Telecoms could drive Nigeria’s economy if FG gets out of the way

Nigeria’s telecoms sector has what it takes to continue delivering double-digit growth that will help lift Africa’s biggest economy if the government will taper down on its numerous unfriendly regulations capable of stifling the sector’s potential.

Of all the six biggest contributing sectors to Nigeria’s gross domestic product (GDP), five are currently in troubled waters, with growth either largely subdued or in prolonged recession; and they are mainly due to the government’s unfavourable policies.

As if the signs are not telling, the government has shifted gaze to the telecoms sector, known to be the only bright child among the five biggest contributing sectors to Nigeria’s GDP, bringing down the hammer on players in the sector. Analysts point to the move as a major downside that can inhibit revenue for players, dampen investors’ sentiments and further throw the already weak economic fundamentals into disarray.

The latest of these is the indefinite directive from the government that telecoms sector major players – MTN, Airtel, Globacom and 9mobile to stop the sale, registration and activation of new SIM cards.

The directive, which came into effect December 9, 2020, is seen an attempt at fighting increasing terrorism.

“With most of telcos revenues coming from voice calls and data usage, the decision by the government ordering players to halt the sale and registration of new SIM cards will surely impact negatively,” Gbolahan Ologunro, research analyst at Cordros Capital, said.

Nigeria’s top biggest contributing sectors to GDP are the agricultural sector, trade sector, manufacturing sector, telecoms sector, oil and gas sector, and the real estate sector.

No thanks to heightened insecurity particularly in the Northern region of the country that has forced farmers out of farmlands, and a non thoughtful protectionist directive from the government, shutting the country’s land borders, and crippling legitimate exports, in the name of checking smuggling activities; the agricultural sector, which has contributed on the average 24.4 percent to Nigeria’s GDP between 2015 and 2019, has continued to record reduced growth.

Although, still in the positive trajectory, growth in the sector fell from the high of 5.5 percent in the first quarter of 2014, to 1.2 percent in the second quarter of 2018, the lowest in record, according to data obtained from the National Bureau of Statistics, and compiled by Doyin Salami-led consulting firm, Kainosedge.

Growth of the sector however came to 1.4 percent in the third quarter of 2020.

The decline in the sector shows the country is not producing as much as it used to in meeting the growing demand for food by its population.

Trade, Nigeria’s second-biggest contributor to GDP, accounting for an average of 16.7 percent of economic activities, has continued to wallow in recession.

The sector’s negative growth, which started since the fourth quarter of 2016, worsened to -16.6 percent and -12.1 percent in Q2 and Q3 of 2020, courtesy of the pandemic and the huge impact of the shut borders that affected the distribution of goods and services.

A similar scenario holds for Nigeria’s manufacturing sector, which accounts for 9.3 percent of the GDP, the third biggest.

The sector, which provides a gauge to how companies particularly those in the real sector are faring, has been galloping in and out of recession.

The sector’s disappointing performance is not unconnected to Nigeria’s flawed liquidity management that has made manufacturers unable to source dollars easily, as well as the heavy gridlock in Nigeria’s biggest ports in Apapa, making it difficult for companies to get imported equipment easily, further hurting their operations.

The oil and gas sector, which is the country’s fifth-biggest contributor to GDP, averaging 8.8 percent, is also nothing to write home about, with only meaningful growth seen last in Q1 2020, caused by the long delay in assenting to the Petroleum Industry Bill, which promises several reforms for the sector.

Same applies from Nigeria’s sixth-biggest sector, real estate, with an average 6.8 percent contribution to GDP. Nigeria’s real estate sector has continued to go deeper in recession since Q3 2019.

But in the wake of the disappointing sectorial performances, Africa’s biggest economy still has a sweet story to tell with the growth of the telecoms.

The sector has continued to show resilience despite macroeconomic headwinds. Between the first and third quarter of last year, growth of the sector averaged 15 percent, helped by the increased usage of voice calls and data by Nigerians to carry out economic activities, even during the lockdown.

The weak growth of other biggest contributors to GDP has been the sole reason why Nigeria’s GDP has struggled at an average 1.9 growth in the past five years, far lower than population growth.

If those sectors had fared better like telecoms, the Nigerian economy would have probably done better.

Beyond the broad view of growth in the sector, the performance of the Nigerian telecoms has triggered economic activities, creating jobs for the country’s youthful population, and putting money in the pocket of investors.

When the sector’s two biggest players, MTN and Airtel, listed on the Stock Exchange, the market took notice with both foreign and domestic investors increasing interest in the market.

Players in the sector have also continued to deploy innovative technology, and increase capital expenditures in Africa’s biggest economy.

Recently, MTN and 9Mobile are said to be seeking Nigerian regulatory permission for an agreement to let customers share their networks.

That would enhance service delivery and boost the growth of the sectors.

But with continued regulations stifles growth.

That will worsen the country’s already high unemployment and scare away the needed foreign direct investments into the country.

“The telecommunication sector has so many potentials if players are allowed to explore,” according to Johnson Chukwu, managing director of Cowry Asset Management Limited.

“Growth of the sector also has a ripple effect on others, and can create room for attracting investments into the economy,” Chukwu said.

It is not just the placing of a temporary ban on the sale and registration of new ban that players in the telecommunications industry have been hit with, and it doesn’t appear to be the last.

In 2015, the communications regulator, (NCC), handed MTN Nigeria an N1.04 trillion fine for failing to disconnect unregistered SIM cards, but MTN negotiated a reduced fine to clear its path to list on the Nigerian Stock Exchange.

Three years from that time, the CBN accused MTN of illegally repatriating $8.1 billion in profits, an allegation the telecommunication firm strongly refuted.

With the matter still on the table, MTN was also alleged to owe Nigeria up to $2 billion in taxes by the attorney general.

While both backslashes with Nigerian authorities sent a wrong signal to investors who had looked up to the decades of success of MTN as a sign of confidence, it, however, disrupted operations for the telecom firm.

Shares of MTN slumped sharply with the company having to slow down on plans to launch an initial public offering (IPO) in Nigeria.

MTN later paid $53 million to the apex bank in settlement of the dispute.

To say the least, a plan by telecommunication providers to get a mobile money licence from the CBN faced unwarranted delays.

Even with the years of delay, only two of the network providers (9mobile and Globacom) were approved, while licences of MTN and Airtel continue to stale.

Analysts say the licence would have put more money for operators by allowing them to provide services to cater for the over 36 million unbanked Nigerians.

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