Telecom operators in Nigeria no doubt faced many daunting operational challenges in 2024. From the devaluation of Naira to scarcity of foreign exchange, which significantly strained operators’ profitability; to high operating costs to inflationary pressures and dwindling investment, the sector faced many problems that threatened its over two-decade gains.
These issues have made attracting investors to the sector difficult in the year. Data by the National Bureau of Statistics (NBS) shows that foreign investments in Nigeria’s telecommunications sector fell to 14.4 million dollars in the third quarter of 2024 from the 113.42 million dollars recorded in the second quarter of this year.
This is a sharp 76.99% Year-on-Year (Y-o-Y) decline from $64.05m in Q3 2023. On a quarter-on-quarter (Q-o-Q) basis, foreign capital inflow into the sector plunged by 87%, down from $113.42m in Q2 2024. The NBS data also revealed that the telecoms sector accounted for 1.18% of the total capital inflow into the economy in Q3.
The telecommunications sector’s challenges were evidenced by declining industry metrics.
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The sector’s GDP growth rate dropped to 6.78% in real terms in Q3 2024, down from 7.74% in the same period of the previous year. Data from the Nigerian Communications Commission (NCC) highlights a significant decline in active mobile subscriptions, which fell by 29.07% to 157.60m in October 2024, compared to 226.19m in October 2023.
Additionally, tele-density, a measure of active telephone connections per 1,000 inhabitants, decreased to 72.70% in October 2024, down from 102.49% in the previous year.
The MD/CEO of the Ministry of Finance Incorporated, Dr. Armstrong Takang, noted that the decision to liberalise the telecommunications industry in 2001 transformed the economy from digital banking services, online education, government services to the creative industry.
He observed that 24 years later, the industry does not attract the level of investment it had in the past two decades, while the jobs created have declined. According to him, this raises the question of whether the Nigerian policy environment enables Telecom companies to seize the opportunities that emerging technologies provide for the economy.
“We must be decisive about how the telecoms industry will evolve in the next 25 years, which will be the effect of the enabling policies created to support the sector. The government’s role is to create an enabling environment and provide the right regulations to fast-track the industry’s growth,” he added.
Mr. Bismark Rewane, CEO of Financial Derivatives Company, said the telecom sector is bleeding as revenues from the industry dwindled from $8bn in 2020 to current $3bn.
“The revenues have reduced while costs have increased, and as was clearly stated, the telcos are in intensive care unit mode and dire need of new investments. These new investments will not come until the pricing formula has changed”, he said.
Chairman of the Association of Licensed Telecommunication Operators in Nigeria (ALTON), Engr. Gbenga Adebayo in an article detailed the dire situation the telecom industry is currently in and the need for the federal government to step in and make reforms that will save the industry from crisis and foster development.
“If you look carefully at the investment trajectory in the telecoms industry you can see two clear and concerning trends, which are being further exacerbated by the recent short term economic shocks. Between 2021 and 2022 industry CAPEX declined by 30.37% while industry Foreign Direct Investment declined by 46.9%. This happened at a time when operational expenses have surged and it has been exacerbated more recently by rising interest rates increasing the cost of debt. What that means is that industry expenditure has been diverted from capital (expansion and growth) to operations and that the investment environment has deteriorated. The ultimate manifestation of this has been the recent losses declared by major operators for Financial Year (FY) 2023 and Half Year( HY) 2024”, Adebayo said.
He said this is further exacerbated by the multiple taxation ecosystem that continues to exist across Nigeria, with operators exposed to 54 different federal/state/local government taxes or levies, many of which are technically illegal.
He said: “This is a critical moment. It is an inflection point. If we act, we can establish the platform for growth and the delivery of the government’s ambitious objectives. If we delay, or fail to take the decisions necessary, then the industry is likely to go in the wrong direction. This will not only damage the interests of investors, many of whom are Nigerian, but also impact the emergence of the innovative services and products that ride on telecoms infrastructure.”
He suggested that the government should take immediate action on retail pricing: In the short term, this means an industry wide increase to retail tariffs, which were last reviewed in 2016, when the exchange rate was N373/$ and inflation at 18.4%.
Domesticating Nigeria’s telecommunications industry is urgently needed as a critical step for its sustainability, said Mr Bolaji Balogun, the CEO of Chapel Hill Denham.
Balogun underscored this as the keynote speaker at the Telecoms Industry 2.0 town hall meeting organised by the Financial Derivatives Company (FDC) within the year.
He noted that the telecom industry was far too dollarised and made a case for domesticating it.
He said, “If you look at the businesses that have been successful in Nigeria in the last 30 years, there are localisation, domestication, or import substitution businesses. Everything Dangote Industries does today is around domestication; if you look at things we used to import, they are now produced domestically. The first thing is that we need a tariff structure that encourages domestic manufacturing of the elements of the telecom industry in the country. I am sad that 24 years after the telecom’s liberalisation, we do not assemble handsets in the country.”
In addition, the investment banking expert tasked the government to explore enabling tariffs to support domestic production in the telecom value chain, an equity model that allows co-investments in import substitution startups through entities like MOFI or NSIA, encourage financial transparency by mandating telecoms operators to publish financial statements, provide incentives through differentiated tax rates (tax rebate) for listed telecom companies and set a requirement for any concession-based company to be listed on a Nigerian exchange.
He stated that the government should be a critical enabler for scaling infrastructure investments to unlock industry growth. He added, “The ecosystem needs to increase localisation, minimise exposure to foreign exchange financing, utilise the capital markets, and develop a plan for talent development.”
Despite attracting over $70bn worth of investments in the last 24 years, Mr. Balogun believed significant investments are required to salvage the industry and address issues like service quality, increase the number of smartphones for a fast-growing population, improve broadband quality and penetration, reduce the industry’s carbon footprints, which is currently too large and deepen the talent pool that is limited mainly in big operators.
But experts said despite these hurdles, the long-term outlook for Nigeria’s telecommunications sector still remains promising. This optimism is driven by the growing adoption of advanced technologies, a largely untapped internet market, an underserved rural population, and favourable demographics.
As Africa’s largest mobile market, Nigeria’s telecom industry offers compelling growth opportunities, solidifying its position as a prime destination for investment, experts said.
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