Nigeria may have forgotten so soon the huge success story recorded in the telecommunications industry following the deregulation of the sector. Little wonder it holds on to an age-long subsidy regime that continues to stress the finances of the government.
Prior to 2001 when Nigeria’s telecoms sector was deregulated, the country had about 700,000 lines, which could not meet the growing demand for telecoms services by Nigerians.
Access to information technology was also limited as a result of failed operations by the Nigerian Telecommunications Limited (NITEL).
The liberalisation of the sector, which happened under former Nigerian president and military head of states, Olusegun Obasanjo, ushered in the first Global System for Mobile Communication (GSM) operator and the award of the first Digital Mobile Licence (DML) in 2001.
Since then, the sector has witnessed an unprecedented surge in investments (with over $70bn by end of 2017 in investments from 2001 till date) and growth, according to Nigerian Communications Commission (NCC).
The entry of new operators has also deepened the competition in the sector with the teeming subscriber base being better for it. Initiatives like number portability have also enriched consumer experience by limiting hassles to accessing better services on a preferred network.
But it appears that the gains recorded from the privatisation of the telecoms sector have been erased completely as Africa’s largest economy has failed to replicate such successes across key sectors of the economy.
On the other side of the coin are the oil and the power sector eating deep into the nation’s lean finances, as the government continues to cap the prices of petrol and electricity over fears of losing popular support from the masses.
A lack of reforms in both the country’s oil and power sectors has culminated into deterring private investments and drying up liquidity in both sectors.
“The case of the telecoms sector is a clear indication that the government has no business in doing business if efficiency and productivity are what a country strive for,” one renowned economist and investment banker told BusinessDay.
The mind-set in the heart of many Nigerians is that allowing for subsidy is the sole privilege they can get from a government whom they feel has failed in providing basic amenities that will give a facelift to the economy.
But keeping a subsidy regime must come with several alternatives that must be foregone. The resultant effect of this is an unemployment rate at a record high of 23.1 percent as at 2018, and some 90 million Nigerians, which data tracked by World Poverty Clock, show are living below the poverty trap.
In the oil sector alone, Nigeria spent an average of N730.9 billion in keeping the prices of petrol pegged at N145 per litre.
That’s for the oil sector alone, not mentioning the N1.5 trillion bailout spent by the Federal Government in sustaining the debt-ridden Discos who have been forced by the government to sell electricity at a rate not reflective of the market cost.
From a failing educational system to poor health services, the opportunity cost of keeping the subsidy is seen in the country’s dilapidated infrastructure that has been estimated to cost a whopping $100 billion through a period of 30 years, to bridge the gap.
Johnson Chukwu, managing director at Cowry Assets Management, says unlike the oil and gas sector, the telecoms industry is enjoying robust regulatory and legal framework, unlike the oil and gas sector whose legal framework is out-dated as its laws are at least 20 years backwards.
“Also, the value chain of the telecoms sector is trapped in Nigeria, unlike the oil and gas sector where the value chain is still not domesticated, as the country still do much refining abroad,” Chukwu says in Lagos.
Analysts have argued that deregulating the downstream sector would attract investors into the oil and gas industry and provoke competition, which would result in a reduction in the prices of petroleum products.
Several moves aimed at deregulating the sector has failed to see the light of day, as evident in the Petroleum Industrial Governance Bill, which has gathered enough dust on the desk of President Muhammadu Buhari, since over one year the Bill was sent.
There is a wrong perception that when a subsidy regime is taken off, this will push up inflation and make the populace poorer. But this in itself is never entirely true.
Although removing a subsidy will push up prices, but such pains are usually for a short-term period, with huge benefits at the longer end of the curve.
A clear example was when Egypt embarked on a 2016 economic reform that saw Cairo cut-off from subsidy payment and allowed its currency to be determined by market forces. At first, this led to spiralling inflation and a record breaking poverty rate in the Middle East African nation
However, since following that path that brought short-term pain to Egyptians, the economy is now growing at over 5 percent and inflation has collapsed to a nine-year low of 3 percent in October from a peak of 30 percent when the Egyptian pound was first floated and energy subsidies reduced.
When the telecoms sector was deregulated, it opened doors to private investment to take a nip in the sector. One of such is Nigeria’s biggest non-oil foreign investor, MTN Nigeria, which is currently the second most capitalised firm on the Nigerian Stock Exchange.
The success recorded in the deregulation of the telecoms industry has ripple effects on the Nigerian economy, catalysing development in other sectors of the economy such as agriculture, health, tourism and education.
Although, the Nigerian telecoms sector was never subsidised, when its doors were opened for private investments a pack of Sim card was sold for as much as N50,000. This was short-term pain for Nigerians.
Some 19 years later, the price of sim cards has crashed to nothing, thanks to the interplay of demand and supply that allowed for healthy competition in the oligopolistic telecoms market. The sector grew 12 percent in the quarter of 2019, and accounting for 9 percent of Nigeria’s GDP, based on NBS data.
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