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Analysis – Regulatory Zeal And FDI

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By SBM Intelligence,

Last week, the Central Bank of Nigeria (CBN) disclosed that it had hit four banks with fines to the tune of ₦5.65 billion ($15.83 million) for breaching Nigeria’s forex rules using irregular Certificates of Capital Importation (CCIs) to remit dividends on behalf of MTN Nigeria’s offshore investors. In addition, the regulator ordered that remitted funds, to the tune of $8.1 billion be returned to the country.

The day after the CBN announcement, stocks of MTN Nigeria’s parent company trading in the Johannesburg Stock Exchange had lost 24% by midday trading. In addition, stock of the banks which trade on the Nigerian Stock Exchange (Stanbic IBTC and Diamond Bank) have nosedived. The other two banks (Citibank and Standard Chartered) are not public companies. All the organisations involved have refuted the allegations.

The announcement came off the back of a quarter (Q2 2018) in which GDP growth of the entire country was dragged into positive territory by the out-performance of the telecommunications sector in which MTN is the largest player. With 11.8% GDP growth in Q2 2018, the telecommunication sector which makes up 11% of the economy and is the 3rd largest contributor to national output (behind Crop Production and Trade) helped overcome the contraction in oil production and trade to boost GDP growth into positive territory at 1.95%.

Why would the authorities want to penalize and slow down investment in a sector that was essentially carrying the rest of the economy? Even more so over a purely procedural issue? Unfortunately, it is this type of regulatory and political uncertainty that continues to drag on Foreign Direct Investment with inflows in H1 2018 17% down on the recent highs of H1 2015.

For a government that claims it is investing a lot of effort and resources in order to improve the ease of doing business, the MTN related sanctions by CBN puts into sharp relief this claim by the Buhari Administration. Given similar arbitrary behaviour by policy, regulatory and law enforcement authorities (Krispy Creme v CPC; DSTV v CPC; The NFF v Sports Ministry; the DSS v the National Assembly all come to mind), potential investors in the Nigerian economy will inevitably lose confidence in the ability of the authorities to provide an enabling environment for capital to come in, make a profit, and be repatriated easily.

Should MTN repatriate the dollar dominated dividends from its investors, the CBN is likely to ask that MTN converts the dollars to naira, thus retaining a whopping US$8.1bn in an economy which is currently seeing its foreign reserves on a decline.

Perhaps this may appeal to President Buhari as another crackdown on infractions as he tries to enhance his administration’s anti-corruption credentials ahead of the general elections. However, it will be helpful for his economic team to ask the CBN simple questions such as why MTN was allowed to repatriate the funds for almost a decade under its watch before the infraction was flagged.

Indeed, this whole issue does not smell right and the President’s Economic Management Team and National Economic Council must take steps to rein in the rising arbitrary behaviour of policy, regulatory and law enforcement authorities and promote respect for property and human rights. The alternative is that the relevant economic indicators of GDP growth and FDI will continue to head southwards.

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