MTN and Ghana's economy

BY: Suleiman Mustapha
MTN and Ghana's economy
Selorm Adadevoh - Chief Executive Officer of MTN Ghana

Since the arrival of the COVID-19 pandemic in Ghana in early 2020, forcing a dramatic acceleration of the digitalisation of both Ghana’s economic activity and its social interaction, the sheer importance of MTN Ghana was vividly illustrated across the country.

Easily the biggest telecommunications company in Ghana, MTN has led the country’s digitalization agenda for well over a decade and so was well-positioned to lead the drive to circumvent the severe limitations to physical contact imposed by the pandemic.

However, even as MTN Ghana has done more than any other institution to provide the country with digital solutions that have turned the challenges of COVID-19 into opportunities for permanent major improvements in economic efficiency and social interaction, the company has been tainted by regulatory accusations of inordinate market dominance, leading to its being classified as a Significant Market Player by the National Communications Authority, thus empowering the industry to force it into upward adjustments on the tariffs it charges customers.

Unsurprisingly this has elicited sympathy and support for MTN from customers and stakeholders who understand the economics of the situation.

Bigger tax revenues

Curiously, though, it also provides the potential for the fiscally embattled government to reap even bigger tax revenues from a company that is already one of the biggest and financially most important enterprises in the country; by forcing MTN to raise its tariffs and forced to expand its profit margins at the expense of its customers, which in turn provides the potential for even higher income tax obligations to the government.

Already MTN is the biggest taxpayer in Ghana, its GH¢2.6 billion in total taxes paid to the state in 2020 accounting for six percent of the country’s entire tax revenue for that year. This is equivalent to more than twice the company’s net revenue for 2020.

Taxes paid by MTN Ghana in 2020 include GHc479 million in corporate income taxes, GHc101 million for National Fiscal Stabilization Levy (which is 21 percent of total NFSL paid to the government in that year); and another GHc389 million in Communications Service Tax (which accounts for 70 percent of total CST paid by the entire industry in 2020.

This means that based on taxes paid to the state alone, MTN Ghana is crucial to Ghana’s fiscal position. For example, without the taxes paid by MTN Ghana in 2020, the government would have been forced into one of three unpalatable options.

Fiscal deficit

One would have been to increase its fiscal deficit for the year from an already inordinate 11.7 percent to an even more unsustainable 15 percent.

In the alternative, to maintain the fiscal deficit incurred in 2020 government would have had to cut its public spending by 2.7 percent to GH¢91.8 billion.

But even this does not tell the entire story of MTN Ghana’s tax contributions to the national economy. The company has a staff strength of 1,927 all of whom pay personal income tax under the Pay As You Earn {PAYE} format.

In addition, MTN pays an unstated amount of levies to some district assemblies each year on a one-off basis, charged by them whenever the company needs to lay cables that pass through the district.

Instructively, MTN Ghana’s tax contributions to the Ghanaian economy have grown faster than both its own net income and also the real value of its income measured in United States dollars.

But even with those often ignored extra taxes and levy contributions – which go undocumented in public commentary on the company and is only found by financial analysts who go deep into its financial performance, for investment purposes - MTN Ghana’s contributions to the national purse are nowhere near completely captured.

CSR expenditure

This is because a major portion of the company’s unmatched corporate social responsibility expenditure goes into economic and social expenditure that would otherwise have to be financed by the government out of its tax revenues.

Such expenditures, comprising schools, hospitals, and the likes, effectively free up the amounts spent, for the government to meet its other bills.

MTN’s spending on critical socio-economic expenditure thus adds to the state’s capital expenditure (and in some cases recurrent spending) and so effectively serves the same purpose as added tax revenues. Over the past decade, MTN Ghana has spent over $13 million in this regard, most of it through the MTN Ghana Foundation through which the company dedicates at least one percent of its net income for such purposes.

Using rough estimates, therefore, even excluding PAYE tax payments, MTN’s corporate tax contributions plus its Corporate Social Responsibility {CSR} spending on socio-economic infrastructure in 2020 alone added up to well over GHc3.5 billion.

Ultimately even as the controversy rages over MTN Ghana’s dominant market share and its ability to influence the levels of tariffs charged customers by the entire industry (influence which the company has so far used to push tariffs downwards rather than force them upwards) stakeholders would do well to consider just how pivotal the company has been in preventing the country – now tottering close to a fiscal abyss – from toppling over it altogether.

Simply put, apart from MTN Ghana being crucial to the ease, convenience, and sheer efficiency with which government, private enterprise, and households alike conduct themselves, the company plays a crucial role in ensuring the sustainability of the State’s finances; without the contributions of this singular cooperation, Ghana would be a very significantly poorer country.