MTN Nigeria pain

MTN has realised over R34 billion in foreign exchange losses due to the devaluation of the Nigerian naira over the past year and a half – with little sign of relief on the horizon.

The naira has experienced substantial devaluation against the dollar over the past year and a half, significantly impacting MTN’s financial performance.

MTN has a long history in Nigeria. It entered the market in 2001 after winning a licence to launch mobile services in the country. At the time, it had just 700,000 fixed and 22,500 cellular lines for 120 million people. 

Today, MTN is the largest telecoms company in Nigeria, with a market share of over 40% and a customer base of over 60 million subscribers.

Nigeria is MTN’s biggest market and where it makes a significant portion of its revenue. In 2023, Nigeria contributed 35%, or R73.85 billion, to MTN’s R210.14 billion total service revenue.

For context, South Africa – also a large market for MTN – contributed just under 20% of group service revenue that year.

Therefore, despite the many challenges of operating in that market, Nigeria is too important for MTN to abandon, as many local companies have done when faced with these struggles.

One of the biggest challenges of operating in Nigeria, particularly in the past few years, has been the devaluation of the country’s currency, the naira.

This issue has become particularly prevalent over the past year. However, it stemmed from Nigeria’s years-long struggle with naira liquidity. 

The currency’s value has been difficult to sustain at its official exchange rate, primarily due to the Central Bank of Nigeria’s longstanding policy of pegging it to the US dollar. 

This artificial valuation overinflated the naira, significantly dampening investor and business confidence. 

This is because it must keep the naira at a predetermined rate. Excessive selling of the currency would cause that rate to drop significantly, causing low liquidity.

Consequently, there was a pronounced imbalance between naira supply and demand – many sought to offload the currency, while few were interested in acquiring it at the official rate.

This imbalance created a secondary black market for the naira where it could be bought and sold informally at a much weaker rate than was market-determined.

The black-market rate is typically the exchange rate used within Nigeria between its citizens. However, foreign investors and businesses must pay the official exchange rate.

The black-market rate is known by investors, further lowering their confidence in the Nigerian naira.

This struggle has become so pronounced over the past year because, in June 2023, Nigeria lifted the US dollar peg, and the Naira was allowed to trade freely.

This was seen as a good move from the Nigerian government, as it should stabilise the currency over the long term and address long-standing liquidity concerns.

However, this has meant significant pain for companies with operations in Nigeria in the short- and likely medium-term.

While Nigeria lifted the US dollar peg, government-regulated and multinational corporate transactions still had to be done at an official exchange rate.

The official naira exchange rate lost 27% of its value overnight.

At the end of January this year, the naira experienced another extreme currency devaluation, where it fell by 40% relative to the US dollar in a single day.

This was due to the central bank revaluing the official exchange rate, bringing it closer to the black market rate.

One of the companies hardest hit by this devaluation was MTN, which has taken billions in foreign exchange losses due to the naira also losing value against the rand, MTN’s reporting currency.

In its 2023 annual results, MTN reported that the naira had devalued from ₦461 as of 31 December 2022 to ₦907 as of 31 December 2023 against the US dollar.

This saw the telecoms giant realise foreign exchange losses of ₦740 billion, or R20.98 billion, for the 2023 financial year.

While MTN experienced some foreign exchange losses in its other markets, this hit from Nigeria was by far the most substantial, contributing over 90% to its total net foreign exchange losses.

This trend continued into 2024, with MTN’s latest interim results showing yet another massive foreign exchange loss from Nigeria.

The telecoms giant said in its results for the six months through June 2024 that the naira had devalued from ₦907 as of 31 December 2023 to ₦1,505 as of 30 June 2024 against the US dollar.

This led MTN to realise foreign exchange losses of ₦888 billion, or R13.75 billion, in MTN Nigeria.

Therefore, over the past year and a half, MTN has realised a total of R34.73 billion in foreign exchange losses from its Nigerian operations alone. 

Period	Net foreign exchange losses	Nigerian foreign exchange losses
2023	R23.17 billion	R20.98 billion
H1 2024	R16.27 billion	R13.75 billion
Total	R39.44 billion	R34.73 billion