Creating conditions for sustainable, inclusive growth in Nigeria’s digital economy

The renewed Hope Agenda clearly recognises the power of technology and innovation to enable inclusive economic growth and development. It is an important acknowledgement that if we can create the conditions within which innovation can thrive, we can maintain, or even accelerate the already rapid growth in the digital economy.

Since the liberalisation of the telecoms sector in the early 2000s, the ICT sector’s contribution to GDP in Nigeria has grown progressively. Today, it delivers 17.89 per cent of annual GDP. That is more than double the contribution of oil and gas. From the initial development of connectivity infrastructure and services, the sector has catalysed the emergence of innovative technology businesses across a range of sectors. From financial technology, to data, logistics, transportation, healthcare and education.

It also provides the infrastructure that enables the delivery of critical national development projects, from national identity enrollment and management, to elections and financial inclusion programmes that provide access to vital services for marginalised and vulnerable communities.

While this growth is impressive and the impact on socio-economic development so far has been clear, the journey is far from over. The recognition within the renewed hope agenda is that the sector has the potential to drive a new wave of inclusive economic development that can be the foundation of Nigeria’s economy for decades.

To deliver this, the government has clearly and publicly acknowledged the importance of creating an enabling environment for investment and taken a number of bold steps to address investment bottlenecks. From the tough decisions to unify the exchange rates, to the tightening of monetary policy and a focus on reviewing the tax regime to make it smoother and more efficient.

They have also created target investment funds to support key sectors of the economy, from healthcare and agriculture to the small businesses that drive the economy.

The specific role of the digital economy is captured in the Federal Ministry of Communications, Innovation and Digital Economy’s four years 2023-27 growth plan, which envisages a further 15 per cent increase in the contribution of the ICT sector to GDP growth, as well as 15 per cent YoY increases in investment in the sector, both of which are projected to support a 100 per cent increase in the annual net revenue that the sector delivers to government.

These are laudable and ambitious objectives, but they are impossible to achieve without deliberate sustained strategic and tactical action. If these actions are not taken, then the foundations that have been built are vulnerable and not only will these objectives be missed, but the industry will stagnate.

If you look carefully at the investment trajectory in the telecoms industry you can see two clear and concerning trends, which are being further exacerbated by the recent short term economic shocks. Between 2021 and 2022 industry CAPEX declined by 30.37 per cent while industry Foreign Direct Investment declined by 46.9 per cent.

This happened at a time when operational expenses have surged and it has been exacerbated more recently by rising interest rates increasing the cost of debt. What that means is that industry expenditure has been diverted from capital (expansion and growth) to operations and that the investment environment has deteriorated. The ultimate manifestation of this has been the recent losses declared by major operators for FY 2023 and HY 2024.

This is further exacerbated by the multiple taxation ecosystem that continues to exist across Nigeria, with operators exposed to 54 different federal/state/local government taxies or levies, many of which are technically illegal. There is a perception that the telecoms industry is highly profitable and so can be treated as a ‘cash cow’ – we are now seeing the impact of this, and even though it is clear operators are suffering, more new taxes continue to be considered by the national assembly.

This is a critical moment. It is an inflection point. If we act, we can establish the platform for growth and the delivery of the government’s ambitious objectives. If we delay, or fail to take the decisions necessary, then the industry is likely to go in the wrong direction. This will not only damage the interests of investors, many of whom are Nigerian, but also impact the emergence of the innovative services and products that ride on telecoms infrastructure.

We believe that decisive action can turn this moment from a crisis into an opportunity. Following extensive research, the Association of Licensed Telecom Operators of Nigeria (ALTON), has developed a clear set of recommendations that can catalyse the next wave of growth in the industry, and for Nigeria. These are:

Take immediate action on retail pricing: In the short term, this means an industry wide increase to retail tariffs, which were last reviewed in 2016, when the exchange rate was N373/$ and inflation at 18.4 per cent. No industry can survive indefinitely in a rapid inflation environment and not be allowed to increase retail prices. Regulators have denied all recent requests, despite approvals being granted in other critical industries from power to fuel and transportation.

Make industry pricing sustainable: Every price increase requires individual pre-approval from the regulator, which continues to use 2016 pricing guidance. This is an outdated regulatory model that is not representative of global best practice. ALTON recommends the implementation of a general authorisation regime for tariff administration under which the NCC sets general pricing principles and requirements and operators independently align their tariffs with the set pricing requirements through self-certification, eliminating the need for prior approval.

Provide concessionary funding to enable CAPEX investment: To continue to drive investment and growth in infrastructure, the industry needs access to concessionary finance. Establishing a dedicated financing facility will help mitigate the impact of recent interest rate increases and enable more investment.

Build and expand regulatory capacity: With technology driving rapid change, we need to rapidly upskill the sector’s regulators to ensure the implementation of well structured regulation that provides the right balance between protection and investment incentive. Regulations need to be co-developed more constructively with industry on a regular basis.

If we can deliver each of these things, then we will have established the basis for long-term sustainable growth in the telecoms sector, and through it catalyse dynamic growth in Nigeria’s broader digital economy. This is achievable, and the time is now.

Adebayo, an Engineer is the Chairman of the Association of Licensed Telecom Operators of Nigeria (ALTON).