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Catalysing a digital economy in Nigeria

By ‘Femi D. Ojumu
28 September 2022   |   4:43 am
Cynics often ask what’s the point of flying if you can barely walk? Optimists retort that the aspiration and capacity to sustainably transform lives and society is humanity’s beating heart.

Cynics often ask what’s the point of flying if you can barely walk? Optimists retort that the aspiration and capacity to sustainably transform lives and society is humanity’s beating heart.

Nigeria, it is often objectively argued, is riven with economic crisis, major structural and socio-economic challenges, plus significant ethno-religious impediments. The deduction therein is that the country’s focus should be on fixing those dreadful problems. That hypothesis is justified by demonstrable examples of banditry, kidnapping and terrorism across all 36 states of the federation and the capital, Abuja.

The anti-thesis, reinforced by superior argumentation however, is that a progressive nation, and Nigeria, aspires to be one, is not defined by its structural and socio-economic challenges. Rather, the country expects to be defined by the quality of its leadership, the vision thereof, the ability of the leadership to inspire the confidence and support of the people through the formulation, and implementation of effective laws and policies, on the one hand. And, on the other hand, the strategic foresight and presence of mind to read global trends – and effectively adapt to- the complexities, uncertainties, volatilities and ambiguities therein.

Anchored upon that context, is the kernel of this treatise: catalysing Nigeria’s digital economy. Gearing from first principles and sharpening the subject’s conceptual understanding, a digital economy (also known as digitalization or the new economy) as the name evinces, is one whereby internet-based technology underpins economic activities with relatively minimal, as contradistinguished from absolutely absent, human intermediation.

The digital economy is territorial and extra-territorial and impacts virtually every aspect of human interaction including artificial intelligence, avionics, back propagation-algorithms, banking, defence, engineering, financial inclusion and healthcare delivery. It extends to cybersecurity, exploration and production, financial services, legal services, machine learning, manufacturing, media, mobile technology, robotics, telecoms, the internet of things (IoT), space administration, virtual engineering and much more.

The new economy highlights the inescapable hyperconnectivity of people and businesses with automation, cloud computing, data, devices, platforms, processes and services. Yes! So? Well, in consequence of the exponential hyperconnectivity unleashed by the digital economy trillions of US dollars of online transactions are executed daily globally: upon which hundreds of millions of lives depend. Beyond that, the new economy has surfaced the concept, and the harsh reality, of “disruptive” technology. It is “disruptive” because digitalization has upended traditional business models; 9 to 5 jobs as previously known, are gone forever in several industries; unemployment has increased because modern technology has displaced, and replaced, humans across swathes of Business-to-Consumer (B2C) and Business-to-Business (B2B) services.

To put this into perspective, financial services around the world are almost routinely executed across a variety of portable technology driven devices viz tablets, mobile phones, laptops; and in the more developed economies the “cashless” strategy is gaining robust foundations daily. Equally, across certain climes, primary health care physicians routinely interface with patients, diagnose medical conditions and offer prescriptions online, just as tertiary care surgeons undertake keyhole surgery via the agency of technological applications. Plus, an unintended consequence of the virulent COVID-19 pandemic was to exponentially increase remote working models. Paradoxically, the unintended consumer choice, transformed the world of work, as was previously known, resulting in transformative gains for the digital economy. In came, full-time home working, a strikingly sharp increase in virtual meetings necessitating reliance on technological devices, cloud services and data with mixed outcomes for different industry segments. Out went, humongous open plan offices, luxurious company cars, expensive leases, premium parking and all their attendant costs on recurrent budgets.

On the plus side, the revenue stream of technology-based firms in particular increased sharply. 3 tech firms alone, Apple, Alphabet (Google owner) and Microsoft, reported brigaded profits exceeding U$50Billion in April -June 2021 quarter.

Conversely, the income of energy firms emanating from businesses, the revenue streams of real estate and transport firms, and supporting industries plummeted because individuals could not lawfully travel to work at the time. The case for commercial rents and long leases was therefore difficult to rationally justify. Nevertheless, it is incontestable that a key outcome for humanity was the reduction of carbon footprints globally implying cleaner air and thus healthier lungs for all in that period. In simple terms, the digital economy has completely reconfigured the information and data commoditization, B2B and B2C interactions, healthcare, service delivery, human interactions, the movement of goods and capital et al.

How then, given the emanating benefits and challenges of the digital economy, the unique complexities and structural challenges outlined above, has Nigeria exploited (and how will it exploit going forward) the enormous opportunities afforded by digitalisation? Several factors have informed Nigeria’s growing exploitation of the digital economy.

First, is market forces and privatisation. Hitherto, the state telecoms monopoly, NITEL, proved incapable of delivering qualitative value-added services to consumers. The services were poor, often inaccessible, and even when accessible, was beyond the reach of the average Nigerian. Alas, the tectonic plates shifted! Privatisation, and with it, drive, enterprise, innovation and risk capital completely altered that perverse, albeit comfortable, orthodoxy. Mobile telecoms penetration in the country according to the Nigerian Communications Commission (NCC) was 151, 712,992 in August 2022. In August 2019, mobile penetration was 122, 975,740. That represents a 23% increase in just 3 years. Relative to the Nigerian population, 217, 443, 646 (Worldometers), that means approximately 70% of the population has access to mobile telecoms and, by extension, is touched by the digital economy to a greater or lesser extent.

Second, the Nigerian Communications Act (NCA) 2003 provides a robust statutory framework which purports to strike the right balance between widely defined telecoms industry regulation and enforcement on the one hand, and innovation and catalysing enterprise on the other hand. Section 1 (c), (d) and (e), therein affirm that the policy objectives are to promote the, provision of modern, universal, efficient, reliable, affordable and easily accessible communications services and the widest range thereof throughout Nigeria. It aims to encourage local and foreign investments in the Nigerian communications industry and to introduce innovative services and practices in the industry in accordance with international best practices and trends; and to ensure fair competition in all sectors of the Nigerian communications industry whilst encouraging participation of Nigerians in the ownership, control and management of communications companies and organisations.

Wittingly or otherwise, the NCA envisaged the transformation of the digital economy and was positioned to optimise (and is optimising) the phenomenal opportunities therein for the benefit of the population. Added to that is the seminal National Digital Economy Policy and Strategy (NDEPS) 2020-2030. NDEPS reinforces the NCA and the United Nation’s Broadband Commission’s 2025 Advocacy Targets, and outlines 8 cardinal principles to transform the digital economy viz: 1. Developmental Regulation; 2. Digital Literacy & Skills; 3. Solid Infrastructure; 4. Service Infrastructure; 5. Digital Services Development & Promotion; 6. Soft Infrastructure; 7. Digital Society & Emerging Technologies; and 8. Indigenous Content Development & Adoption.

Third, is the growing financial inclusion under the agency of mobile banking devices which are all underpinned by smart hardware and computer software applications. For example, it is common nowadays to find small local food vendors, doubling as alliterative mobile money operators (MMOs) offering “banking services” to the public via their electronic point of sale devices. That way, the elderly, the disabled (but not unable!), the frail, young students, and others, are able to access money from their accounts via the MMOs.

Data analysis from the Nigerian Inter-Bank Settlement Systems (NIBSS) established a 128% increase in financial transactions via mobile telecoms devices to153 million through January and April 2022; up from 67 million transactions through January and April 2021. This suggests a positive growth trajectory for financial inclusion that’s well-embedded with the digital economy.

Nevertheless, there are countervailing arguments. The first is the heightened state of insecurity across the country which necessarily impedes investment in physical data centres and related information and communications technology (ICT) infrastructure.

The second is the seemingly eternal evasive power supply. Individuals and firms invest billions of naira annually in alternative power supply. The opportunity costs therein are huge and include capital which could be invested in diverse business and job-creation endeavours; the propensity to improve health outcomes because of the reduction in environmental pollution and the concomitant exposure to toxic fumes. The corollary is the likelihood of higher life expectancy on that score alone as earlier alluded.

Third, is the enormous challenge of interoperability and interconnectivity amongst technology solutions providers partly due to integration complexities and strategic contestability. The latter implies the quest for greater market share and a reluctance to share commercial knowhow which, in holistic terms, benefits the market and enhances the effectiveness of the industry; without compromising return on investments.

Nigeria has made enormous strides in activating the digital economy. This is underpinned by effective legal frameworks and policies, active private sector participation, growing financial inclusion, and increasing demographic penetration. The National Bureau of Statistics (NBS) affirmed that proposition in its Q2 GDP 2022 Report, where it established that the ICT sector made a critically important 18.44% contribution to the nation’s gross domestic period. Likewise, NIBSS reveals that
Nigeria’s e-payment transactions increased by 85.5% year-on-year to N171.99Trillion in August 2021.

Still, the task of bridging the digital divide between those at different ends of the income distribution spectrum remains. The country’s capacity to invest directly to any significant degree in the digital economy (whether in the education or health sector) is imperilled by huge financial encumbrances. Nigeria’s debt profile from January 2022 through June 2022 was N42.8Trillion (Debt Management Office), whereas revenue from January 2022 through April 2022 (Nairametrics) was N1.63 trillion.

Then again, investment in the ICT sector is largely driven by the private sector, whereas government sets the policy framework for growth and investment. Be that as it may, the provisions of section 18 (1) (2) the Nigerian 1999 Constitution clearly enunciate that “Government shall direct its policy towards ensuring that there are equal and adequate educational opportunities at all levels; government shall promote science and technology”

Concluding, investment decisions by market participants and new entrants will always be informed by their own strategic calculations. Indeed, Jeff Bezos, of the Amazon, reaffirms the optimistic philosophy contained in the opening paragraph viz “there is no alternative to digital transformation. Visionary companies will carve out strategic options for themselves – those that don’t will fail”
Ojumu Esq is the Principal Partner, Balliol Myers LP, a firm of legal practitioners based in Lagos, Nigeria.

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