Nigeria's Telecoms Industry Records Biggest Investment Decline In 8 Years

In the second quarter of 2021, investment in Nigeria's telecommunication industry fell to its lowest level since 2013, according to data from the Nigerian Bureau of Statistics (NBS).

Nigeria's telecom sector has been a powerhouse for the country in recent years as it has been resilient in the face of two recessions in five years.

However, investment in the sector slumped 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 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.

Nigeria's telecom space relies heavily on importation to function as most of their equipment are imported. This means that they will keep needing foreign exchange both to stay functional and to expand their networks. However, telcos provide their services in naira to Nigerians, meaning they don't earn in dollars. Nigeria's unstable exchange rates, therefore, stand as a limiting factor for the telecom sector.

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.

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. Nigeria's 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.