In the age of rapid globalisation and increased economic interdependence, improved policies are needed to facilitate international trade and investment. Legislative and non-legislative instruments are necessary to guide transnational corporations (TNCs) and multinational corporations (MNCs) in international trade and investment. In the context of South Africa, although the apartheid government ended with economic sanctions, post-apartheid South Africa embraces not only strong government-to-government relations but also commercial trade and industry. Since Africa’s developmental agenda gained traction, the South African government has paved a path for TNCs/MNCs by promoting bilateral trade, technical cooperation, and assistance for policies towards development while negotiating trade agreements on investment and economic cooperation.
Subsequently, South African companies are permitted to exercise the free trade agreements with the European Union and the European Free Trade Association. Since 2004, South Africa has partners in the Southern African Customs Union, and as of 2016, a preferential trade agreement with South American trade bloc MERCOSUR. However, over the past decade, South Africa has focused on promoting economic development in developing countries to promote economic growth in the global South. As such, South Africa is part of the India-Brazil-South Africa (IBSA) initiative, the Partnership for Growth and Development (PGD) with China, and Brazil, Russia, India, China, South Africa (BRICS). The objective of South Africa’s realignment towards promoting economic growth and development in the global South is to ensure sustainable and mutually beneficial relationships with its trading partners and companies involved.
Political landscapes and human rights
Noticeably, many developing countries have been questioned about their political landscapes, human rights, and equality. Unfortunately, these issues often affect businesses operating in the global market. Countries like China, Mexico, Venezuela, or Saudi Arabia have come into question about their cost-benefit analysis for foreign direct investment. Over the past decades, companies have entered into countries like Cuba, Iran, and Vietnam, among others. Although some countries experience fluctuations in political, financial, and diplomatic crises, companies have no certainty when these events occur. However, decisions solely based on short-term economic conditions or legalities may bring about challenges. Making short-term decisions like gaining profits or avoiding losses following or evading sanctions, places businesses in these highly volatile countries at a disadvantage.
Iran, sanctions and South Africa
In the Iran case, the United States imposed trade and economic sanctions on activities with Iran since 1979, later passing legislation known as the Iran Sanctions Act of 1996. Although sanctions come and go, in 2016, the U.S. sanctions towards Iran reemerged, prohibiting procurement contracts, property interests, and financial transactions with the U.S. government. Moreover, the U.S. and the United Nations worked multilaterally to sanction the Iranian oil industry. The UN Security Council has also imposed trade and economic sanctions against Iran to maintain peace and security in the international community.
In the case of MTN in Iran, it is worth briefly highlighting South Africa and Iran’s trade relations. In 1994, Iran lifted all trade and economic sanctions against the post-apartheid government to ensure bilateral ties between them. These relations were the catalyst for establishing an Iranian Embassy in Pretoria and allowed for South African passport holders with a valid visa to enter the Islamic Republic of Iran, while business visas only took up to 15 working days to be processed.
MTN Group Ltd and MTN Irancell
Although Iran’s landscape experiences volatility, the MTN Group Limited announced that it can still achieve high sales growth in the short-term, even amid the U.S. imposed sanctions and Covid-19. The U.S. sanctions on Iran have made it difficult for MTN to withdraw its money from the country. However, the company decided to convert the Iranian unit earnings into loans from MTN then send earnings to the parent company based in Johannesburg. As a result, MTN Irancell can now fund its network expansion even amidst the economic decline caused by the Covid-19 pandemic. The MTN Irancell network expansion occurs even though Iran suffered the third-largest hit of the Covid-19 pandemic globally.
MTN diversification in Iran
MTN Group continues to establish itself in Iran with its ride-hailing app facilitating approximately 850,000 trips daily in December 2017. Additionally, MTN holds a 40% stake in Iranian ride-hailing businesses, including Snapp! and Snappfood (a food delivery business), among other internet investments. In 2014, Snapp! was formed in the Iranian capital Tehran as an alternative to Uber (banned by sanctions). MTN Chief Financial Officer Ralph Mupita was quoted having said, “We’ve seen the whole internet business in Iran grow tenfold in one year , and a big part of that has been Snapp.” These are just some of the avenues that the MTN Group has used to diversify their earnings in Iran and expand their network, leading to more business endeavours in the Middle East like Easy Taxi (a ride-hailing company).
MTN’s hurdles operating in Iran
MTN’s success in the Iranian market does not come without hurdles. In 2018, the U.S. state of Colorado listed the MTN Group as a company on the ‘Iran list’ for engaging in any business facilitating Iran’s acquisition of nuclear, chemical, or biological weapons or military equipment. The decision to list MTN comes as no surprise.
In 2012, MTN was accused of being involved in bribing the Iranian government for trading opportunities in weaponry, capital investment, and diplomatic influence. Although the allegations were claimed by a rival firm (Turkcell), the lawsuit launched in Washington D.C. cost US$4 billion. The alleged scheme, known in MTN as Project Snooker, involved bribes and the sabotage of Turkcell. Allegedly, MTN also delivered pro-Iran votes from South Africa at the International Atomic Energy Agency amid the controversy of Iran’s nuclear strategy.
The MTN Group committed itself to remain in the Iranian market, with no intentions to leave.
Trading in authoritarian states
The authoritarian state’s primary challenges revolve around political dynamics, economic trajectory, and social context. Companies trading or investing in authoritarian states should not base their decisions on short-term financial conditions unless they do not plan on returning to the country.
Despite the volatility and sanctions in the Iranian market, MTN still turns high sales. Notably, sanctions hinder MTN from withdrawing profits from the market to the parent company, leading them to redirect profits as capital to expand in Iran, which means that South African companies conducting business in authoritarian states may have to be patient with withdrawing their profits in the short-term. Getting involved in repressive regimes also exposes companies to underhanded and backdoor tactics, leading to negative publicity in the short-term. But clearly, MTN has no intentions of leaving the profitable Iranian market.