The telecommunications industry, which has contributed significantly to the economy, is starting to exhibit signs of decline, which has sparked deep concern among industry stakeholders. Some bold government policies, such as the removal of fuel subsidies, the Devaluation of the naira, and the floating of the currency, have been blamed for the declining indications, like unexpected drops in the Revenue of sector players, decreasing average revenue per user (ARPU), reduction in GDP contribution, and a drastic weakening in the purchasing powers of the average consumer of the sector’s services.
As an essential component of Nigeria’s economy, telecoms played a key role in rescuing the country from Recession in Q4 2020 and contributed 13.5 percent of the country’s GDP in 2023. The industry has demonstrated remarkable stability in recent years, fending off unfavorable economic conditions and making a sizable contribution to the country’s GDP. However subsequent losses have brought about a lengthy drop. In the first quarter (Q1) of 2023, real GDP growth in the telecom industry which was 11.71 percent has declined to 5.17 percent in the second quarter (Q2) of 2024.
Compliance costs exert additional cost on telecoms.
Nominal growth decreased from 52.83 percent in Q1 2023 to 5.63 percent in Q2 2024. The sector’s GDP growth decreased from 24.80 percent in the second quarter of 2020 to 12.28 percent in the same period in 2024. MTN Nigeria’s CEO, Karl Toriola, recently referred to the state of affairs as a “big crisis.” The only telecom companies listed on the Nigerian stock exchange, Airtel Africa and MTN Nigeria, reported ₦1.29 trillion in foreign exchange (FX) losses in 2023. MTN reported a ₦137 billion loss and also disclosed a ₦519.1 billion loss for the first quarter of 2024 after taxes.
Airtel stated that $80 million in unusual derivative and foreign exchange losses had an impact on its $31 million profit after taxes for the quarter that ended on June 30, 2024. A large number of Nigerians have reduced their personal expenditure, including on telecommunications services, as a consequence of high Unemployment and inflation. As a result, less phone calls and data are being used, which has an additional negative effect on telecom carriers’ income streams. Telecom businesses are facing financial difficulty due to higher compliance costs stemming from regulations aimed at safeguarding consumers and enhancing service quality.
Active mobile subscriptions declined by 5.4 million.
Moreover, the sluggish pace of investments in enhancing service Infrastructure and growing 5G networks can be attributed, in part, to the high costs required and the unpredictability of Investment returns in the current economic environment. These efforts have been made more difficult by the restricted availability of foreign currency for the import of equipment. Data from the Nigerian Communications Commission (NCC) revealed that active mobile subscriptions declined by 5.4 million or 2.4%, settling at 219 million in the first quarter of 2024. Across the board, major telecom carriers saw a 3-4% fall in the crucial profitability statistic of Average Revenue Per User.
Capital spending in the industry decreased by about 8% annually, indicating a reluctance to build 4G and 5G infrastructure due to economic instability. Compared to the same period in 2023, the aggregate income of Nigeria’s leading telecom operators—including MTN, Airtel, Glo, and 9mobile—dropped by almost 5% in the first half of 2024. There was also a modest reduction in the number of internet users. One major problem, according to Gbenga Adebayo, Chairman of the Association of Licenced Telecom Operators of Nigeria (ALTON), is a lack of investment in the industry.
Related Article: Experts urge telecom-capital market alliance
He bemoaned the fact that the country’s economic conditions have slowed down investment in the sector, which he presumes could put the industry in the same dire circumstances as the energy sector. Adebayo called for the creation of a Critical National Infrastructure strategy to protect it from destruction. Bosun Tijani, the minister of communications, innovation, and digital economy, recently formed a five-person ministerial committee with six-point reference terms to examine operational conditions and develop fiscal measures to lessen the impact of macroeconomic pressures on telecom operators in response to the GDP performance of the sector. Outcome from this analysis is expected to make a positive improvement in the industry.