• Friday, June 21, 2024
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BusinessDay

Telecoms outlook bright amid fierce economic headwinds

Why telecom market attracts low capital imports in recent years

Buoyed by the growing demand for mobile data services especially amongst the youth population, the long-term outlook of Nigeria’s telecommunications industry looks bright as service revenues are expected to rise by 18.5 percent, to $10.9 billion in 2019, as against $9.2 billion in 2013.

This expected revenue growth is coming against the backdrop of fierce economic headwinds in the shape of inflation and devaluation of the local currency – all direct fallouts of the decline in oil prices, BusinessDay can now report.

According to Pyramid Research, in a recent industry study, the nation’s vibrant telecommunications market will grow at a Compound Annual Growth Rate (CAGR) of 2 percent over the next five years, with mobile data increasing at 16 percent up until 2019. Market analysts however are indeed optimistic that growth of around 6.8 percent per year for the period between 2014 and 2019 will be mainly supported by an increase in mobile user base.

The mobile subscriber base will rise to 182 million in the next five years. The regulator, in its quarterly report, states that there were about 134 million active lines as at November, 2014. “Political instability and low oil prices have led to a depreciation of the naira against the US dollar, but the telecoms market will remain an integral part of the nation’s efforts to diversify its sources of growth,” said Severin Luebke, analyst at Pyramid Research.

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Industry experts say that enhanced broadband penetration has the potential of creating wealth and unlocking opportunities for millions of Nigerians. “The World Bank has stated that every 10 percent increase in broadband internet penetration accelerates economic growth by 1.38 percent, and that 1.4 to 3.6 indirect and induced jobs can be potentially generated from each direct job in the sector”, said Osondu Nwokoro, director, regulatory affairs, Airtel Nigeria.

According to Nwokoro, the GSMA has also indicated that with positive policy action, broadband can potentially contribute over 1.7 percent of non-oil GDP in 2015, supporting diversification of the economy. According to the rebased GDP figures, the telecoms and information services sector contributes 8.68 percent to the economy, equivalent to N6.97tr ($44.3bn) out of the total rebased GDP estimate of N80.22tr ($510bn).

This compares with N364.4bn ($2.3bn) in the 2012 non-rebased GDP time series, which has positioned telecoms ahead of other newly added sectors, as the star performer in the rebased GDP figures. The industry is however not isolated from the prevailing economic conditions. “With regard to the devaluation of the Naira, this has added to the cost of doing business, as our sector is extremely FX and capital dependent”, said Funmi Onajide, general manager at MTN.

The Central Bank of Nigeria’s (CBN) policy that only allows importers of  telecom equipment, power generators and finished products to buy FX through  interbank channels  incrementally raises the cost of doing business in an environment where there is constant pressure to reduce tariffs.

In spite of this challenge, investment in network expansion will continue. “Since inception in 2001, we have invested a cumulative of about $15 billion, that is an average of $1.2 billion a year investment.

“The aggressive investment will take on a new intensity in 2015 because…we are taking bold steps to open up the digital economy in Nigeria”, Onajide added. Telcos in Nigeria, and other nations in Sub-Saharan Africa (SSA) will invest $97bn towards CAPEX over the next seven years (2014 to 2020) against $45bn over the last six years (2008 to 2013) to expand their mobile data services, says GSMA. 

Though the growth in the Nigerian telecommunications market will be slightly reduced in 2015, as the market recovers from the large number of fixed-line disconnections, long-term growth of the telecom sector will not to be affected, said analysts at Pyramid Research. But interestingly, the next wave of digital game-changers and economic boom will emanate from frontier markets such as Nigeria. “Nigeria’s success in building digitally-enabled services lays the foundation for easily scalable advanced services such as electronic commerce, marketplace and social media”, said Amit Pau, director at EnterpreneurCountry, “This is well reflected by the rise of e-commerce places such as Jumia, Konga, DealDey, Gidimall, Jobberman, Paga, iROKO, Kaymu, to name a few”, he added in an interview with BusinessDay.

Ben Uzor