The National Bureau of Statistics confirmed on Tuesday, September 5, 2017 that Nigeria was firmly out of recession, following a second quarter GDP growth rate of 0.5%. Nigeria had before now reported 5 consecutive quarters of negative GDP growth rate.

As expected the government and a section of the business community are ecstatic about the “good news” and believe it is a turning point for the economy and the APC Government. However, a cursory look at the report reveal that while there is reason to rejoice, there is also a cause for concern. For example, while the latest report reveals Oil and non-oil GDP rose by 1.64% and 0.45% some key areas in the sub-sector is still in recession.

Take the services sector for example. The posted a worse than expected GDP growth rather, which  was worse than the -0.37% reported last quarter.

 

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The big elephant in the room here were transportation and storage as well as information and communication. The transport sector fell by -6.1% while the information and communication sector fell by -1.15%. A deeper look reveals the telecommunication and information services sector fell by -1.92% down from a growth of 2.9% last quarter. The motion picture, sound and recording sub-sectors already contracted during the quarter.

The significance of this drop is even more dire when you realise that these are sectors that drive job creation in the economy. It also clearly highlights the challenges we currently face in the telecoms sector where the likes of 9Mobile are dealing with loans that they find difficult to repay. The sector as a whole has already seen subscriber data peak and is now falling going by the latest report of the Nigerian Telecommunications Commission (NCC).

Number of subscribers have now dropped from a high of 155 million to just under 143 million further reducing Nigeria’s teledensity to just 102%. GSM subscribers have also complained severally about the pricing of data and voice services requesting severally that the regulator increase their band. They opine that the depreciation of the naira has also spiked their operating and equipment cost, cutting into margins. The double whammy of a drop in revenues and margins some claim is the reason why the sector is contracting. They also lament that with the indirect jobs and incremental business that rely on the sector to survive, it is in the interest of the government to allow that they increase prices.

Despite this concern, analysts also point to the blistering results recently released by MTN for the second quarter of 2017. According to MTN,  it posted a total revenue of about N870 billion (R31.97 billion) for the period ended June 2017 representing a 10.8% increase from the N786 billion in revenue reported same period in 2016. The telecom giant also reported that its earnings before interest tax depreciation and amortization was N334.4 million.

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The results further buttresses that fact that telcos still have a lot of room to make incredible profits if they have they get their economics right. Critics of the current pricing structure complain, with reasons, that the travails in the telecoms sector do ironically favour giants like MTN and Globacom, who benefit more when smaller competitors are struggling. They have large enough moat and capital to stifle lesser competitors regardless of the economic situation.

The government has announced that it is cautiously optimistic about the state of the economy, despite being out of recession. It should be a bit more worried that sectors like information and communication could if taken likely, drag Nigeria back into recession or slow economic growth even further. 

1 COMMENT

  1. I think we should take our wins whenever possible, especially since they’re few and far between. Given the backdrop of the past year or two, I will be taking a +0.55% Q/Q growth as a great thing! Not sure if the writer is proposing that telco increase tariffs amid an already beaten down economy, because that would be ridiculous.

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