Recently, MTN has faced significant challenges in its biggest market, Nigeria. The collapse of the Nigerian Naira at the beginning of the year caused a 28% drop in MTN’s share price. However, despite the economic and political challenges in the country, MTN remains committed to Nigeria, as Nigeria contributed 40% to MTN’s total service revenue in the 2022 financial year and 46% to the operator’s EBITDA.
MTN’s investors have endured significant swings in the share price over the years, with several fines and disputes between MTN and Nigerian authorities. The latest headache for MTN in Nigeria is the rapid decline in the Naira’s value due to low liquidity. Nigeria has historically struggled to increase the liquidity of the Naira, leading to its pegging to the US dollar to strengthen the currency artificially. This move inflated the Naira, contributing to low confidence among outside investors.
The lack of demand for the Naira created a secondary black market for the currency, where it could be bought and sold informally at a much weaker rate than the market-determined rate. In June 2023, Nigeria lifted the US dollar peg, allowing the Naira to trade freely. However, government-regulated and multinational corporate transactions still had to be done at an official exchange rate, leading to the official Naira exchange rate losing 27% of its value overnight.
At the end of January, the Naira experienced another extreme currency devaluation, falling 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. MTN was a victim of the rapid currency devaluation and poor liquidity, causing significant pressure on the operator’s finances.
In its full-year trading statement, MTN noted that its financial performance had been negatively affected by the sharp devaluation of the Naira, reducing its headline earnings by 56% to 72% for the 2023 financial year. This significant impact reduced MTN’s headline earnings by R5.93, leading to an overall earnings decrease of 70% to 90% from the 2022 financial year. As a result, MTN’s share price lost 43% of its value over the last year, with a strong correlation between the ZAR/NGN exchange rate and the MTN share price movements.
