Telecommunication companies in Nigeria are charting a naira-focused path to profitability after suffering foreign exchange losses of $1.56 billion in 2023, following the steep depreciation of the naira against the dollar.
Since the end of 2023, MTN and Airtel have taken measures to reduce their dollar liabilities. They have decreased foreign loans, are bulk-paying for FX-denominated inputs, and renegotiated contracts. MTN and Airtel reduced their foreign loans to $100 million in June 2024 from $966.6 million in December 2023.
The Central Bank of Nigeria (CBN)’s unification of the country’s foreign exchange market in June 2023 triggered a sharp devaluation of the naira, which plummeted from N471/$ before the move to N1043.09/$ by December 28, 2023, and N1574.20/$ by August 9, 2024.
Despite strong revenue performances, this depreciation led to record losses for MTN Nigeria Communications Plc and Airtel Africa. MTN, with a subscriber base of 79.7 million as of December 2023, reported a first loss after tax of N137 billion since its 2019 listing on the Nigerian Stock Exchange in 2023. The telco incurred FX losses of N740 billion ($815.79 million at N907.1/$).
Airtel Africa, which had 50.9 million subscribers in Nigeria as of March 2024, reported a loss after tax of $89 million for its full year ended March 2024, primarily due to FX headwinds in Nigeria and Malawi. It lost $1.26 billion to derivative and FX exposures, with $770 million attributed to the naira’s devaluation.
“Both MTN and Airtel have declared significant foreign exchange (FX) losses in Nigeria, and the stress is not linked to them alone,” remarked Gbenga Adebayo, chairman of the Association of Licensed Telecom Operators of Nigeria (ALTON).
According to the Global System for Mobile Communications (GSMA), the global body for telcos, the mobile industry’s financial performance has not been sufficient to support its capital-intensive nature. This is due to several factors, especially high operating costs. The primary driver of this has been increases in the price of diesel and the high demand for forex due to contractual obligations for rollout that are denominated in dollars.
In their financial reports at the end of 2023, both telcos emphasised the need to reduce FX exposures to regain profitability. Olusegun Ogunsanya, the then-chief executive officer of Airtel Africa, stated, “We will continue to focus on reducing our exposure to currency volatility.”
In half-year (H1) of 2024, MTN cut its outstanding letters of credit (LC) from $416.6 million in December 2023 to $100 million, mitigating the impact of future naira depreciation and associated finance costs.
Karl Toriola, MTN Nigeria’s chief executive officer, noted, “We have made significant progress in reducing the outstanding letters of credit (LC) US$ obligations, which contribute to the volatility in our earnings through forex losses.” The telco reported realised forex losses of N310.5 billion in H1 2024 and declared a loss after tax of N519.1 billion.”
Airtel Africa also repaid the 5.35 percent guaranteed senior notes maturing in May 2024 at its holding level. “This bond repayment of $550m was made exclusively out of the cash reserves at the HoldCo and is a continuation of its strategy to reduce external foreign currency debt,” it stated in its financial statement for H1 2024.
Sunil Taldar, Airtel Africa plc’s new chief executive officer, said, “During the quarter, we fully repaid the outstanding debt due at the HoldCo, and we remain committed to further reducing foreign currency exposure across the Group to limit the impact of currency devaluation on our business.”
The telco’s profit after tax was $31 million in the quarter ended 30 June 2024, primarily impacted by the $80 million of exceptional derivative and foreign exchange losses.
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The telecom sector’s reliance on FX stems from the nature of the equipment required. “The telecoms industry, like many others in the country, is heavily reliant on FX for the procurement of essential equipment, infrastructure, and technology,” said Roseline Ogundokun, a lecturer at Landmark University’s Department of Computer Science.
The lecturer highlighted that the naira’s fall has strained telecom companies’ financial resources. In response, telcos are also reducing the dollar components of their businesses.
MTN, for instance, has renegotiated its tower contracts. In 2023, Modupe Kadri, MTNN’s chief financial officer, said, “It is important to say that tower contract renegotiation, supported by disciplined capital allocation, is very important in mitigating the impact of forex liberalisation and higher energy costs.”
In the company’s 2024 half-year report, Toriola of MTN said of the tower negotiations, “If successful, this will help mitigate macro risks affecting our business and support margin recovery.”
On August 7, 2024, MTNN announced it has renegotiated tower lease agreements with IHS (Nigeria) Limited, INT Towers Limited, IHS Towers Ng Limited (together with IHS), and ATC Nigeria. The revised terms of the contracts reduced the dollar-indexed component of the leases, making them majority naira-based.
Toriola emphasised, “The strides achieved in executing these interventions are encouraging and set the business up well to improve our profitability and negative net asset position.”
Taldar of Airtel Africa added, “We have initiated a comprehensive cost optimisation programme across the Group. We have already seen success in this project, with savings arising in network and distribution costs and continued opportunities as contract renegotiations continue. We expect sustainable savings to continue as the year progresses.”
A senior manager at one of the telcos, who asked not to be quoted, explained that his firm’s new strategy involves bulk purchasing equipment to hedge against currency volatility.
“We pay vendors ahead and lock down equipment at a constant price. The vendor may not deliver immediately, maybe because they cannot do so at the time, but at least we have locked it down and paid. For us, it is hedging against the volatility,” the manager said.
The manager also noted that the telco is localising solutions. “We attend tech events almost weekly, looking for people who develop things. We need developers who develop solutions. We are beginning to look internally and looking for products that we can use.”
The manager added that the industry is also drawing lessons from other African countries and South America, where currency devaluation has affected businesses.
Despite these cost measures, the telecom industry is pushing for an upward review in tariffs. “For a fully liberalised and deregulated sector, the current price control mechanism, which is not aligned with economic realities, threatens the industry’s sustainability and can erode investors’ confidence,” ALTON said recently.
