• Sunday, December 10, 2023
businessday logo


Nigeria’s telcos record biggest investment decline in 8 years

Nigeria’s telcos record biggest investment decline in 8 years

The Nigeria’s telecoms industry in the second quarter of 2021 attracted foreign investments worth about $340,000, the lowest since data agency, the National Bureau of Statistics (NBS), started collating figures in 2013.

Before now, the sector had attracted an average of $87.7 million every quarter since 2013, according to data compiled by BusinessDay.

That helps provide context of the magnitude of the slump in foreign investment in a sector that has powered Nigeria’s economy in recent times and has been resilient in the face of two recessions in five years.

Investment in the telecoms sector slowed in the whole of 2020 following a 55.7 percent decline to $417.48 million from $942.86 million. The decline mirrors the 60 percent slump in total foreign direct investment into Nigeria in the same period, as the COVID-19 pandemic upended investment flows.

The Nigerian Communications Commission (NCC) attributed the decline not only to COVID-19 but also to the exchange rate volatility, which has discouraged foreign investments.

The President of the Association of Telecommunication Companies of Nigeria (ATCON), Ikechukwu Nnamani, in June, decried the impact of foreign exchange scarcity on the operations of many telecom operators in the country.

“The inability of the telecom operators to source FX from the official window is compelling operators to patronize the black market, leading to increased costs which, under normal circumstances should be passed on to consumers through price increases,” Nnamani said.

MTN Group Limited said last week that it planned to reduce its FX spending in Nigeria, its biggest market, and pay more of its costs in the local currency to reduce its exposure to exchange-rate volatility.

The exchange rate has dwindled after nearly three years of stability as oil prices crashed in the heat of the pandemic and foreign investment dried up. The naira currently trades at N412 per dollar officially, 14 percent weaker than at the beginning of 2020. In the black market, it trades at an even bigger premium at over N500.

“Lack of forex to telcos is an open secret. Forex is scarce in the country and it affects the telcos. We have been asking for special consideration from the Central Bank of Nigeria, but we’ve not gotten it,” Nnamani said.

When asked if telcos were resorting to the black market for forex, he said, “If one desperate and needs to make transactions, yes. Although, it comes at a higher cost, which increases the cost of doing business.”

Read also: Nigeria’s telcos’ investment declines 55.7% in one year

Operators in the telecoms industry have sought special consideration to enable them get access to more FX. Some industry stakeholders have stated that operators have been struggling to get FX and this has been responsible for the recent decline in capital inflows.

Biodun Omoniyi, managing director/ CEO of VDT Communications, says the industry is import-dependent, which makes the need for easy access to forex more important.

“There is no accessibility to forex, which affects the quality of service as operators cannot quickly replace damaged equipment. When we talk about communication, we are also referring to the equipment involved. We don’t manufacture them in Nigeria”, Omoniyi states, and laments that the fall of the naira has increased the cost of equipment and service delivery.

“Telcos provide service in naira. The naira has been falling; which makes it more expensive to buy equipment. Since COVID-19 started, the naira has lost about 35 percent of its value.

“We import almost everything in the telecom space. We are import-dependent and need forex for almost everything in the space, including computers. We can’t expand our networks without buying more equipment, which means forex. Operators are not getting easy access to forex, and I don’t think anyone is getting easy access to forex. I think it is affecting other industries as well,” he notes.

Despite the COVID-19-induced economic headwinds that impacted many sectors negatively, the telecoms sector proved to be a bright spot at the period of uncertainty and even beyond.

The sector recorded real growth of 15.90% in 2020 (vs GDP growth of -1.92%) and 7.7% in Q1 2021 (vs GDP growth of 0.51%). This performance was driven by the increased use of digital channels for daily routine activities from telecommuting to social engagements.

On the flip side, the sector has been plagued by several challenges including eroding consumer purchasing power and insecurity.

“While we acknowledge the need for the government to focus more on sectors that have been badly hit by the pandemic through various interventions, the telecoms sector should however not be left out, given its growing contribution to GDP (11.66% as of Q1 2021),” the NCC said in its latest report.

This sector remains one of the fastest-growing sectors in Nigeria’s ailing economy.

The lingering impact of FX scarcity may subsequently undermine investments by industry operators and players to enhance the quality of network infrastructure, thus limiting broadband penetration.

Broadband penetration stood at 40.66% as of April 2021, when compared with the target of 70% by 2025, a sign that Nigeria needs more investments.