MTN's head office in Johannesburg. Picture: EPA/KIM LUDBROOK
MTN's head office in Johannesburg. Picture: EPA/KIM LUDBROOK

To get a sense of the merits of a ruthless pursuit of returns and the reduction of risk, take a look at MTN Group. 

Founded in 1994 with the help of the postapartheid government, the cellular phone company grew rapidly in the 2000s, scooping up operating licences in riskier but lucrative frontier markets such as Nigeria, Sudan and Iran.  

Its $5.5bn (or R81bn in today’s money) acquisition of Investcom in 2006 cemented its high-risk, high-reward strategy as the deal handed MTN war-scarred countries in the Middle East, including Yemen, Syria and Afghanistan. 

For years, MTN was the darling of investors, grinding out double-digit profits and doling out dividends after building operations in more than 22 countries where demand for its services was booming thanks to negligible fixed-line networks. 

But the hunt for returns in politically unstable and economically fragile markets came under sharper scrutiny in 2015 when Nigerian authorities slapped it with tens of billions of rand in fines that could have wiped off more than two years of annual profits.   

Even though MTN eventually settled the dispute over SIM card registration in the West African country for much less than $5.2bn demanded by regulators, the saga gave investors a sobering reminder of how quickly political and social upheavals can eclipse business opportunities. 

And there were many more examples that called into question the company’s appetite to take extraordinary risks.

Considering the destruction of shareholders’ equity because of run-ins with authorities and lawsuits, it became indefensible for MTN’s leadership team to keep some of these businesses in its portfolio. 

Its well-laid-out strategy to exit the Middle East, including its third-biggest market in Iran, is a direct response to worries from investors, who until now had punished management by selling off the company’s stock to a point that MTN was valued less than Safaricom, despite boasting about seven times more subscribers. 

Judging by the MTN share price performance so far in 2021, it is safe to assume that investors have taken notice of CEO Ralph Mupita’s efforts, which prudently balance risk and return in the pursuit of profits, to restore MTN as a must-have in fund managers’ portfolios. Shares in the company have surged by nearly two-fold so far in 2021, making it one of the best-performing stocks on the JSE, and far outpacing its closest rival, Vodacom, which has notched up just over 10%. 

The most striking example of Mupita’s dual goals — shaking the shackles off MTN as a stock with limited growth potential, and assuring investors it has ditched its gung-ho approach that had been at the heart of its expansion — came last week. 

On Thursday, the company set the ball in motion to sell a 14% stake, worth almost R4bn, in its Nigerian unit to local retail and institutional investors. The following day, it issued a statement celebrating the award from Nigeria’s central bank of a payment service bank licence, which will enable it to offer a broader and deeper range of financial services.   

The commercial logic of mobile money is not in dispute. More than a decade ago, Safaricom launched M-Pesa, a mobile money service whose success convinced investors and executives across emerging markets that the industry’s next growth path was in financial services. Nigeria, with a population three times the size of Kenya and where about 60% of the population do not have bank accounts, is a pot of gold for MTN.  

Yet Nigeria flies the flag for arbitrarily targeting foreign companies with hefty fines and tax bills. That should be enough for investors to wonder if there’s anything to celebrate from Friday’s announcement, described by one analyst as a licence to print money.  

However, considering that a portion of MTN will soon be in the hands of ordinary Nigerians and the country’s institutional investors, Mupita has largely minimised the risk of being an ad hoc target of President Muhammadu Buhari’s economic nationalism.

The next time Nigeria looks for alternative sources of revenue to plug holes in its budget, there’s a chance it would look past MTN lest it face outrage from Nigerian shareholders.  


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