The credit rating agency, Augusto & Co, has declared that moves by Nigeria to deploy 5G technology would draw more foreign direct investments (FDIs) into the country’s telecommunications sector. This is even as it disclosed that the sector attracted a total of $3.9 billion between 2015 and 2020.
In its 2021 telecommunications report, the agency said that the amount attracted by the sector in the last six years represents an average of seven per cent of Nigeria’s total capital importation during the same period. While noting that the industry has consistently remained one of the top five ranking economic sectors for foreign investments during the period, it said this would be sustained as the country move into 5G.
“Augusto & Co believes the imminent deployment of 5G technology and the Federal Government of Nigeria’s target broadband penetration rate of 70 per cent by 2025, will support substantial additional foreign investments in the near to medium term,” the company stated in the report. It added that due to key connectivity support the industry provides, telecommunications was one of the economy’s few bright spots in 2020 along with sectors such as financial institutions, agriculture, and health services.
“Except during the 2016/2017 economic recession, the telecommunications industry’s real growth has consistently exceeded the country’s GDP growth. Furthermore, value-added services provided by telecommunications companies, albeit still a low contributor to overall earnings, have continued to expand. In 2020, two mobile network operators (9mobile and Globacom) were granted payment service bank (PSB) licenses while MTN’s MoMo agency service which commenced in 2019 has about half a million agents across the nation,” it added.
Augusto & Co, however, said that despite the positives, the unstable macroeconomic environment in Nigeria poses a huge threat to successfully harnessing the vast potential of the telecommunications industry. “In the span of five years (2016-2020), Nigeria has gone through two economic recessions while the naira has continuously lost value against the world’s major currencies, negatively impacting purchasing power and the ability to maintain quality network equipment and services.
“In addition to the fragile macroeconomy, the telecommunications industry has also had its fair share of unfavourable regulatory changes through onerous tax regimes, delayed approvals, and heavy regulatory penalties. Regulatory changes, with the initiation of the NIN-SIM verification exercise, drove a considerable decline in the industry’s growth rate to 6.3 per cent in Q1 2021 from 17.7 per cent in Q4 2020,” the agency observed.
In order to complete the NIN-SIM exercise, the NCC mandated the suspension of SIM card activations and registrations, thereby slowing the Industry’s growth pace. According to the report, in four months of the NIN-SIM verification exercise, the industry’s active telephony subscriptions reduced by 7.7 per cent from 204.5 million as of the end of December 2020 to 188.7 million at the end of April 2021.
“On the back of anticipated SIM deactivations for subscribers without valid NINs, we estimate that the subscriber base will shrink by 3 per cent (year-on-year) by the end of 2021 to 198 million subscribers. However, due to the sustained uptake in mobile internet services and increasing diversification of value-added services by telcos, we believe revenue will grow, albeit by a lower rate of 5 per cent in 2021 (2020: 14%). We anticipate that logistics around the NIN-SIM verification exercise will be resolved by the end of 2021 and thus, double-digit top-line growth should be restored by 2022,” it said.
In its outlook for the industry, Agusto & Co said it expects the challenges of the Industry, which include high business costs, especially given the consistent devaluation of the naira, prevailing inflationary pressures, and the adverse impact of regulatory changes to remain. “However, the Industry’s outlook remains stable on the premise that telecommunications will provide recovery support to key economic sectors post-pandemic. Anticipated business diversification efforts of operators will also support our outlook,” it said.