By Prince Osuagwu,
The Information and Communications Technology, ICT, the sector has shown great stability in recent years, holding off bad economic conditions, to contribute handsomely to the nation’s Gross Domestic Product, GDP.
However, the sector, buoyed by the huge contribution of the telecommunications sub-sector is beginning to show weak signals which industry operators are not comfortable with.
The weak signals, ranging from surprising dips in the revenue of sector players, declining average revenue per user, ARPU, declining contribution to GDP and drastic whittling of the purchasing powers of the average consumer of the sector’s services, among others, have been attributed to some harsh government policies like removal of fuel subsidy, devaluation and floating of the naira.
Notable experts including renowned economist and Managing Director of Financial Derivatives, Bismarck Rewane, Chairman of the Association of Licensed Telecom Operators in Nigeria, ALTON, Engr Gbenga Adebayo, Chairman of the National Association of Telecom subscribers of Nigeria, NATCOMS, Chief Deolu Ogubanjo, and even top officials of the General System for Mobile Communications Association, GSMA have expressed great concern.
These professionals say that if nothing is done to stem the tide, the aggregate economy will be hit in a more devastating manner than already being witnessed.
Sector’s growth trajectory
In the past ten years, ICT has maintained a steady growth and become a major boost to the country’s GDP. Except in 2013, when there was a slight drop, ICT contribution to GDP maintained a steady climb between 2012 and 2022. According to statistics obtained from NCC’s website, telecoms’ contribution to GDP in 2012 was 7.7 per cent, but the figure doubled to 14.3 percent as at the second quarter of 2020. This represented a N2.3 trillion growth, whereas the total contribution of Information and Communications Technology (ICT) to GDP was 17.5 percent.
In 2012, telecoms’ contribution to GDP was 7.7 percent and in 2013, the contribution dropped slightly to 7.4 per cent, but it picked up again in 2014, contributing 7.6 per cent to GDP.
In 2015, it increased its contribution to 8.5 per cent and hit 9.13 percent in 2016. In 2017, it contributed 8.7 per cent and 9.9 per cent in 2018.
In 2019, ICT contribution to GDP grew again to 10.6 per cent and as of the second quarter of 2020 it has skyrocketed to 14.3 per cent, representing N2.3 trillion.
It continued in that trajectory, to hit 17.5 per cent at the end of 2020. It helped in not only taking the economy out of recession but also ensuring the economy does not relapse.
In 2021, an NBC report said ICT sector contributed 17.92 per cent to the GDP. The figure was 20.54 per cent higher than its contribution in 2020. The figure was also unprecedented at the time and, in fact, the highest contribution of ICT to the GDP before that year.
Continuing that trajectory, ICT added 16.20 percent to GDP growth in Q1,2022 and 18.44 in Q2,2022 and 16.22 percent in Q4 of same year.
In quarter four of 2023 it added 16.66 percent to the GDP.
Decline and losses
However, beyond these varied but appreciable contributions, there is a steady decline in growth rate which experts fear could lead the sector to implosion.
For instance, in Q1 2024, the sector’s contribution in real terms to the GDP dropped by 12.60 per cent quarter-on-quarter to N2.67 trillion.
According to the National Bureau of Statistics, NBS, the sector also saw a 9.89 per cent decline in quarter-on-quarter real terms contribution.
Even as the sector achieved a year-on-year growth rate of 5.43 per cent, ironically, it still represents a 4.89 percentage points decline from the same period in 2023.
The decline, however, is attributable to the sector’s weakening financial performances, sustained losses by telecom operators; occasioned by the dwindling buying power of those who use the services of the sector.
MTN Nigeria in April reported a pre-tax loss of N575.69 billion, a sharp reversal from the N162.9 billion profit reported a year earlier. This is after paying well over N4.2 trillion in taxes since inception.
Also, Airtel Africa reported a loss after tax of US$89 million for the fiscal year ending March 31 2024.
The losses are said to be primarily driven by exchange rate depreciation, which not only affected the operators but also the subscribers.
The economic crunch and high inflation have pushed many Nigerians towards lower recharge denominations and dropped Average revenue per user abysmally.
Chairman of NATCOMs, Deolu Ogubanjo said the ICT industry particularly as it concerns the telecom sector requires the government’s deliberate investment of goodwill.
“The subscribers are worse hit in the situation the telecom sector found itself. It is easy to be deceived that two telcos, MTN and Airtel who are open to publicly showing their financial reports, recently announced that Nigerians spent over N500 billion on data consumption in just a quarter.
“But it’s not surprising. With the economic condition the only option available for business people is to showcase their businesses online. So, many people go hungry and some borrow to feed data.
“But the voice subscription which mainly powers communication and drives Average revenue per user is suffering and that’s mainly why operators are declaring huge losses.
“The Federal Government should look at its forex and petroleum pricing policies. I think most especially there’s a need to revisit the Petroleum Industry Act, in a way to make it support refining crude in Naira. My members are suffering. It will affect the telcos and eventually rub off adversely on the aggregate economy,” he added.
Corroborating their president, a few subscribers who spoke to Vanguard did not recount a comfortable experience.
Mrs Patricia Okoro, a chef in one of the prominent hotels in Lagos said: “Frankly speaking, I have abandoned my phone. Before, I used to recharge N1,000, and I will use it for my online prayers every morning.
“Currently, I have stopped because it was consuming so much data and things aren’t getting better. So what I do now is to recharge N100 or sometimes N200. I just use it to send and receive WhatsApp messages only.
“Making calls is out of the picture because you can’t say what you want within the minutes the small airtime you have can allow you.”
Also, a Lagos-based musician, Samuel Nsika, said ‘’before things got to a head as we are witnessing now, I used to recharge up to N3,000, use N1,000 to subscribe and make calls with the rest.
“But now, one has to think of feeding first, before feeding the phone. But, it’s not funny for my business, because I need to constantly stay in touch with my producer and my fans.”
Dwindling purchasing power
The declining purchasing power of users is also affecting the Nigerian and indeed African smartphone markets.
In Q1 2023, Africa’s smartphone market led by Nigeria’s mobile market, declined 3.4% quarter on quarter (QoQ) to a total of 17 million units, the lowest level of shipments since the start of the COVID-19 pandemic in Q1 2020.
IDC’s data showed that rising inflation and local currency depreciations against the US dollar negatively impacted demand across the continent. Shipments of feature phones across Africa also declined in Q1 2023.
George Mbuthia, a senior research analyst at IDC, said: “Africa’s smartphone declined throughout 2022 amid weak consumer demand, and this has been exacerbated by rising inflation and higher device prices.
“The average selling price (ASP) for smartphones grew QoQ due to high import costs and the fact that many vendors’ flagship devices are now equipped with 5G and have therefore moved up in price to the premium segment,” he added.
Why the Golden Sector Needs Salvation
Bismarck Rewane agrees that the fortunes of the telecom sector are dwindling but warned that allowing the golden sector to lose its sheen will spell doom to the aggregate economy.
He highlighted the signs of an ailing ICT sector, at a recent breakfast meeting at the Lagos Business School, LBS, in Lagos.
“When the EBITDA is sharply lowering by 12% to N1,202bn, then things are not completely in place. “Telecom CAGR was 32% per annum between 2000 and 2010 but now, the sector’s growth is stagnating at 6 per cent, although, that is still above population growth rate of 2.2%.
“Yet, the telecom industry is becoming relatively unattractive and while expenditure has increased over the years, returns and revenues have squeezed to negative margins.”
He, however, highlighted some of the causes of this ugly scenario to include Limited access to foreign exchange, rising inflation, high operating costs, regulatory burden, multiple taxation, Right of Way issues, vandalism – insecurity, declining investment and lack of new investment, poor quality of service, and state and local government extortions.
For him, the short and long-term solutions to the problem are to increase tariffs and deregulate prices respectively.
Rewane said that “Market distortions arise from fixed prices, which hinders competition and affordability for consumers.”
He also described price controls as a deterrent to investment, impacting service quality
His reasons for proffering the solutions were that the decline in telecom sector investments limits infrastructure development and technological advancements while over-regulation stifles telecom innovation and quality, distorting markets and diminishing investment incentives.
He noted that the economic repercussions of such practices include job losses, reduced GDP contribution, and digital inclusion setbacks, which Nigeria does not need to experience on a large scale.
He said if these measures are not taken, the ICT industry may sink into oblivion but warned: “If the sector collapses, the economy fails.
“Without immediate intervention, the revenue potential from telcos may start falling drastically. Telcos are linked to many sectors, hence, any disruption in its operations will have a chain effect on other sectors of the economy.”
The GSMA agreed with him on that when a top executive of the association said: “The telecoms sector is a major contributor to the economy of Nigeria and provides the foundations for the digital transformation process.
“A sustained reduction in industry revenue has implications that go beyond just the service providers. “The direct contribution of the industry to the total GDP of the country is also reduced.
“A slowdown in the mobile industry will have a further negative impact on the GDP of the country. If the industry suffers, this will feed through into lower rates of digital adoption, and the country will miss out on the potential boost to GDP that it would have delivered, “ he added
Beyond its numerous economic benefits, ICT, has also been instrumental to the development of nearly every sector. Even in social activism, ICT has revolutionised participation. From ‘Occupy Nigeria’ to the ‘Bring Back Our Girls’ campaign and beyond, the kind of energy needed to ensure a more accountable government has been given a spring.
Furthermore, the average Nigerian is more informed, hence, better empowered to participate in shaping the nation’s agenda. The singular truth that ICT has been advantageous to Nigeria cannot be over-emphasized. What is however becoming a source of concern is the nation’s own approach to the ICT industry.
Perhaps, that’s why the Chairman of ALTON, Engr Gbenga Adebayo said: “The entire ecosystem is battling with a range of challenges that must be addressed. These challenges centre around the rising costs of operations. Failing to cushion the effect of these challenges will impact negatively, not only on operators but everybody.
“How we approach and resolve the challenges will define the future of Nigeria’s digital economy,” he added. (vanguard)