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BusinessDay

Inflation erodes N8.4tn telecom sector gain

Interswitch mulls telecom operations, gets MVNO license

Inflation eroded the N8.44 trillion gain the telecommunication sector made in 2023 despite its improving contribution to economic growth.

In 2023, the telecoms sector contributed N25.22 trillion to the country’s Gross Domestic Product (GDP) in nominal terms (at current prices). This was an N8.44 trillion increase from the N16.78 trillion the sector recorded in 2022. At current prices, the telecom sector grew by 50.28 percent in 2023.

However, when adjusted for inflation (GDP at 2010 constant basic prices), telecoms contributed N11.03 trillion, a N901.52 billion increase from the N10.13 trillion it recorded in 2022. When adjusted for inflation, the telecom sector grew by 8.90 percent in 2023.

Nominal GDP is the current market value of goods and services produced at a particular period, while real GDP is the value of goods and services after inflation has been factored in. According to economists, real GDP is the true reflection of a country’s economic status.

Commenting on the impact of the information and communication sector (to which telecoms contributed 83.69 percent to) on the country’s nominal GDP, the National Bureau of Statistics said: “On an annual basis, the sector grew by 40.79 percent, higher than 19.00 percent in 2022. The information and communications sector contributed 12.52 percent to the total nominal GDP in the 2023 fourth quarter, higher than the rate of 10.42 percent recorded in the same quarter of 2022.”

It said: “On an annual basis, the sector growth stood at 7.91 percent relative to 9.76 percent in 2022. Of total real GDP, the sector contributed 16.66 percent in the 2023 fourth quarter, higher than in the same quarter of the previous year in which it represented 16.22 percent.”

The removal of fuel subsidy and the harmonisation of foreign exchange rates exacerbated inflation in 2023. Between January and May (before the two policies kicked in), inflation rose from 21.82 percent as of January 2023 to 22.41 percent as of May 2023. Inflation jumped from 22.79 percent as of June 2023 to 29.90 percent as of December 2023 after implementing the policies.

This has led to a surge in the cost of goods and services in the country, with businesses struggling to stay afloat as the purchasing power of consumers worsened.

High inflation is creating hardships in Nigeria, the International Monetary Fund recently disclosed. In the 10 months leading to December 2023, six Nigerian companies stopped operations in the country because of the harsh business environment, BusinessDay recently reported.

In the company’s nine-month financial statement for September 2023, Karl Toriola, MTN Nigeria chief executive officer, highlighted that inflation has diminished the firm’s consumer spending power.

He said the firm’s earnings before interest, tax, depreciation and amortisation margin came under pressure as the impact on operating expenses of the country’s forex harmonisation kicked in in Q3, heightened by rising inflation.

“However, the scale of the impact on the business of rising inflation and currency devaluation necessitates an increase in regulated tariffs. We are engaging with the authorities through the relevant regulatory bodies to achieve this objective,” he said.

In Airtel’s report for the nine-month period ended December 2023, Airtel Africa highlighted that an increase in inflationary pressures could lead to a significant increase in its operating cost structure while also negatively impacting the disposable income of its consumers.

“These adverse economic conditions, therefore, not only put pressure on our profitability but also on customer usage for our services,” it added.