical in Nigeria, capricious regulatory decision-making will be another disincentive to business! As I have said publicly elsewhere, I imagine that a potential investor sitting in, say, South Africa, will be severely discomfited observing the purported fine of N1 billion imposed on Stanbic IBTC by the Financial Reporting Council of Nigeria as well as “suspension” of its directors (also now before the courts) and the MTN saga. The Central Bank has also imposed hefty fines on various banks, with NAFDAC adding a purported N1bn fine on Guinness Nigeria, which has also proceeded to court for protection!

Evidence from the global telecommunications industry will call to question the size of Nigeria’s purported fine! All my research suggests that the largest fine imposed by a telecommunications regulator on a telecommunications operator anywhere in the world is a $100 million fine on AT&T by the US FCC! AT&T is multiples the size of MTN and the US telecommunications market is multiples the size of Nigeria’s! The other proximate figures which, though imposed on telecommunications operators, were by competition authorities for anti-competitive actions, were $71.3 million on Vivendi in December 2012 by the French Competition Authority; $112.7 million on Telecom Italia in May 2013 by the Italian Competition Authority; and $127 million on Orange in December 2012 by the French Competition Authority. Even a very recent fine of $380 million on Orange for abuse of competitive behaviour just announced on December 17, 2015 by the French Competition Authority is less than 10 percent of Nigeria’s now reduced fine of $3.9 billion! One can understand why global analysts are genuinely and justifiably puzzled by developments in the Nigerian telecommunications space!

The other level of absurdity is illustrated by analysis done by WSTC Financial Services and published by BusinessDay on December 17, 2015 which compares the largest global fines across industries to the company’s market capitalization, net assets and revenues – they all show that the Nigerian case is an extreme outlier across all indices! There have been two dominant “business cases” on investing in Nigeria between 1999 and now – Virgin Nigeria was a tragicomedy and Nigeria was lucky that the MTN case study drowned out Richard Branson’s warnings to the world not to invest in Nigeria! My sense is that it is in the interest of all parties, Nigerian government, NCC, MTN and the Nigerian economy, that the matter be resolved amicably and reasonably to prevent another Nigerian “lose-lose” outcome!