Nigerian telecom firms are focussing on strengthening their naira to become profitable, having lost $1.56 billion in foreign money in 2023 as a result of the sharp decline in the value of the naira relative to the dollar.
MTN and Airtel have been reducing their dollar liabilities since the end of 2023. They have renegotiated contracts, cut back on foreign loans, and are paying for inputs denominated in foreign currencies in bulk. From $966.6 million in December 2023 to $100 million in June 2024, MTN and Airtel lowered their foreign loans.
The naira saw a severe devaluation following the Central Bank of Nigeria’s (CBN) June 2023 unification of the nation’s foreign exchange market. It fell from N471/$ to N1043.09/$ by December 28, 2023, and N1574.20/$ by August 9, 2024.
MTN Nigeria Communications Plc and Airtel Africa saw historic losses as a result of this depreciation, despite their good revenue performances. As of December 2023, MTN had 79.7 million subscribers. However, the company has suffered its first loss after taxes of N137 billion since becoming public on the Nigerian Stock Exchange in 2019. FX losses for the telco were N740 billion ($815.79 million at N907.1/$).
For the full year that ended in March 2024, Airtel Africa – which had 50.9 million users in Nigeria as of March 2024 – reported a $89 million loss after taxes, mostly as a result of foreign exchange headwinds in Malawi and Nigeria. Due to FX and derivative exposures, it lost $1.26 billion, of which the depreciation of the naira was responsible for $770 million.
Gbenga Adebayo, chairman of the Association of Licensed Telecom Operators of Nigeria (ALTON), stated, “Both MTN and Airtel have declared significant foreign exchange (FX) losses in Nigeria, and the stress is linked to them alone.”
The global organization for telcos, the Global System for Mobile Communications (GSMA), claims that the financial performance of the mobile industry has not kept up with its capital-intensive character. Many things contribute to this, chief among them being high running expenses. The main causes of this have been rises in the price of diesel and the increased need for foreign exchange due to rollout contracts that are based on dollar amounts.
Both telcos stressed in their financial reports at the end of 2023 that to become profitable again, they needed to lower their FX risks. Airtel Africa’s then-CEO, Olusegun Ogunsanya, declared, “We will continue to focus on reducing our exposure to currency volatility.”
MTN reduced its outstanding letters of credit (LC) from $416.6 million in December 2023 to $100 million in the first half of 2024 (H1) to lessen the impact of future naira depreciation and related financing expenses.
“We have made significant progress in reducing the outstanding letters of credit (LC) US$ obligations, which contribute to the volatility in our earnings through forex losses,” stated Karl Toriola, CEO of MTN Nigeria. The telco declared a loss after taxes of N519.1 billion and reported realized currency losses of N310.5 billion in H1 2024.
Additionally, Airtel Africa paid back the 5.35 percent guaranteed senior notes at its holding level that matured in May 2024. In its financial statement for H1 2024, it said, “This bond repayment of $550 million was made exclusively out of the cash reserves at the HoldCo and is a continuation of its strategy to reduce external foreign currency debt.”
“We fully repaid the outstanding debt due at the HoldCo during the quarter, and we remain committed to further reducing foreign currency exposure across the Group to limit the impact of currency devaluation on our business,” stated Sunil Taldar, the recently appointed CEO of Airtel Africa plc.
The telco’s unusual derivative and foreign exchange losses of $80 million had a major influence on its $31 million profit after taxes for the quarter that ended on June 30, 2024.
The type of equipment needed for the telecom industry is the reason for its dependency on FX. Lecturer Roseline Ogundokun of Landmark University’s Department of Computer Science stated, “The telecoms industry, like many others in the country, is heavily reliant on FX for the procurement of essential equipment, infrastructure, and technology.”
The speaker emphasized how the depreciation of the naira has put financial hardship on telecom companies. Telcos are responding by cutting back on the financial aspects of their operations.
For example, MTN has revised the terms of its tower contracts. “It is important to say that tower contract renegotiation, supported by disciplined capital allocation, is very important in mitigating the impact of forex liberalization and higher energy costs,” stated Modupe Kadri, the chief financial officer of MTNN, in 2023.
Regarding the tower talks, MTN’s Toriola stated in the company’s 2024 half-year report that “if successful, this will help mitigate macro risks affecting our business and support margin recovery.”
Renegotiated tower lease agreements with IHS (Nigeria) Limited, INT Towers Limited, IHS Towers Ng Limited (together with IHS), and ATC Nigeria were announced by MTNN on August 7, 2024. The contracts were redrafted such that the majority of the leases were naira-based and the dollar-indexed portion was reduced.
“The steps taken in carrying out these interventions are encouraging and position the company well to enhance our profitability and negative net asset position,” Toriola highlighted.
Taldar of Airtel Africa remarked, “We have begun a comprehensive cost optimization programme across the Group. This project has already proven successful; network and distribution costs have decreased, and there will be more chances as contract discussions continue. We anticipate that sustainable savings will persist throughout the year.”
One of the telcos’ senior managers, who wished to remain anonymous, clarified that his company’s new approach entails buying equipment in bulk as a hedge against currency fluctuations.
“We lock down equipment at a set price and pay vendors in advance. Even though the vendor might not be able to deliver right now due to scheduling conflicts, we have already paid and secured the item. It’s hedging against volatility for us,” the manager explained.
Additionally, the telco is localizing solutions, the manager mentioned. “We attend tech events practically every week, seeking for people that build things. We require developers who can provide solutions. We are starting to search internally for products that we can use.”
The manager went on to say that South America and other African nations where firms have been impacted by currency depreciation are also providing valuable insights into the sector.
The telecom sector is advocating for an increase in prices despite these cost-cutting initiatives. The existing price control mechanism, which is out of step with economic reality and could undermine investor confidence, poses a threat to the industry’s sustainability in a fully liberalized and deregulated market, according to a recent statement from ALTON.
