What’s going on with Nigeria’s telecom operators now?

Fluctuating exchange rates across Africa are currently putting a strain on telecom operators, with prominent players such as MTN and Airtel revealing how severely their coffers have been hit in recent financial results.

The holes blown in each ship’s hull were attributed to Nigeria, as the sharp devaluation of the Nigerian Naira adversely affected all businesses operating in the “African Giant.” This nickname comes from the fact that it is the most populous country in Africa. Continent (223 million people).

Nigeria’s huge population makes it an attractive location for telecom operators to enter and expand, but the situation is currently proving dire.

MTN revealed that profits had fallen 83% year-on-year to R4 billion (US$221 million), while Airtel Africa recently said that the US$89 million profit drop was due to “exceptional derivatives.” The company claimed that it was responsible for a US$549 million tax bill due to “foreign exchange losses”.

In 2021, the Central Bank of Nigeria introduced a new exchange rate system that pegs the Naira to the US dollar rather than devaluing it to increase liquidity. The move was caused by falling oil prices. The country is Africa’s largest crude oil exporter.

The central bank’s plans failed to materialize, instead creating problems for companies planning their future strategies. This led to a sharp rise in the black market for dollars, prompting the IMF and World Bank to intervene to stabilize the market. In response, the central bank announced in June last year that it would allow free trading of the naira in hopes of stabilizing the naira. However, this failed and the Naira’s price against the dollar plummeted.

Of course, this has had a huge negative impact on the telecom sector, as carriers have made clear. GSMA estimated that the telecommunications sector will contribute N33 trillion (US$22.5 billion) to Nigeria’s economy in 2023, with tax revenues reaching N2.4 trillion (US$1.6 billion).

Russell Southwood, founder and CEO of Africa-focused consultancy Balancing Act, told Development Telecoms that Nigeria’s struggling carriers are facing a decline in the value of the naira. In order to close the revenue gap caused by this, “we have to consider reducing staff and other costs,” he said. “The more worrying issue for MTN Nigeria is that if the report turns out to be accurate, its current liabilities will exceed its existing assets,” Southwood said.

“But if that’s the case, this is very serious, because in any other situation you could say, ‘We’re approaching bankruptcy.'” For now, there is no indication for a moment that MTN Nigeria is close to bankruptcy. I don’t think so, but we’re going to have to do something pretty quickly to deal with the situation,” Southwood said.

MTN CEO Ralph Mupita, outlined in his strategy To “restore profitability” to Nigeria, the company announced it would increase rates, negotiate tower leases and cut spending. Meanwhile, Airtel Africa CEO Olusegun Ogunsanya said: Efforts have begun to “remove risks” It looked at the company’s balance sheet from fluctuating exchange rates across Africa, but did not provide further details.

However, Mr Southwood said Nigeria’s economic recovery was the paramount requirement for operators to return to profitability.

“Telecoms are service companies, and if you are a service company, the health of the economy is critical to your own health. Once the economy starts to regain some health, of course MTN will return to profitability. “If the naira starts to recover with these measures, the positive effects will happen slowly,” Southwood said.

“If money is to continue to flow from the bottom, something pretty effective has to happen soon. There could be job losses from this initial original plan.” [MTN] Please put it on the table. ”

The economic shock has led international companies to withdraw or scale down operations in Nigeria, but Nigeria’s huge population makes it too important a market for operators to abandon.

crown jewels

“We need to understand the contribution that MTN Nigeria is making to the overall MTN Group. MTN Nigeria has been the jewel in the crown in the past because it contributes so much to the collective good. When it goes away, MTN will no longer be a company of the same size,” Southwood said.

According to reports, most of MTN’s debt was owed in large amounts through tower leases with American Tower. The companies are currently in talks to navigate this turbulent period, but it could be a slippery slope for tower companies to offer concessions to carriers.

Southwood explained: [offer lower lease rates] – They are in the same bind that MTN Group is in. If they start making concessions to businesses because of the national economy, what kind of precedent will that set for other regions in which they operate?

“There’s a lot of money moving around, so the next quarter is definitely going to be a touch-and-go situation as to what’s going to happen.”

The Nigerian government and national bank bet on a radical fiscal plan to seize control of the country’s currency, but so far it is turning out to be a mistake. Yields could turn positive in the next few quarters, but this could happen at glacial speed and could push the economy into ruin.

Nigeria is a market too valuable to fail. As they seek calmer waters off the coast of West Africa, operators will no doubt cut costs to keep their forces afloat in Africa’s vast waters.