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MTN vs. Nigeria: on the perils of investment in Nigeria, or the arrogance of South African multinationals?


MTN vs. Nigeria: on the perils of investment in Nigeria, or the arrogance of South African multinationals?

MTN vs. Nigeria: on the perils of investment in Nigeria, or the arrogance of South African multinationals?

In late August this year, MTN was ordered by the Central Bank of Nigeria (CBN) to return around US$8.1 billion alleged to have been illegally repatriated (to its South African parent company) between 2007 and 2015. This order was accompanied by fines on the banks alleged to have facilitated the illegal repatriation. Days later, MTN reported that it was also in dispute with the Attorney-General (A-G) over the underpayment of taxes of around US$2 billion. While it is impossible to tell from media reports who is in the right in these latest regulatory skirmishes, it has raised questions about Nigeria’s foreign investment climate and the actions of South African multinationals on the continent.

Headquartered in Johannesburg, and listed on the Johannesburg Stock Exchange, the MTN Group has operations in multiple African countries and the middle east. Nigeria is one of the most important markets for MTN, where it operates through a subsidiary.

MTN insists that repatriations were authorized, and tax calculations have been made incorrectly by the A-G. The amounts are significant in the context of MTN’s operations, with earnings only US$3.3 billion in total in 2017.[1] The MTN share price crashed on the news.

The announcements were followed by media commentary on the risks of investing in Nigeria and the potential political or fiscal rationales that might have been driving the fines/orders, as well as reports highlighting MTN’s poor reputation and supporting the apparent crack-down on big investors.

Soon after the CBN order was made public, there were calls for diplomatic intervention from South African commentators. Reports suggested MTN had been asked to explain the situation to South Africa’s Department of International Relations and Cooperation and that the Minister for Communications was ready to intervene.

Subsequently, reports have suggested that the CBN is considering further information and an amicable settlement will be reached.

MTN is an important part of the Nigerian communications environment, providing much needed competition as well as investment opportunities and jobs for Nigerians. The Nigerian market is also a critical part of MTN’s operations bringing investment returns and creating jobs for South Africans. This is exactly the kind of pan‑African success story that proponents of greater continental integration hope to bring about. On the other hand, the reporting on this also reflects the suspicions of foreign investment and more African integration – on one side, the narrative of the arrogant multinational exploiting the people of the lesser developed economy; and on the other, the self-interested government ignoring the rule of law to take advantage of the wealthy foreign investor.

As we move towards the realisation of the African Continental Free Trade Area, it is relevant to consider how this kind of unpredictability could be avoided for the benefit of all stakeholders.

For this case, enabling the free movement of capital within Africa may have avoided the issue. There is already a bilateral investment agreement in place between South Africa and Nigeria – intended to promote legal certainty and protection for investors such as MTN. This agreement provides that the both Nigeria and SA must allow the free transfer of payments. The agreement also prohibits expropriation without appropriate process and compensation. MTN’s share price has been severely impacted by the CBN action, thus potentially giving rise to an indirect regulatory expropriation.[2] The existence of this agreement, and perhaps the threat of its use may have been a factor in the apparent ‘back down’ of the regulator in this case.

This latest clash with regulatory authorities comes while MTN is still recovering from an approximately $1 billion settlement with Nigerian communications regulators in 2015 in respect of its failure to deactivate unused SIMs. There seems to be a pattern of a very loud and very bold Nigerian regulatory action, followed by a reconsideration. Whether this is the result of political pressure on one side or the other, perhaps this kind of volatility could be mitigated by greater regulatory cooperation between the South African and Nigerian regulators. Central Banks already cooperate under the auspices of the Association of African Central Banks, and there seems to be some cooperation among communications regulators. But there is certainly potential for additional regulatory cooperation to be facilitated by the African Continental Free Trade Area Agreement (AFCFTA).

MTN is also not without fault. The group does not have a good reputation on the continent. Along with the Nigerian issues, it has also faced regulatory sanctions in Rwanda for licence breach, in Benin regarding fees and in Uganda for anti-competitive behaviour. Tax authorities across the continent are reported to be interested in the remittances of ‘management fees’ to low-taxing jurisdictions including Mauritius. In Nigeria, the telecoms giant has also been accused of unfair labour practices.

The yet to be implemented Pan-African Investment Code (PAIC), will likely provide a basis for the investment protocol to the AfCFTA. The ideas in the PAIC may assist in developing a useful legal structure to assist in preventing disputes such as that in the case of MTN Nigeria. The PAIC includes not only protections for investors, but also obligations on investors, including corporate social responsibility obligations. Perhaps if MTN were expected to meet these higher standards as a condition of investment, the negative sentiment toward the company may not have escalated to such a level.

Whether a legitimate regulatory action or not, the reputation of Nigeria as an investment destination, and MTN as an investor have been damaged by this dispute. Freer capital flows, more regulatory cooperation and more obligations on investors may go some way to mitigating this kind of damage in the future. However, hyperbolic media and investor reactions along with CBN’s overly bold communications strategy also contributed to the damage. These are not problems we will solve with international legal instruments.

[1] Earnings before interest, tax, depreciation & amortisation – 2017. MTN Group Annual Financial Statements 2017


[2] See UNCTAD (2007) for a discussion on regulatory expropriation Investor-State Dispute Settlement and Impact on Investment Rulemaking http://unctad.org/en/docs/iteiia20073_en.pdf

About the Author(s)

Ashly Hope (Volunteer)

Ashly is a professional volunteer with the Australian Government’s Australian Volunteers for International Development Program. She served as Research Coordinator (Trade in Services and Regulation) at tralac. Ashly has experience in policy advice and analysis in financial regulation, international economic governance and international tax. She holds a BA (Political Science)/LLB from the University of Tasmania, and an LLM (Government and Commercial) from the Australian National University.

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