Nigeria proves to be a poisoned chalice for South African companies

Coming shortly after Tiger Brands CEO, Peter Matlare, decided to throw in the towel, partly due to a Nigerian mess, the fall of MTN Group CEO, Sifiso Dabengwa, comes to entrench the view that Nigeria stands as a poisoned chalice for a number of South African corporations. By Ujuh Reporter

With the largest population (about 178.5 million people) on the African continent, Nigeria has for a while been touted as the holy grail within the ‘Africa Rising’ narrative. This was capped by the rebasing of the Nigerian GDP calculation which positioned the country as the largest economy on the African continent.

The rebased numbers placed Nigeria’s GDP at more than $500bn which is far larger than South Africa’s $350bn. The Nigerian economy had been growing at about 7% per year in recent years before the commodities depression, which collapsed the oil price, set in.

A McKinsey Global Institute study, conducted before the collapse of the oil price, suggested that theNigerian economy could triple in GDP size by 2030 to become a $1.6 trillion economy and join the top 20 global list.

 As such corporation across the globe are scrambling for an exposure with South African companies amongst the leaders in this rush. Nigeria has nevertheless proved to be a highly volatile place to do business as the MTN case shows. There are a couple of other South African ventures which have gone wrong including the Telkom and Tiger Brands ventures.

MTN

Dabengwa resigned on Monday with immediate effect following a Nigerian blow. Phuthuma Nhleko, former MTN Group CEO who is now chairperson assumes the executive role for six months. The telecoms giant has been slapped with a $5.2bn (R71bn) fine by the Nigerian Communications Commission for allegedly failing to satisfactorily see through a SIM registration process. This has spooked the market, sending MTN share price tumbling down by about 20%, about R60bn in a few days. The stock has since recovered but is still more than 10% down.

MTN is one of the pioneers when it comes to the exploration of the Nigerian market by South African business alongside Shoprite. MTN entered the Nigerian market in 2001 and grew to become the largest player in the West African country with 62.8 million subscribers. This number gives MTN 49.4% Nigerian market share.

Nigeria is now the largest unit in the MTN Group contributing R53.9bn of the total R146bn revenue recorded in 2014. The second largest country operation is South Africa with R38.9bn revenue from a subscriber base of about 29 million. The MTN Nigeria fine has largely been described as ridiculous.

Standard Bank

Another South African corporation, Standard Bank, was hit by a surprise around the same time as MTN. Standard Bank’s Nigerian unit Stanbic IBTC has been charged and sanctioned by Nigeria’s Financial Reporting Council for allegedly irregular financial reporting. The council slapped Stanbic IBTC with a penalty of $5m and banned four directors from signing the financials of the bank in future. The council’s move was condemned, as irregular in itself, by the Central Bank of Nigeria.

Tiger Brands

South African food producing giant, Tiger Brands, has also burnt its fingers badly in Nigeria. In a move that consolidated its Nigerian presence Tiger Brands acquired Dangote Flour Mills in 2012. The operation, one of the largest food producers in Nigeria, was acquired from Africa’s richest man Aliko Dangote for about R1.6bn plus debt of about R1.5bn. The business appeared to have been deeply sick when Tiger Brands acquired it with a hope of fixing it. The problems were deeper than Tiger Brands understood.  The once profitable company has slipped deep into a loss making positions and Tiger Brands has already written off more than half of its Dangote Flour Mills investment. Tiger Brands CEO, Peter Matlare, announced his resignation last month and will vacate the office at the end of the year after serving the company as CEO for about seven years. It is difficult to ignore the Nigerian factor, amongst others, in Matlare’s departure.

Telkom

South Africa’s telecommunications giant, Telkom, lost obscene amounts of money in a Nigerian venture. Telkom entered the Nigerian market in 2009 via a $410m acquisition of a telecommunications service firm called, Multi-links. Cracks were showing 12 months after the deal due to a combination of factors. Views of what caused the trouble included that Telkom overpaid and wrong technology choice. When Telkom decided to call it quits in 2011 it had written off about R10bn.

Woolworths

Seeing the remarkable success of Shoprite in Nigeria, Woolworths attempted to catch the Naija Trainand burnt its fingers. Woolworths entered the Nigerian market in 2012 by opening up three store, two in Lagos and one in Enugu. It did not take too long for Woolworths to pull back saying the trading conditions were note suitable. In 2013 Woolworths announced a decision to close all three stores and issued strong statements explaining the decision. Woolworths CEO Ian Moir was quoted saying: We made a mistake going into Nigeria. We were never going to make money in the next five to 10 years in Nigeria.”

Moir cited the ‘ridiculously high rent’, an unwieldy bureaucracy and poor transport infrastructure to move goods around. “My view was that you are better admitting a mistake as soon as you see the mistake rather than trying to stumble on and pretend it’s not there.

“We couldn’t even get fixtures and fittings in. You can’t get a bag of screws in and every time you go to do a shop fit you have to itemise every screw, every nail, every bit of wood, it’s just so difficult.”

• This piece was first published in ujuh.co.za whose publishers can be reached at [email protected]
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