In 2023, the telecommunications sector was a cornerstone of Nigeria’s economy, contributing an impressive 13.5 percent to the nation’s GDP.
The telecom sector’s contribution amounted to N33 trillion, underscoring its importance as a driver of economic growth. Moreover, the sector directly generated N2.4 trillion in taxes, providing a significant boost to the country’s fiscal revenues.
The Nigerian government’s projections indicate that the ongoing digital revolution has the potential to create two million jobs and add an additional 1.6 trillion naira to state revenues by 2027.
This highlights the growing significance of the digital economy, particularly as Nigeria seeks to enhance its e-government capabilities and expand mobile money services, which have already begun to transform rural economies through the introduction of Payments Service Bank (PSB) licenses.
However, despite these promising developments, the telecom sector faces significant challenges that threaten its ability to sustain and expand its contributions to the economy. Rising operational costs, driven by increasing energy prices, have placed considerable strain on telecom operators.
The situation is further exacerbated by the difficulty in accessing foreign currency, which is essential for importing the equipment needed to expand and maintain network infrastructure. These challenges are not unique to Nigeria; many African markets face similar issues.
However, Nigeria’s complex and burdensome tax regime presents additional, country-specific obstacles that severely limit the sector’s potential.
One of the most pressing issues is taxation related to infrastructure deployment, particularly the right-of-way (RoW) charges, which vary drastically from state to state.
Although a 2020 agreement among state governors set the RoW charge at 145 naira per meter, many states have not adhered to this rate. As a result, the costs associated with infrastructure deployment have escalated, with RoW charges now accounting for anywhere between one percent and 70 percent of the additional costs of fibre optic installations, depending on the state.
This inconsistency not only hampers the deployment of vital infrastructure like fibre optics but also threatens the sector’s ability to finance the necessary expansions. If the agreed-upon rate of N145 per meter were uniformly applied, the cost of deploying fibre across the country could drop by 15 percent, making it more feasible for operators to invest in expanding their networks.
Maintaining the status quo poses significant risks to Nigeria’s digital future.
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Without the margins needed to support costly infrastructure projects, telecom operators may be forced to scale back their expansion efforts. This would lead to a persistent usage gap, leaving vast segments of the population without access to the full benefits of connectivity.
Furthermore, this situation could hinder the government’s ability to deliver efficient e-services and leverage the digital economy for enhanced tax collection and financial inclusion. The inability to expand network coverage and improve service quality would also slow the adoption of digital technologies across various sectors, diminishing the overall productivity gains that digitalisation promises.
While the situation is critical, it is not beyond repair. There are clear steps that Nigeria’s leadership can take to create a more conducive environment for telecom operators. First, harmonising RoW legislation across all states and establishing a streamlined, one-stop shop for processing these applications would greatly encourage investment in connectivity. Such a move would simplify the process for telecom operators, reducing delays and lowering costs associated with infrastructure deployment.
Additionally, revisiting and revising recent value-added tax (VAT) provisions, particularly those affecting the telecom sector, would alleviate some of the financial pressures on operators. Simplifying the broader tax landscape, perhaps by reducing the number of taxes or consolidating them, could further support the sector’s growth.
More broadly, Nigeria’s leaders must prioritise simplifying and clarifying the legislative and regulatory framework surrounding the telecom sector. A clear and supportive regulatory environment is essential not only for sustaining the sector’s growth but also for ensuring that the country can fully capitalise on the opportunities presented by digitalisation.
With the right policies in place, Nigeria’s telecom sector can continue to be a powerful engine for economic growth, driving the country toward a more connected, inclusive, and prosperous future.
Wamola is the head of Sub-Saharan Africa at GSMA.
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