…Indian telecoms progress holds lesson for Nigeria
Experts at the Financial Derivatives Company Limited (FDC), an investment cum think tank firm based in Lagos State, have urged the Federal Government to implement policies that will attract more investments into the nation’s telecoms sector, stressing that the forward and backward linkages the sector posses means that a slowdown in the sector’s productivity, will cause many sectors to perform below their potential.
According to FDC, the telecoms industry’s GDP which initially responded to reforms by increasing from $0.04 billion in 2000 to $32.8 billion in 2010, and further to $37.1 billion in 2020, has begun to lose its tempo declining to $20.7 billion in 2024, an indication a new strategy is needed for the sector to regain its allure.
These disclosures were made last week during the Lagos Business School (LBS) Breakfast Session, with the focus being the “Nigerian economy on the brink: Adapt or Collapse?” The LBS Breakfast Session is a monthly top-down appraisal of the global, African and the Nigerian economy, coordinated by Bismarck Rewane, the chief executive officer of Financial Derivatives Company(FDC).
Nigeria’s telecoms sector grew by 6.1 percent in 2000. And in response to the reforms in that sector in 2001, which saw the emergence of companies like MTN Nigeria, Globacom, and Airtel, the sector stupendously grew by 34.8 percent in 2010 but moderated to 15.9 percent in 2020. However, the sector only recorded a 6.2 percent real growth in 2024.
The declining growth in the telecoms affected the amount of taxes industry players paid to the central government, which also affected the amount of revenue available to the three tiers of government for developmental purposes.
According to the experts, the telecoms sector paid $875.6 million as taxes to the Federal Government in 2015; $390.2 billion in 2020; $807.6 billion in 2022, and $518.7 billion in 2023. But the naira float and subsidy removal policies of the FG affected the industry’s biggest player, MTN Nigeria, which declared a loss after tax of N137 billion in 2023, showing the extent of the challenges the sector currently faces.
“Telecoms CAGR was 32% per annum between 2000 and 2010. The sector’s growth is now stagnating at 6%but still above population growth rate of 2.2%. The telecoms industry is becoming relatively unattractive. Expenditure has increased over the years, but returns and revenues have squeezed to negative margins,” FDC said.
Citing the big push theory in economics, which says that a growth in one strategic sector of the economy could stimulate growth in other sectors, the experts emphasised that the telecoms sector is such an area with potential to transform other sectors of the economy.
The sectors that stand to benefit immensely from a rebound in the telecoms sector include manufacturing, transportation and logistics, education, tourism and travel, financial services, healthcare, retail and commerce, among others.
“The telecoms sector has both forward and backward linkages to various sectors. This linkage to other sectors is vital for economic growth, innovation, and productivity across various industries, making it a key enabler and driver of development in modern economies. If the telecoms industry collapses all other sectors will follow,” FDC stressed.
FDC added that countries with higher investment in the world usually end up having higher growth levels. The think tank firm said, for Nigeria to be like the Asian Tigers, which are Hong Kong, Singapore, South Korea and Taiwan, the country must invest more and investment in telecoms has a linkage effect on other sectors.
“India is the second largest telecoms market in the world with a market size of $44 billion. Massive reforms and investments in the sector supported the growth of the sector. 2021 spectrum auctions alone fetched a record-breaking amount of approximately $10.5 billion, indicating the high level of investment and competition in the sector. National Digital Communications Policy (NDCP) aims to attract $100 billion investment in the telecoms sector in four years,” FDC said.
India currently has 1.19 billion subscribers, as the sector generates 4 million employment opportunities. The sector attracts an average of $20.7 billion as foreign direct investment, making India’s telecoms GDP worth $232 billion.
Justifying why the focus of the discourse was on telecoms, FDC said in a matter of 23 years, teledensity, which is the number of telephone connections for every individual in Nigeria, skyrocketed from 1.89 percent in 2001 to 103.66 percent in 2024. Internet users as a proportion of the nation’s population increased from 0.02 percent to 55.4 percent in 2024 during the same period.
Also, base stations rose from 51,160 units in 2018 to 127,294 units in 2022. Total telephone subscribers increased from 100, 000 in 2001 to 222 million in 2024, just as Nigeria’s per capita income rose from $538.2 in 2001 to $1,109.9 in 2024.
Additionally, as of 2023, the nation’s telecommunications sector contributed 10.97 percent to the country’s Gross Domestic Product (GDP) which means for every N100 the Nigerian economy generates now, N11 comes from the telecoms sector.
Notwithstanding, the telecoms sector has witnessed some not-too impressive performance in recent times, according to FDC experts. The causes include limited access to foreign exchange, rising inflation, higher operating costs, regulatory burden, multiple taxation, right of way issues, and vandalism. All these combined acted as nexus leading the industry to have their marginal cost far less than their marginal revenue, which means should telecoms companies in the country attempt to invest more resources, the additional income will not be sufficient to recoup their investments.
