Beforethoughts and afterthoughts

Disclaimer:
I do not hate MTN.
Though I will rate their service 2 out of 10
I am indifferent to Globacom,
Though their tariffs are burdensome
And I have nothing against Zain,
Though the call rates are a bit insane
I do not have SA-phobia
It’s just that I am from Nigeria.
In 2001, the Federal Government of Nigeria licensed a number of companies to carry out GSM telephone operations in the country. They were charged a record $285million back then. This seemed like a good bargain for the coffers of the country, but I recall a friend drawing my attention to the doom the arrangement may spell in future. Two of the licensed operators were ostensibly owned by non-Nigerian interests and presumably brought in capital from outside the country to establish their operations. Given Nigeria’s eagerness to attract foreign direct investments, anyone who imports capital into Nigeria is entitled to repatriate dividends back to his / her country via official channels; i.e. buy foreign exchange at official rates using Form “A” and transfer the dividends back to their country. This arrangement, I believe is fair to all concerned if used with discretion.

At the time these operators were granted their licences, none was required to be listed on the floors of the Nigerian Stock Exchange, a move which in itself would have deepened the capital markets. I am not aware that there was a requirement for minimum equity participation by Nigerians to forestall the magnitude of capital flight that would ensue when these companies would start paying dividends. With due credit to the government for even having granted the masses a taste of mobile telephony, all that was on the minds of those in power was how to get $570 million dollars from MTN and Econet. Well, we have collected our licence fees and we have made a Faustian pact with Mephistopheles himself. We have entered a never-ending mortgage and now is the time to pay.

“MTN paid $285m for one of four GSM licenses in Nigeria in January 2001. To date, in excess of US$1.8 billion has been invested building mobile telecommunications infrastructure in Nigeria.” Having exhausted the 0803 and 0806 range of subscriber numbers, I can safely infer that MTN Nigeria (hereinafter referred to as “MTN”) has over 20 million subscribers in Nigeria. At the end of September 2008, the Nigerian subcriber base for MTN was 24.64% of the total subscriber base for the MTN Group. That is more than estimated combined population of the Republic of Benin and Togo. That is marginally smaller than the estimated national population of Ghana. That translates roughly to having a subscriber in 80% of the homes in the United Kingdom. That translates into a lot of people.

If each month, every MTN subscriber spends N1500 on calls, this implies an annual revenue of N360 billion. That’s right – N360 billion; $3billion; £1.64billion. That is a cash cow; nah, make that a cash elephant. I am not privy to their financial statements (I’ll come to that in a bit), so I can’t say for certain. I am only going by publicly available information. If MTN only manages to make a net profit margin of 15%, the shareholders of MTN would be going home with N54billion every year, all cash based; – that is way more than the minimum capital requirement to start a bank in Nigeria. That is a splendid financial position to be in and I for one, would not mind being there. This situation by the way is quite similar for the GSM telephone operators licensed pre-2003. And by the way, Average Revenue Per User (ARPU) for MTN Nigeria for the quarter ended September 2008 was $17.

Permit me to carry out a similar analysis for M-Net. A management staff of M-Net was reputed to have said the company only had 150,000 subscribers in Nigeria. I am tempted to dispute that figure, but that’s beside the point. On a subscriber base of 150,000 and assuming each subscriber pays N8,000 a month as subscription, the cable-sat company would be raking in N1.2billion every month and N14.4billion every year.

Nigeria has a foreign exchange control regime in place that makes it illegal to sell the Naira (i.e. change forex) without documenting the transaction underlying the exchange. So, if you want to import, you have to fill a Form “M” / “A” and based on that, the CBN, through your bank sells the required foreign currency in exchange for the Naira equivalent. Depending on the net volume of foreign currency required, the Naira appreciates or is devalued against the respective currencies. In a very rudimentary analysis, if more foreign exchange is used up in imports than in made from exports over a period, the Naira “falls” against other currencies and the converse also applies if more foreign exchange is gained. The case is worsened if foreign exchange is taken out of the country without a commensurate inflow of goods or services.

If MTN is owned at least 51% by MTN South Africa (and the percentage of ownership is higher than this) and dividend payout rates of 80% are maintained (in line with that of other multinationals like Nestle and Nigeria Breweries),N22 billion ($184million) would be leaving the economy annually as dividends to the parent company in South Africa. The rest would be paid to individuals who have participated in private placements of one sort or another. The financial statements of MTN would not be required for publication in Nigeria because it is not a publicly quoted company. The depth and stability that an equity investment of this nature would have provided for the capital markets may never materialise. All these for $285 million (read: “a mess of pottage”).

I have excluded from my analysis, “technical agreement payments” and expatriate salary payments made to the parent company, details of which, we may never be privy to. The lopsidedness of these fund flows may be skewed further in the case of M-Net, which arguably has no infrastructure investment in Nigeria. Whilst there may be other benefits accruing from this arrangement, I am not in a position to argue for or against that.

I am not singling out MTN for criticism, as these benefits of opacity, by the way, would accrue to Zain. These benefits accrue to Shell. These benefits accrue to Mobil Producing. These benefits accrue to ChevronTexaco. These benefits accrue to endless business concerns of strategic national importance, whose foreign owners had a better assessment of the Nigerian leader’s mind and were willing to offer little more than a mess of pottage, that the profits of the country’s economic birthrights would forever be carted away – legally – to foreign shores; to places where the parent companies are listed on stock exchanges and where they are continually compelled to disclose more about how and what they do to earn their huge revenues.

I imagine for a moment, if just 25% of Shell Petroleum Development Company’s shares were listed on the Nigerian Stock Exchange, or Zain, Chevron or MTN. A lot of the mediocre equities that rose to stratospheric values may never have even shown any sign of life, and the attendant shocks that accompanied their crash would easily have been avoided. Granting public access to the published accounts of some of these firms (which would be required if they were listed), would definitely shed more light on the scope of their activities in the country as well as provide better insight on the capacities within their respective sectors.

I do not advocate a reversal of the rules now – it would be unfair to MTN, Shell, Mobil or other foreign entrepreneurs. And I certainly do not propose government participation in, or the nationalisation of, the equity ownership of these firms. It is however not too late to stem this haemorrhage. I do not envisage that the UK government, for instance, would be happy to see me pay out, year in year out, £100million as dividends to non-residents, whilst paying less than that to resident shareholders. Incentives and fiscal policies would have been implemented to ensure that the funds stay in the economy or at least are taxed before such funds flight becomes an economic problem.

The impending foreign reserves depletion that would accompany dividends payments by these companies over the next few years, is something I pray fervently against. Who knows, petroleum prices may rise again to $147 / barrel. Or Ilesa would be discovered to have the largest deposit of gold in the world. Or Tinapa would become the next Dubai. Or our leaders may truly wake up and get their fiscal management acts together.

If my friend, to whom I owe this article, foresaw some of these problems in 2003, I still stand aghast and I am appalled by the inability or unwillingness of our leaders to see and address them. But then, perhaps the only thinkers in the country are the folks who do not hold public government post. Maybe, maybe not.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s