Between 2015 and 2020, Nigeria’s telecommunications sector attracted $3.9 billion in foreign investments (both portfolio and direct), accounting for an average of seven per cent of total capital importation in the country. This is according to the 2021 Telecommunications Industry report published by Agusto & Co, a leading Pan-African credit rating agency and provider of industry research and knowledge in Sub-Saharan Africa.
Agusto and Co predict that the impending deployment of 5G technology, and the Nigerian government’s broadband penetration target of 70 per cent by 2025, will help boost foreign investment in the coming years. While the sector experienced some downtime during the 2016/2017 economic downturn, real growth in the telecommunications industry has consistently outpaced the country’s GDP growth, according to the report. The reason for this is due to the industry’s prominent connectivity support.
The unprecedented COVID-19 pandemic brought the global economy to its knees, owing to the numerous social isolation measures enacted to combat the spread of COVID-19. As a result of this unexpected reality, the telecommunications industry provided connectivity to businesses and individuals, fostering resilience as the world grappled with the pandemic. The report observed that at the peak of the isolation, internet traffic in Europe experienced a surge of about 70 per cent as demand for streaming services grew by at least 12 per cent, with some of the streaming service providers having to lower video quality to manage the rise in Internet traffic.
In Nigeria, the proportion of mobile Internet users to mobile phone subscriptions increased from 69.1 per cent in January 2020 to 75.4 per cent in December 2020. Given the lingering concerns that accompany the spring of the new COVID-19 variant (Delta Variant), Agusto & Co expects the country’s telecommunication consumption pattern to be sustained in the near term.
But despite the aforementioned commendable feat and potential, Agusto & Co projects that the unstable macroeconomic environment in Nigeria poses a threat to successfully harnessing the vast potential of the telecommunications industry. Nigeria has gone through two economic recessions in the span of five years, 2016 to 2020. The naira has also continuously lost value against the major global currencies, negatively impacting purchasing power and the ability to maintain quality network equipment and services. To add to the fragility of the macroeconomy, the telecommunications industry has seen its fair share of unfavourable regulatory changes, including onerous tax regimes, delayed approvals, and heavy regulatory penalties.
One of such regulatory changes is the initiation of the NIN-SIM verification exercise, which drove a considerable decline in the industry’s growth rate to 6.3 per cent in Q1 2021 from 17.7 per cent in Q4 2020. The NCC mandated the suspension of SIM card activations and registrations on December 9, 2020, so that Nigerians would complete the NIN-SIM exercise. This adversely affected the industry’s growth pace.
“In only four months of the NIN-SIM verification exercise, the industry’s active telephony subscriptions reduced by 7.7 per cent from 204.5 million as at the end of December 2020 to 188.7 million at the end of April 2021. On the back of anticipated SIM deactivations for subscribers without valid NINs, we estimate that the subscriber base will shrink by three per cent (year-on-year) by the end of 2021 to 198 million subscribers,” the report states.
However, due to the continued adoption of mobile Internet services and telcos’ increasing diversification of value-added services, Agusto&Co believes revenue will grow, albeit at a slower rate of five per cent in 2021 (2020: 14 per cent). The agency also anticipates that logistics surrounding the NIN-SIM verification exercise will be resolved by the end of 2021, restoring double-digit top-line growth by 2022.
It also expects the challenges of the industry to remain with high business costs, especially given the consistent devaluation of the naira, prevailing inflationary pressures, and the adverse impact of regulatory changes. However, the industry’s outlook remains stable on the premise that telecommunications will provide recovery support to key economic sectors post-pandemic.
The telecommunications industry and the Nigerian economy
Over time, the telecommunication sector in Nigeria has proven to be the fastest-growing and largest contributor to the nation’s economy. The telecommunication sector is one of the sectors whose performance took the country out of recession in the fourth quarter of 2020, with a contribution of 12.45 per cent to the Gross Domestic Product (GDP). The telecommunications and information services grew by 17.64 per cent in Q4 2020, up from 17.36 per cent in Q3 2020 and 10.26 per cent in Q4 2019.
According to the latest National Bureau of Statistics (NBS), Nigeria’s GDP grew by 5.01 per cent (year-on-year) in real terms in the second quarter of 2021, marking three consecutive quarters of growth following the negative growth rates recorded in the second and third quarters of 2020.
The oil sector contributed 7.42 per cent of total real GDP in the second quarter of 2021, down from 9.25 per cent in the previous quarter. The non-oil sector grew by 6.74 per cent and contributed 92.58 per cent to the GDP. The ICT sector is in the non-oil sector, and it contributed 17.92 per cent of total real GDP in Q2 2021, which was 20.54 per cent higher than its contribution a year earlier and the previous quarter when it accounted for 14.91 per cent.
These statistics indicate the sector is a cornerstone in the Nigerian economy, and with a booming global digital economy, the chances that the telecommunication (ICT) sector will continue to spearhead the revitalization of the weak economy is bright.
