The dispute between African telecommunications giant MTN and Ugandan authorities may be far from over, but decade-old intention to open up the company to wider Ugandan participation provided President Yoweri Museveni and MTN Group chief executive Rob Shuter straws to cling on it, as they pulled back from the brink of a potentially damaging standoff over the company’s future in Uganda.
In a statement datelined Davos, Switzerland, where President Museveni held talks with the MTN boss on January 23, State House Kampala announced that a months old dispute over the renewal of MTN’s licence had been resolved, and that the telco had also agreed to spread its ownership to more Ugandans through a share placement with the National Social Security Fund.
“It is important that you float shares on the local stock exchange to allow for local ownership now that the licence has been renewed,” President Museveni is reported to have said during his meeting with Mr Shuter, signalling an end to the standoff.
Analysts are seeing the climbdown as a compromise that serves Uganda’s economic and diplomatic interests.
In 2017, the ICT sector contributed 9.8 per cent to Uganda’s GDP and MTN accounted for 63 per cent of that value. Rash actions against the company were likely to have a ripple effect on investor perception while the grave charges levelled against foreign employees — some of whom were controversially deported earlier in the week — were causing unnecessary diplomatic friction.
The Davos compromise came at the height of tensions that had started early in the week when the Internal Security Organisation (ISO), in quick succession, rounded up and deported three top executives of the telecoms firm from Uganda between January 19 and 22.
They are French national and MTN Uganda chief marketing officer Olivier Prentout, Franco-Italian citizen and general manager for mobile financial services Elsa Mussolini and Rwandan Annie Bilenge Tabura, who was head of sales and distribution.
The actions strained further already frayed relations with Rwanda, which cited Ms Tabura’s removal as further evidence of a witch-hunt against its citizens by Kampala, while France is also understood to have protested and demanded evidence to justify the treatment its citizens had been subjected to.
For the investor community, the actions against MTN and a new policy banning licence renewal for wholly foreign-owned sports betting firms, pointed to threats of policy reversal and forced nationalisation last witnessed in Uganda’s famous “Move to the Left” 50 years ago.
MTN International controls 95 percent of the stock in MTN Uganda. Ugandan businessman Charles Mbiire holds the solitary Ugandan stake of five per cent in the company.
That skewed ownership has been interpreted by many commentators to mean that 95 percent of profit is repatriated from the economy. But, in presentations to the Uganda Revenue Authority, MTN has in the past argued that only 12 per cent of its net revenue is paid to shareholders, 32 per cent is retained in Uganda as taxes and government fees, while 18 per cent is ploughed back into the network.
It is this concentrated external ownership structure that has made the company vulnerable and has fed into current concerns over its potential impact on the stability of the Ugandan economy.
While the share offer to NSSF is being touted as a new proposal, The EastAfrican has learnt that it has been the subject of ongoing discussions between the company and the Uganda Capital Markets Authority for close to 10 years now.
MTN has been averse to open listing on the Uganda Securities Exchange, arguing that it could become exposed to dirty money.
The company first expressed its intent to sell a stake to the NSSF in 2008, but then the Fund got embroiled in a governance scandal that made the telco view it as constituting a reputational risk.
NSSF managing director Richard Byarugaba declined to discuss any potential deal with MTN, but independent analysts say that although a stake in the company would hypothetically spread Uganda’s participation in the company to the 2.5 million members of the Fund’s register, in real terms it would not amount to more than an eight per cent stake, because of restrictions on NSSF’s asset classes.
Currently, the fund is allowed to invest up to 25 percent of its Ush10 trillion ($2.7 billion) assets in equities. Current exposure to equities stands at 16 percent, leaving a margin of 9 percent or Ush900 billion ($243 million) available for further investments in that class. At MTN Uganda’s current valuation of Ush7.2 trillion ($1.9 billion), that money can only buy eight percent if NSSF chooses to take on that exposure.
It was not immediately clear if such a stake would placate President Museveni who, in the remarks made at Davos, accused players in the telecommunications sector of cheating on taxes through under-declaration of earnings. He has also alluded to the impact of repatriation of profit by foreign firms on exchange-rate stability.
Besides, it is at odds with a new ICT sector policy — yet to become law — under which players in the telecommunications sector will be required to list 30 per cent of their stock on the local exchange.
President Museveni had protested what he saw as an unwarranted discount when the Uganda Communications Commission allowed itself to be bargained down from $100 million to $58 million for MTN’s 10-year licence extension.
President Museveni’s view, communicated in a letter to UCC, was that MTN should pay more for the licence since it was repatriating 95 percent of its profits from the country. That letter created a stalemate that saw the deadline for a new license for the telco to lapse on January 20.
Following the Davos compromises, the UCC was on Friday expected to announce a three-month interim licence for MTN.