FDI in The Telecom Sector is Increasing; But for How Long in The Face of Excessive Government Regulation

Foreign Direct Investment (FDI) in Nigeria’s telecom sector surged by 537.26 percent to a seven-year high of $304.99 million in the first half of 2024.

According to the National Bureau of Statistics, telecom investments reached a seven-year high after plummeting to $98.37 million in H1 2018 from $319.96 million in H1 2017.

This is coming even as industry experts have stated this growth is insufficient to close the sector’s investment gaps or return it to profitability.
The telecom sector has struggled with new economic challenges, particularly after the Central Bank of Nigeria (CBN) unified the foreign exchange market in 2023.

This led to losses in the sector, with Airtel Africa and MTN Nigeria losing N1.29 trillion in foreign exchange (FX) losses. In 2023, MTN posted its first loss since its 2019 listing on the Nigerian stock exchange, N137 billion, and declared a loss after tax of N519.1 billion for H1 2024.

This downturn has led to reduced investment in the telecom space as operators grapple with mounting financial pressures. Telcos have cut back on capital expenditure due to an inability to adjust to market realities.

Despite the books showing FDI  in the telecom space is increasing, the question on everyone’s lips is how long the cash injection would last before it dries up.

Strict Government Regulation of The Telecom Sector

The current regulatory framework put in place by the government to guide the telecommunications sector in Nigeria is one which has given little or no leeway to telecom operators.

The telecommunications industry remains the only industry yet to review its general service pricing framework upward in the last eleven years. As a result, the current price control mechanism, which is not aligned with economic realities, threatens the industry’s sustainability and can erode investors’ confidence.

The Federal Government through the Nigerian Communications Commission (NCC) has maintained a stronghold over the telecommunication sector in the country. The NCC  is responsible for creating an enabling environment for competition among operators in the industry as well as ensuring the provision of qualitative and efficient telecommunications services throughout the country.

This is done through the issuance and renewal of of licenses to new and existing operators in the telecommunications industry, protection of telecom consumer rights, promoting fair competition in the telecoms industry, fixing tariffs amongst others.

Impact of Strict Government Regulation

The strict regulation of the telecommunication sector and the inability of service providers to increase tariffs has led to dips in the revenue of sector players, declining average revenue per user, the sector’s declining contribution to the nation’s GDP.

This has also led to poor service quality across the service providers to the frustration of subscribers due to the inability of telecom service providers to invest in infrastructural upgrades necessary to improve service delivery.

Significance

At the current rate, if the government regulation in the Nigerian telecommunication sector is not relaxed, the sector could go on a downward spiral which it might not recover from.

The inability of telecom operators to increase tariffs and the dwindling economy of the country means Nigerians would continue to deal with poor telecom service delivery which does not bode well for the telecommunication sector and the Nigerian economy on the long run.

 

 

 

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