ICT: Becoming a Bigger Contributor to Nigeria’s GDP

The information and communication technology (ICT) sector continues to sustain its position as the fastest growing industry in the Nigerian economy. The sector has grown at an average of 34% per annum over the last 10 quarters, driven largely by the rapid expansion in telecommunication following the deregulation of the subsector in 2001. The industry’s contribution to the Gross Domestic Product (GDP) is growing modestly from less than 0.5% in 2001 to 6% in 2012. With a population in excess of 160 million people, low but rising per capita income and a substantially youthful demographic structure, the ICT industry has the potential to drive the national economic growth at the much desired double digit rate.

Nigeria has made good progress in expanding mobile communication signal coverage. The percentage of Nigeria’s population living within range of a GSM (Global System for Mobile Communications) signal has expanded rapidly, reaching 60% in 2006 and nearly 80% in 2012. At 155.5 million installed subscriber capacity in August 2012, conservative estimate suggests that Nigeria’s population living within coverage range of mobile communication is close to 94%. According to Nigerian Communications Commission (NCC), private investment in the sector reached $23 billion in 2012, more than 75% of the $32 billion in private capital that went into the development of new mobile networks across Africa in that year.

Intense competition
Intense competition leads to price war amongst operators
Nigeria has an actively competitive fixed-line sector which is being driven by market liberalisation. At the moment, there are 16 fixed wireless operators most of which are providing service using only fixed-wireless technology. While few of the top operators have been competing head on with the GSM operators by providing full mobility functionality, the competitive landscape has been too tough for others who continue to survive on the fringe. The stagnating national carrier –the Nigerian Telecommunications Limited (NITEL) has been unable to compete as only a minority of fixed-line subscribers are associated with its platform. Till date, several attempts to privatise NITEL and reposition it for competition have failed.

Intense competition in the mobile and fixed-line segments has driven prices down. Nevertheless, the 2009 prices of a monthly fixed-line subscription ($9) and prepaid mobile subscription ($11) were only average compared with other Sub-Saharan African countries. By 2012, there had been significant tariff reductions due to lower interconnection rates introduced by the regulator. This, combined with the depreciation of the Naira, should make ICT services more affordable. It however exerts substantial pressure on the average revenue per user (ARPU) of the firms in the industry. The situation has forced the mobile network operators (MNO) to develop new revenue stream such as 3G and 4G mobile broadband, mobile payments/banking etc. The effects include the big mobile players displacing existing small niche private telecom operators (PTOs) through product/price differentiation.

Market-Efficiency Gap
Despite rapid expansion and intense competition, some inefficiency remains
Nigeria still faces a substantial market-efficiency gap in the mobile market. While the current level of GSM signal coverage is impressive, certain areas in the country are yet to be covered due to the cost of providing and maintaining telecommunication infrastructure which, according to operators cannot be easily recovered. Their argument is based on the low income earning capacity of the dwellers in these areas and the dwindling ARPU. Simulations, including infrastructure outsourcing and co-location among others, however suggest that the GSM signal can be profitably extended to the entire national population. It is puzzling that coverage is not greater, given that with nine mobile operators, Nigeria arguably has the most competitive mobile market on the continent. The price of mobile licenses, coupled with the challenge of extending infrastructure in a large country, however, pushes up operators’ costs. The absence of electricity in rural areas further inflates the costs of network rollout.

The downward pressure on the industry ARPU is creating substantial room for the growth of the telecommunication infrastructure space. The industry has come to realise that outsourcing the ownership and management of mobile towers and other telecom gadgets to infrastructure companies could save them substantial costs considering the high cost of installation, security and provision of power to base stations. Telecom infrastructure firms own, manage, and lease space on their mobile towers to telecom companies, helping to bring down costs, expand coverage, accelerate technology rollouts and improve the quality of service for subscribers. This subsector has also attracted substantial investment into the sector and by extension the economy.

Fibre-Optic Network
Cheaper communication experience is available on the fibre-optic network.
Nigeria has also made great progress in the development of a national fibre-optic network by harnessing private sector investment. NITEL's monopoly on fibre bandwidth via the SAT-3 system ended in 2010 with commercial operations of Globacom’s Glo-1 and Main One Cable. Many African countries have pursued publicly sponsored national fibre-optic backbone networks, some of them quite expensive and of relatively low quality. Nigeria, on the other hand, has taken full advantage of the scale of its market. By liberalising the market for fibre-optic infrastructure, the country has seen substantial private sector investment in this area, leading to the development of a solid backbone network interconnecting the major cities. Multiple parallel cables have been laid on the highest-traffic routes, which has resulted in intense competition and lower costs.

Evidently the private sector may not on its own extend cables into smaller towns and rural areas where a business case does not exist. But by first allowing the private sector to develop the major components of the backbone, the government can limit the use of public funds to areas where no other solution is possible, thereby saving significant fiscal resources. The same is applicable to the rural telephony initiative which is yet to effectively take off.

Internet Access Remains High
Data mobility through the internet has just been made easier.
The price of internet access remains high, but can be expected to fall with the arrival of new submarine cables. Internet access is relatively expensive considering that Nigeria has access to the SAT-3 submarine cable. But NITEL has had a de facto monopoly over the international gateway. The launch of the Main One undersea fibre-optic cable in 2010, with landing stations in Nigeria and Ghana, was forecast to reduce wholesale prices by 50%. The arrival of additional submarine cable projects along the West African coast has placed downward pressure on costs. If costs effectively fall, Nigeria could emerge as a leading regional bandwidth supplier. According to the World Bank, evidence from across Africa suggests that only when there is competitive access to submarine cable infrastructure will the full cost advantages be felt by consumers.

Broadcasting and Media Activities
Broadcasting organisations now rely on modern technology for information dissemination
Broadcasting and media activities have been substantially dominant in the delivery of content in Nigeria. The increased dominance of private broadcasting organisations in the broadcasting space also give credence to the full liberalisation of the information and communication technology sector in Nigeria. While concentration of operators –radio and television is skewed to the urban areas especially in Lagos, Abuja, Port Harcourt and other major cities, the rising integration of media content into mobile telecom devices has increased broadcasting reach since 2001.

Building competence in ICT equipment manufacturing will help the sector further.
Although the country possesses limited capacity to manufacture and assemble ICT equipment and devices, there is a huge market for ICT equipment in Nigeria which is dominated by companies that have established channel partnership with global manufacturers. Some of the global manufacturers have also established increased presence in Nigeria. This includes Microsoft, Google, LG, Nokia, etc. There is also an increasing market potential for ICT equipment, devices and peripherals, including software development.

ICT Growth
Information Communication Technology sector has greatly benefited the country.
The growth in the telecommunication sector has had a significant impact on the other sectors of the economy perhaps most significantly, the financial sector. In commercial banking services, the quantum of transactions catalysed by telecommunications services may not have been fully documented and it is arguable that several banks in Nigeria have benefitted. In financing telecommunication projects, the financial sector has done tremendously well as most banks are involved in one loan syndication or another. The most recent one being syndication of $650 million by eight Nigerian banks for the mobile operator, Etisalat, which took place in March 2011.

In the area of job creation, it is estimated that the sector currently employs over six million Nigerians directly and indirectly relative to less than 90,000 employments in the Nigerian banking sector. Although the pace of service integration in the ICT industry is gaining speed, the industry is highly fragmented. This has resulted in weak inter-organisational linkages that are necessary for robust industry productivity. The delivery of data, broadcasting and media, and other services via mobile devices has expanded substantially in recent times. This promises to deepen content while providing players with opportunities to boost ARPU. The on-going introduction of mobile money technology, promises to expand integration with financial services such that the huge unbanked population can be brought into the financial net. Mobile banking in Nigeria has been unnecessarily delayed considering the success recorded by the initiative in countries such as Kenya.

ICT Challenges
But there are some challenges to harnessing optimum benefit of ICT.
The absence of a robust database of subscribers is one of the factors militating against the early adoption of mobile banking. The on-going mandated registration of subscribers is expected to facilitate the success of the mobile money initiative amongst other benefits such as the security of lives and property. The adoption of number portability is expected to support the efficiency of intra sector integration.

The unwieldy nature of the sector has contributed substantially to weak regulatory oversight and the need for the development of a comprehensive ICT policy for the nation. This has hindered the performance of the sector in certain respects. The continuing failure of the nation to develop a robust national identity management database and the inability to effectively adopt electronic voting during the last general election are cases in point in this respect. The low adoption of ICT in the governance and public administration process is another. The government only commenced the implementation of the ICT infrastructure for the federal government and its agencies using the Galaxy Backbone platform recently.

Investment Opportunities
For the discerning investors, there are opportunities for huge returns.
The huge potential outlined above suggests significant opportunities for players and other stakeholders in the industry. Increasing the participation of Nigerian companies and enhancing the integration of the sector to the national economy is critical. At the sub-sectoral levels, media and broadcasting organisations are set to benefit from the increasing integration of content provision to mobile phones. The competitive landscape is also set to expand the telecom infrastructure service subsector space. Mobile money debut would contribute substantially to banking sector revenue via fees while bringing a lot of people into the financial system net in addition to expanding mobile network operators’ sources of revenue. A coordinated and guided ICT policy framework is however required to realise the full potential of the industry. It is for this reason that the creation of the ministry of communication technology by the current administration is a welcome development.