So far in 2024, Nigeria’s telecom sector has recorded $191.5 million in Foreign Direct Investments (FDIs), which was a 769% year-on-year increase from $22.05 million in Q1 2023.
From the periphery, it could be said the capital inflow means the sector would have a continued flourishing end, but foresight tells us there is a need for certain policy shifts and in-depth management, to sustain the tempo of FDIs.
Opportunities
The increase in FDIs positively impacts Nigeria’s digital transformation agenda, with the government’s target of connecting at least 70% of the population to broadband by 2025.
To achieve this, Nigeria requires an estimated $3.4 billion in investments for fibre infrastructure and the Federal Government has launched a Special Purpose Vehicle (SPV) to spearhead this expansion, aiming to deliver an additional 90,000 km of fibre optic cable.
This initiative aims to connect over 200,000 educational, healthcare, and social institutions across the country.
The probable economic impact of these investments cannot be overstated. Increased connectivity is expected to drive internet penetration beyond 70%, reduce internet access costs by more than 60%, and contribute to a 1.5% GDP growth per capita.
This could see Nigeria’s GDP rise from $472.6 billion in 2022 to $502 billion within the next four years. Early indicators of the SPV’s effectiveness are positive, with 30,000 km of new fibre optic cables already laid and a 10% increase in internet penetration since its launch.
Added to this, some regions have seen internet costs drop by up to 30%, boosting business efficiency and consumer access to digital services.
The Fragility beneath the Surface
While the opportunities are many, there are risks that could undermine these successes, causing adverse effects across Nigeria’s economy.
Hillson’s ‘Practical Project Risk Management’ (2012) defines risk as uncertainty affecting outcomes. In financial contexts, Black and Scholes’ ‘The Pricing of Options and Corporate Liabilities’ (1973) and the PMBOK Guide (2017) note that “risk is an inherent part of doing business.”
A good way to understand these risks is to examine strategies of successful business leaders. Richard Branson and Aliko Dangote, for example, have both emphasized the necessity of taking calculated risks.
In an interview with Forbes, Dangote noted, “To be successful, one needs to be able to take risks and make bold decisions,” which resonates with Branson’s view that “risk is an inherent part of doing business.”
According to records, in 2023, global business failures surged due to inflation, economic uncertainty, and supply chain issues. The U.S. reported 157,000 closures, up from 140,000 in 2022, while the UK saw around 18,000 insolvencies, a rise from 16,000. In Europe, Germany experienced a 10% increase in corporate bankruptcies.
Back home in Africa, business failures also increased, with Nigeria seeing about 12,000 closures, South Africa experiencing an 8% rise, and Kenya facing over 8,000 failures. Egypt encountered rising closures due to economic reforms and currency devaluation.
These statistics tell us about the fragility of the global and regional business environment, where even seemingly powerful sectors are not immune to failure.
The Nigerian telecommunications sector, despite its supposed boom, faces several high risks that could deter future investments and potentially lead to a downturn.
Key among these risks is regulatory and policy fluctuations. Frequent changes in regulations can create an unpredictable business environment, making it difficult for investors to commit long-term.
The consequences could include investor flight, as frequent changes in regulations may deter foreign investors, leading to a decline in FDIs inflows. Compliance with new regulations can be expensive, resulting in increased operational costs for telecom operators, while regulatory changes may disrupt existing services, negatively impacting customer satisfaction and business operations.
Again, multiple taxation by various government agencies increases operational costs, reducing profitability for telecom operators.
The issue of Right of Way (RoW), where inconsistent policies across states make it cumbersome and expensive to lay fibre optic cables, also poses a serious challenge.
Another vital risk factor is Nigeria’s unreliable power supply. Telecom operators are forced to invest heavily in backup power solutions, further inflating operational costs.
Interconnection settlement disputes among telecom operators, which can lead to service disruptions and financial losses, add another layer of risk.
Economic instability, denoted by fluctuations in exchange rates and inflation, is perhaps the most disturbing issue.
Inflation has greatly impacted the sector in 2024, driving up the cost of imported equipment and operational expenses. This has put huge pressure on telecom operators to maintain profitability, with many calling for tariff increases to offset rising costs.
However, in a price-sensitive market like Nigeria, higher tariffs could dampen consumer demand, creating a vicious cycle that threatens the sector’s growth.
Adding to these economic challenges is the unending insecurity and social unrest. The issues of terrorism, banditry, and kidnappings in Nigeria is gradually creating an environment that can deter foreign investors.
The fear of potential attacks and the safety of personnel and assets have put fear in the minds of people.
This insecurity can lead to increased costs for businesses, such as higher insurance premiums and the need for private security, which can reduce the attractiveness of Nigeria as an investment destination.
As inflation rates increase, the cost of living becomes more expensive for the average citizen, leading to a huge burden. These protests have disrupted business operations, supply chains, and overall economic activity.
For foreign investors, such disruptions can mean delays, increased operational costs, and uncertainty about the stability of their investments.
The unpredictability of these protests makes it challenging to plan long-term investments, further discouraging FDI.
If these risks are not addressed, the outstanding profits made in attracting FDIs could quickly unravel. As MTN’s CEO and other industry experts have warned, a lack of adequate returns due to these challenges could lead to a reduction in future investments.
This would not just slow down the expansion and improvement of telecom infrastructure but could also lead to investors withdrawing altogether, potentially causing a collapse of the sector.
Such a collapse would have far-reaching consequences, threatening the stability of other sectors that rely heavily on telecommunications, from finance to healthcare.
The resilience of Nigeria’s telecom sector is fixed on how well these risks are managed. While the opportunities are huge, the challenges are equally huge.
It will require a joint effort from all stakeholders — government, private sector, and investors — to develop and implement sustainable strategies that ensure the sector’s continued growth and resilience.
In conclusion, the influx of FDIs in 2024 is a positive sign, but it is not a guarantee of success. Strategic risk management, clear regulatory frameworks, and a stable economic environment are essential to ensuring that Nigeria’s telecom sector survives and thrives in the years to come.
The decisions made today will determine whether the sector remains a huge contributor to the country or becomes another casualty of unmitigated risks.
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