Nigeria’s dollar shortage problem is easing, but the fallout from its impact is still unfolding.
Etisalat Nigeria, one of the country’s four major mobile network operators has lost the backing of Etisalat Group, its Abu Dhabi-based parent company, following its default on debt repayments. Etisalat Group had held a 45% stake in the Nigerian operator.
It follows Etisalat Nigeria’s failure to reach an agreement with local banks to renegotiate the terms of a $1.2 billion loan obtained in 2013. As a result, Etisalat’s shareholder structure is changing with the lenders taking over Etisalat Group’s stake which was written down to zero.
Much of Etisalat Nigeria’s woes are linked a currency crisis which has dominated Nigeria’s economic outlook over the past two years. Intended as a medium-term seven year facility to fund the company’s network expansion, the value of the $1.2 billion loan spiked after Nigeria devalued its naira currency due to difficult economic headwinds.
Amid the falling price of oil, Nigeria’s main export, and, as a result, diminishing government revenues, Nigeria’s central bank initially implemented stiff currency controls, including restricting access to dollars. But with the controls proving ineffective, the naira was devalued last June. The currency immediately fell sharply against the dollar and, one year on, that has not changed.
The currency slide has been bad news for Etisalat Nigeria as it found itself servicing a more expensive debt and spending more on operational costs, while coping with the impacts of recession.
Etisalat Nigeria has not been the only casualty of the currency crisis. With the aviation industry particularly exposed given the prevalence of foreign exchange dealings, several airlines have been hard hit. In February, debt-ridden Arik Air, Nigeria’s largest airline, was taken over by government to save it from collapse.
Last October, Emirates, one of the world’s richest airlines, reduced daily flights to Lagos and Abuja citing high costs of operations and a month earlier, Aero Contractors, Nigeria’s oldest working airline at the time, suspended operations citing grave economic challenges. United Airlines set a precursor in May 2016 when it shut down its Nigeria operations citing difficulty repatriating dollar profits.
In the coming weeks, Etisalat Nigeria and its lenders will attempt to secure new investors but in the meantime, keen to prevent a lack of faith in the operator and the industry in general, Nigerian Communications Commission, the country’s telecoms regulator has assured Etisalat Nigeria subscribers that operations will remain uninterrupted. While the search for new owners goes on, the company will retain its Etisalat trading name.
That search will likely focus beyond Nigeria’s shores as, anti-trust laws aside, Nigeria’s other major mobile networks are unlikely to be able to take on Etisalat’s current subscriber base of 20 million subscribers, though there have been reports that Globalcom with a consortium of investors has recently looked at the opportunity.