MTN took a very early calculated risk in 2005 that is increasingly looking to pay off very handsomely indeed over the next few months, writes Rich Mkhondo.
Warren Buffett, the billionaire investor famous for taking the long view of things, often offers forecasts about the fate of world business and the performance of stocks. He likes to use the phrase: “It’s virtually a certainty.”
What makes Buffett so interesting is that there is nothing new in his forecasts, but just his phraseology. Buffet is eloquent and consistently passionate about the social issues he addresses.
When I want to look at political “virtual certainty”, I often read US civil rights leader Martin Luther King speeches. Addressing an assemblage of leaders from many faiths at Riverside Church in New York in 1967, King called the US the greatest purveyor of violence in the world.
In the speech titled, “Beyond Vietnam”, King described the giant triplets as racism, extreme materialism and militarism. “We must undergo a revolution of values,” he said. “We must begin a shift from a thing-oriented society to a person-oriented society”, otherwise “We will be attending rallies without end unless there is a significant and profound change in American life and policy”.
Warren Buffett
Why do I compare Buffett and King? Because of the phrases “virtually a certainty”, “Undergo a revolution of values”, and “change in American life and policy”.
It has been a “virtual certainty” that apartheid will fall; that change in life and policy will see the death of that evil empire, the Soviet Union; that the Cold War will end; that the battle between communism and democracy will end and democracy will triumph.
Think Cuba and US rapprochement and the latest deal between the US and Iran to curb Tehran’s nuclear ambitions.
It was “virtually a certainty” that the US and Iran would reach a deal. That is why 10 years ago Phuthuma Nhleko took MTN Group to Iran and founded MTN Iran much to the dislike, dismay and criticism of American allies.
All Nhleko, the former MTN Group president and now the chairman of the company, and his board lived with was the “virtual certainty” and the belief that it would be nice if we thought harder about making friends, not enemies, and that one day America would “undergo a revolution of values and change in American life and policy”.
The Iran-US deal has far reaching consequences for the geopolitics of the Middle East. Essentially the second largest oil producer in the Middle East with a population of 80 million and the largest educated middle class in the region, is coming in from the cold into the community of nations and will soon become the dominant regional power. Lest we forget, Cuba is also following suit in the Americas, just as the fall of the Berlin Wall ushered in a new Germany 26 years ago.
For Iran, the commercial implications for global business and trade over the coming years are difficult to exaggerate even though it will take a bit of time for this to reach its potential. Nonetheless, there is no global business in any sector that is not preparing itself to enter Iran, should the UN and the US Congress sign off on the deal in the next 60 days.
Yesterday, the EU approved the Iran nuclear deal, a first step towards lifting Europe’s economic sanctions against Tehran. The move should send a strong signal to sceptical voices in the US Congress and Israel. Just as happened when the US announced that it was resuming relations with Cuba, the planes to Iran are full to the brim with Western business executives of all forms and shapes, sizing out future opportunities in Iran.
All of this puts the entry of MTN into Iran 10 years ago into an interesting perspective. MTN is extremely well-positioned to commercially benefit substantially from the turn of events. It will be the largest mobile operator in what is likely to become the largest and most valuable mobile telecoms market in the Middle East in the next few years.
Expansion strategy
Here are the key aspects of MTN’s foray into Iran: In a bold expansion strategy from 2001 to 2011, MTN entered Iran in 2005. At the time it was merely US light sanctions and not UN mandated sanctions that were applied on Iran. The nuclear matter had not reached high tension.
- MTN paid around $400 million (R5 billion) for the second mobile licence. The first is owned by the Iranian State.
- MTN and its former group chief executive, Nhleko, were deeply criticised for entering the Iranian market by many global analysts and the local press.
- Notwithstanding heavy sanctions and a much devalued local Iranian currency, MTN Irancell still currently generates over 10 percent of MTN’s total net profits and has more than 40 million subscribers in Iran, which is the group’s second largest market and generator of revenue after Nigeria.
- In 2011 Turkcell, who lost the Iran licence to MTN in 2005, tried to sue MTN on the basis that MTN had “peddled influence” to win the licence in 2005. After a number of failed attempted legal challenges in a number of jurisdictions, Turkcell failed to make any credible case to support its allegations. MTN dismissed the Turkcell claims as malicious sour grapes. An independent commission by UK Judge Leonard Hoffman also found the Turkcell allegations to be unfounded and baseless.
- The hard very public lobby by various US/Israeli lobby groups to persuade MTN to leave Iran failed. MTN refused to exit Iran and stuck it out. Sasol under the same pressure left Iran.
- Here at home, even the DA jumped on the bandwagon and bayed for MTN to leave Iran.
Once the deal is approved and sanctions lifted, the following is more than likely to come to pass:
- The Iranian currency will significantly appreciate and MTN Irancell revenue and profits will increase substantially.
- MTN will be immediately able to repatriate more than $1.2bn in cash trapped in Iran and continue to generate and upstream large cash dividends from Iran. This will in turn likely have a meaningful positive impact on the MTN share price.
History
History was and has always been on MTN and Nhleko’s side: Here is what the economist Joseph Schumpeter (1883-1950) wrote about the Roman Republic, the predecessor to the Roman Empire: “There was no corner of the known world where some interest was not alleged to be in danger or under actual attack. If the interests were not Roman, they were of Rome’s allies; and if Rome had no allies, the allies would be invented. When it was utterly impossible to contrive such an interest – why then it was national honour that had been insulted.”
At all times, Schumpeter noted, Roman leaders maintained “an aura of legality”. They declared themselves to be on the side of truth and justice, dealing decisively with rogues.
But the result was a Rome constantly at war. As a matter of military necessity, democracy was supplanted by dictatorship. Eventually, the Romans could no longer beat back all the enemies they had made.
Indeed, eventually the Americans can no longer beat back all the enemies they have made. Nhleko must feel vindicated.
Nhleko and MTN were aware that as a superpower, America irritated the rest of the world by assessing how well – or how badly – other countries were doing on human rights, but this didn’t really affect business relations between the US and its friends and trading partners. Washington continued to buy their products, sell them weapons and justified that as constructive engagement and a means of improving their behaviour.
Enemies who offer America little commercial advantage, as Iran did, remain enemies. Washington beats them over the head about human rights, accuses them of exporting habits and subjects them to economic embargoes and generally pursues a policy that may be called destructive disengagement, while again justifying this as a means of changing their behaviour.
MTN took a very early calculated risk in 2005 that is increasingly looking to pay off very handsomely indeed over the next few months. Maybe Nhleko also believes in Buffet’s futuristic view of “virtually a certainty” and King’s prophecy that America will “undergo a revolution of values”. Or maybe he is the embodiment of the belief that in business, taking well calculated risks does pay dividends, that timing and the ability to keep calm also help.
* Rich Mkhondo is a former journalist. He runs The Media and Writers Firm (www.mediaandwritersfirm.com), a content development and reputation management hub.
** The views expressed here do not necessarily represent those of Independent Media.
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