Telcos face investment drop over worsening economy

Nigeria’s telecommunications sector is reeling under the weight of a severe investment squeeze as the country’s worsening economic conditions continue to take a toll on the industry.

The sector, which is critical to Nigeria’s digital transformation and economic growth, is struggling to attract and retain investments amid dwindling revenues and rising costs.

“Most of the telecom components, such as base stations, are largely imported and require dollars,” the President of the National Association of Telecoms Subscribers, Adeolu Ogunbanjo, told Sunday PUNCH.

However, he maintained that a slight adjustment in tariffs would enable telecom operators to cope with the rising cost of imports and maintain service quality.

The naira has depreciated by approximately 98 per cent against the dollar since May 2023, weakening from around N420 to N1500 per dollar, according to PricewaterCoopers.

This was driven by the scrapping of fuel subsidy and the unification of multiple foreign exchange windows into a single import and export window.

The exchange rate dropped to 1579.89/$ on Friday from N1,586.04 on Wednesday.

The Chairman of the Association of Licensed Telecommunications Companies of Nigeria, Gbenga Adebayo, expressed concerns about the sustainability of the telecom industry in Nigeria amid current macroeconomic conditions.

Adebayo explained to Sunday PUNCH that the industry had significant challenges, including a lack of motivation for investment, citing the absence of concessions and incentives from the government.

“If operators can get some form of concessions and incentives from the government to stimulate investment, then that’s good, but with that not happening, it makes it difficult,” he said.

The ALTON chairman emphasised that the industry had been discussing ways to ensure sustainability for a while, but the current situation was becoming increasingly dire.

 “We are beginning to see some signs of distress,” he warned.

Recently, in Lagos, telecom stakeholders gathered at a town hall event organised by Financial Derivatives Company to discuss the future of the telecommunications industry and its impact on the Nigerian economy.

The Chief Executive Officer of Airtel Nigeria, Carl Cruz, highlighted the impact of the naira’s devaluation on the telecom industry, noting that it had eroded value and pushed companies to their limits over the past 18 months.

He revealed that discussions were ongoing regarding the pace of future investments in the country, with concerns about returns on investment. Despite the challenging operating environment, Cruz remained optimistic that investments would continue, albeit at a slower pace.

“Digital investment is very important. It is an enabling industry. We enable other industries to increase their impact on society. We enable individuals to improve their connectivity and be included in financial and digital inclusion. That will not stop,” Cruz said.

The Chief Executive Officer of MTN Nigeria, Karl Toriola, at the same forum warned that the situation would worsen as telcos faced a further decline in investments due to deteriorating economic conditions.

He stated that investments would not continue to slow if returns were not viable, adding that it was unrealistic to expect investors to put in a dollar and receive only 66 cents in return.