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Bank loans not main funding option for Nigerian MSMEs -PwC

In Nigeria, deposit money banks are required to keep 65% loan to deposit ratio.

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PwC's MSME Survey 2020

New findings contained in the PwC’s MSME Survey 2020 has revealed that Micro, Small, and Medium Enterprises do not rely on banks to meet the majority of their funding needs. Instead, they rely on their savings as well as friends and family.

Understanding the situation

For now, access to credit facilities remains one of the biggest challenges facing MSMEs in the country. Information contained in chapter 4 of the 84-paged report revealed that many of the small businesses that participated in the PwC survey resorted to starting their ventures with less than N50,000 initial startup capital.

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The report further revealed that only a paltry 4.7% of Nigerian MSMEs start their businesses with more than N300,000 in initial capital costs. As much as 75% of small and medium businesses in the country start their ventures with less than N10 million. However, 6% of MSMEs start with more than N40 million.

READ MORE: IFC invests $100 million in Zenith Bank to support SMEs amid COVID-19

Why bank loans are hard to get 

“SMEs usually do not have access to bank loans unlike firms; they mostly rely on their own savings or cash from friends and family. According to The International Finance Corporation (IFC), 40% of formal MSMEs in developing countries, experience a finance shortage of USD5.2 trillion every year. Lending is usually dependent on the stance of the borrower’s financial position, and analysed historical data about the business,” part of the report said.

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For the MSMEs interviewed during the survey PwC, bank loans are impossible to get mainly because of their high cost. About half of the respondents (50%) admitted that they did apply for bank loans over the last 12 months, but never ended up taking them due to their high costs. The report also noted that high cost of capital is one of the major costs to business operations in the country.

READ ALSO: CBN’s financial inclusion drive achievable with tech– Expert

Meanwhile, 31% of MSMEs said they applied for bank loans but their applications were rejected. About 10% of the respondents said they applied for bank loans and only got half of what they applied for. Only 10% of the respondents said they were able to access all the loans they applied for.

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Commercial banks was the main source bank loans for MSMEs (91.9%) while microfinance banks accounted for only 4.7% of the bank loans to MSMEs. Meanwhile, development banks such as the Bank of Industry (BoI), accounted for only 1% of bank loans to small and medium enterprises, the PwC report said.

“29% of businesses see the high-interest rates on loan as the most important limiting factor to getting funding for
working capital and expansionary activities. 25 percent cite insufficient collateral or guarantees for funding, while 22% point to the current economic conditions as the most important limiting factor,” -PwC MSME Survey 2020

READ MORE: The New Normal – Digital Transfers and Remittance in Nigeria

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Recall that in 2019, the Central Bank of Nigeria (CBN) had increased the Loan to Deposit Ratio (LDR) of deposit money banks in the country to 65%. This was in a bid to ensure the adequate provision of funding to the real sector of the economy. Although this directive has yielded a considerable result, the PwC report noted that banks may refuse to lend to the real and accept the punishment that may come with such refusal. This is because of perceived risks in the real sector, especially amid the COVID-19 pandemic.

Some suggestions for the way forward

In order to improve the chances of MSMEs at securing bank loans, the PwC report suggested the following steps should be followed;

  • Proper documentation: Most funding institutions request the cashflow history of businesses being considered for funding. SMEs seeking funding should produce audited financial statements that reveal credible financial information.
  • Use of technology for documentation:  Companies may use tools such as excel sheets, Power BI, cash flow budget worksheet, and other technologies to make cash flow projections easier and faster, this provides readily available documentation at any given opportunity.
  • Financial statements and projections for the business: Financial statements are major requirements when looking to secure a loan, this makes it paramount for firms to keep proper and standard documentation of their transactions.
  • Collateral to secure a bank loan: It is important to have a secure, valuable ( as valuable as loan requested) property for use as collateral, with the value of the property remaining valid through the loan period.

READ ALSO: Analysis: Airtel Nigeria is winning where it matters

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You may download the full PwC MSME Survey Report by clicking here.

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Patricia

Emmanuel covers the financial services sector for Nairametrics. Do you have a scoop for him? Well then, contact him via his email- [email protected]

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Business

How delivery firms fleece their patrons

The onus is on you to pick the solution that works for you.

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It was early on Sunday morning, but Halimat was already at her wits end. Rather than having an easy Sunday morning, she was on the phone, placating a justifiably angry customer who was yet to receive the hair extensions she had ordered, after two weeks of making the purchase.

The client had paid for hair extensions amounting to N150,000, and did not quibble overpaying the delivery fee of N2,000; Halimat had been pleased to have made such a huge sale from one customer. However, two weeks later, she was still running after the delivery guys, wondering why the parcel had not been delivered. Eventually, she was informed that “the package could no longer be found,” and they stopped taking her calls afterward.

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Where do I even start from?” she lamented. “So, I paid them N2000 to help me misplace products worth N150,000.”

Sadly, many small business owners have experienced varying degrees of disappointment after hiring delivery services to convey products to customers.

READ MORE: Uber expands food delivery business in a $2.65 billion acquisition 

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A new day for delivery service providers

In the early 2000s, no one thought much about courier and delivery services. It was a business with low patronage, and even lower turnovers. By the turn of the first decade of the 21st century, the narrative had started a gradual change. Logistics and delivery services were becoming much sought after; even businesses in other sectors started branching out into delivery services.

With the introduction of new government policies geared towards promoting the ease-of-doing-business, the number of people going into delivery businesses has quadrupled. Operating both a B2C and B2B model, the market is quite large, especially with recent evidence showing an increase in online transactions and demand for home deliveries.

With as little as N400,000, one can start a small-scale delivery business by purchasing a despatch bike, and securing a license or logistics permit from the state’s ministry of transportation. The need for an office space could be optional, and even when one chooses to have one, it could be a shared space. Of course, a social media handle is now considered essential for the purpose of getting clients and establishing an online presence.

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READ ALSO: Business owners will now get CAC certificate with TIN

Challenges for business owners

In spite of the ubiquity of delivery services, getting a good delivery service is still a hard nut to crack. Stories abound of people who have had their deliveries delayed for days and even weeks. There are also stories of parcels destroyed, or even lost without getting to the recipient, and so for these small businesses, the problem remains finding a delivery service that can guarantee and deliver just as promised.

For Oluwatobi Ibukun Abiola, who runs ATJ Creations hub, getting a good delivery company is quite difficult, and sometimes small business owners eventually have to settle for alternate options, like using friends and siblings to make their deliveries.

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As a producer of organic hair and skincare products, Oluwatobi’s deliveries are often booked days ahead and she has to get the entire schedule sorted out. For her, it can be summarised in a sentence.

The cheaper the service, the more certain you are that it will disappoint. So, it is often better to ignore the cost and go for the more reliable options.”

Some delivery businesses require registration fees from business owners who intend to use their services regularly. This fee could range from N5000 to N25,000, depending on the size of the business. Oluwatobi explained that based on her experience, using such delivery options, one is less likely to get disappointed.

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There are also delivery businesses that only require one to call and book the time and date for pickup and the location for delivery. However these often disappoint; sometimes failing to turn up to pick the parcel, or even delaying the delivery for a couple more days.

READ MORE: Plentywaka provides same day delivery for small businesses in Lagos

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Brenda Nwafor, owner of Nebdesigns, a business that specialises in making customised bags agrees that indeed, delivery businesses and despatch riders often disappoint.

She pointed out that the most difficult part of handling them is when they refuse to explain the true reason for delayed delivery. After failing to deliver a package as scheduled, they could end up refusing to pick calls for the next couple of days until they have successfully delivered it, and this sometimes leaves the sender at a loss over what explanation to offer to the receiver.

“To deal with them, I have to book a date that is earlier than the agreed date, so that all the delays can be factored in. If they eventually deliver it on time, I end up with a satisfied customer who is pleased to have received his package a day or two before the scheduled date,” she explained.

While this option is possible for people in the business of non-perishables like beauty products and fashion items, it is not obtainable for those in the business of consumables. Best runs a food and small chops business from her home, preparing and packaging chops, and foods for her clients.

READ MORE: Google signs in to Theta (blockchain) to transform the global digital economy

In her line of business, same-day delivery is key but even then, she has to put up with delays. In some extreme situations when they fail to show up, she has to get a taxi and go handle deliveries herself, with help from friends when deliveries have to be made in multiple locations.

“Deliveries that should get to the customers by 1pm or 3pm sometimes get to them as late as 9pm, and I have to appeal with them to microwave the food,” she told Nairametrics. But this is not the worst scenario.

Best told Nairametrics that she had an issue in May where the despatch rider got to the client by 9pm with an empty plate, explaining that the food poured while he was trying to navigate the traffic from Oshodi to Iyana-isolo. While apologising to the client, he had pleaded with them to accept some frozen chicken (he bought to take home to his family), in place of the ordered “sautéed gizzard and dodo.”

Another business owner, who preferred anonymity, told Nairametrics that she recently had to refund over N80,000 to her clients after the despatch rider died in a road accident on his way to make her food deliveries.

Are business owners being penny wise pound foolish?

And this raises the question of insurance. Why go for a delivery service that does not give any insurance over your parcel.

Most of the business owners who spoke to Nairametrics agreed that despite knowing the risks involved, they opt for these despatch riders because they are cheaper and less cumbersome. One of them explained that she had tried one of the big logistic companies, even downloaded the app and uploaded a picture of the product to be delivered.

It was too expensive; there was no way I could take it. Imagine paying N2,000 as a delivery fee on a product of N3,000. Clients are already unwilling to pay extra charges for delivery so we have to look for the cheapest option for them,” she explained.

A despatch rider who simply gave his name as Nurudeen told Nairametrics that sometimes, they failed to turn up when it became obvious that there wasn’t much profit to be made from that delivery.

I can accept the booking, in the hope that other bookings will come to justify the trip. But if there is none, I cannot end up making a trip because of two deliveries worth N2000 total. It will be a total loss for me,” he said.

A holistic solution

Samuel Ajiboyede, CEO and Founder of Zido Logistics, Africa, and expert in the logistics business, recommends a holistic logistics solution for SMEs, rather than randomly calling a despatch rider whenever they need to make a delivery.

“You can’t just wake up and call them to say come and pick this up tomorrow. With such a structure, disappointments and delays are bound to happen since they cannot operate at a loss. Instead have a holistic solution that handles everything and gives you the needed insurance,” he said.

With such a solution, he noted, the business owner could collaborate with a logistics company that would take his parcel, along with other parcels going to the same location and move them all at once. Depending on the arrangement, the logistics company could give one assurance of delivering on the same day, all parcels registered before 9am, and delivering the rest the following day. With this approach, the business owner could spend much less on the unit cost of delivery.

Ajiboyede encouraged business owners to work with those logistics brands that provide covering and insurance for the goods, even if their services may be more expensive. There are two kinds of insurance which this arrangement gives the business owner.

Fidelity insurance protects you from losses that could result from events like the driver/rider running away with your goods or losing your goods, while Goods on transit insurance prevents losses you could get from having your goods defaced, tampered with or completely defaced. This explains why their costs could be slightly higher and their processes cumbersome, but it reduces your worries at the end of the day.

For same-day food deliveries however, he recommends that the business owners have despatch riders dedicated to their business. In the event that the business owner is unable to meet up with such, he could opt instead for ‘cluster plans’ where orders would only be taken in one or two locations depending on what is feasible.

Irrespective of the hassles, a despatch rider is less likely to disappoint you if you have as much as 20 food deliveries going to one location, as against when you have the same 20 deliveries spread across 6 locations.

As a small business owner, the onus is on you to pick the solution that works for you, bearing in mind that even when the cheapest option does not offer client satisfaction, the most expensive may not offer that either since the clients are always trying to keep their money in their purse.

Patricia
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Coronavirus

COVID-19 Update in Nigeria

On the 15th of July 2020, 643 new confirmed cases and 6 deaths were recorded in Nigeria.

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The spread of novel Corona Virus Disease (COVID-19) in Nigeria continues to record significant increase as the latest statistics provided by the Nigeria Centre for Disease Control reveal Nigeria now has 34,259 confirmed cases.

On the 15th of July 2020, 643 new confirmed cases and 6 deaths were recorded in Nigeria, having carried out a total daily test of 12,707 samples across the country.

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To date, 34,259 cases have been confirmed, 13,999 cases have been discharged and 760 deaths have been recorded in 36 states and the Federal Capital Territory. A total of 199,016 tests have been carried out as of July 15th, 2020 compared to 186,309 tests a day earlier.

COVID-19 Case Updates- 15th July 2020,

  • Total Number of Cases – 34,259
  • Total Number Discharged – 13,999
  • Total Deaths – 760
  • Total Tests Carried out – 199,016

According to the NCDC, the 643 new cases were reported from 19 states- Lagos (230), Oyo (69), FCT (51), Edo (43), Osun (35), Rivers (30), Ebonyi (30), Kaduna (28), Ogun (27), Ondo (23), Plateau (20), Benue (17), Enugu (16), Imo (10), Delta (6), Kano (4), Nasarawa (2), Kebbi (1), Ekiti (1).

Meanwhile, the latest numbers bring Lagos state total confirmed cases to 12,941, followed by Abuja (2,738), Oyo (1,951), Edo (1,850), Rivers (1,427),  Delta (1,398), Kano (1,318), Ogun (1,132),  Kaduna (1,067), Ondo (770), Katsina (669), Ebonyi (646), Borno (593), Plateau (591), Gombe (533), Enugu (531), Bauchi (521), Kwara (422), Abia (413),  Imo (409).

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Jigawa state has recorded 321 cases, Bayelsa (318), Osun (311), Nasarawa (254), Sokoto (153), Akwa Ibom and Niger (145),  Benue (143), Adamawa (110), Anambra (101), Kebbi (88), Zamfara (76), Ekiti (67), Yobe (62), Taraba (30), Cross River (10) while Kogi state has recorded 5 cases only.

 

READ ALSO: COVID-19: Western diplomats warn of disease explosion, poor handling by government

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Lock Down and Curfew

In a move to combat the spread of the pandemic disease, President Muhammadu Buhari directed the cessation of all movements in Lagos and the FCT for an initial period of 14 days, which took effect from 11 pm on Monday, 30th March 2020.

The movement restriction, which was extended by another two-weeks period, has been partially put on hold with some businesses commencing operations from May 4. On April 27th, 2020, Nigeria’s President, Muhammadu Buhari declared an overnight curfew from 8 pm to 6 am across the country, as part of new measures to contain the spread of the COVID-19. This comes along with the phased and gradual easing of lockdown measures in FCT, Lagos, and Ogun States, which took effect from Saturday, 2nd May 2020, at 9 am.

On Monday, 29th June 2020 the federal government extended the second phase of the eased lockdown by 4 weeks and approved interstate movement outside curfew hours with effect from July 1, 2020.

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READ ALSO: Bill Gates says Trump’s WHO funding suspension is dangerous

DateConfirmed caseNew casesTotal deathsNew deathsTotal recoveryActive casesCritical cases
July 15, 202034259643760613999195007
July 14, 2020336164637541013792190707
July 13, 202033153595744413671187387
July 12, 2020325585717401613447183717
July 11, 2020319876647241513103181607
July 10, 2020313235757092012795178197
July 9, 202030748499689512546175137
July 8, 2020302494606841512373171927
July 7, 2020297895036691512108170127
July 6, 202029286575654911828168047
July 5, 2020287115446451111665164017
July 4, 202028167603634611462160717
July 3, 2020275644546281211069158677
July 2, 2020271106266161310801156937
July 1, 2020264847906031310152157297
June 30, 202025694561590179746153587
June 29, 20202513356657389402151587
June 28, 20202486749056579007149957
June 27, 20202407777955848625148947
June 26, 20202329868455458253144917
June 25, 20202261459454977822142437
June 24, 20202202064954297613138657
June 23, 20202137145253387338135007
June 22, 20202091967552577109132857
June 21, 202020242436518126879128477
June 20, 202019808661506196718125847
June 19, 202019147667487126581120797
June 18, 20201848074547566307116987
June 17, 202017735587469145967112997
June 16, 202017148490455315623110707
June 15, 20201665857342445349108857
June 14, 202016085403420135220104457
June 13, 20201568250140785101101747
June 12, 20201518162739912489198917
June 11, 2020145546813875449496737
June 10, 20201387340938217435191407
June 9, 2020134646633654420688937
June 8, 2020128013153617404084007
June 7, 20201248626035412395981737
June 6, 2020122333893429382680657
June 5, 20201184432833310369678157
June 4, 2020115163503238353576467
June 3, 2020111663483151332975227
June 2, 20201081924131415323972667
June 1, 20201057841629912312271579
May 31, 20201016230728714300768687
May 30, 2020985555327312285667267
May 29, 202093023872612269763447
May 28, 202089151822595259260647
May 27, 202087333892545250159787
May 26, 2020834427624916238557107
May 25, 202080682292337231155247
May 24, 202078393132265226353607
May 23, 202075262652210217451317
May 22, 2020726124522110200750337
May 21, 2020701633921111190748987
May 20, 202066772842008184046377
May 19, 202064012261921173444757
May 18, 202061752161919164443407
May 17, 202059593881826159441837
May 16, 202056211761765147239737
May 15, 202054452881713132039544
May 14, 202051621931683118038154
May 13, 202049711841646107037374
May 12, 20204787146158695936704
May 11, 202046412421521090235894
May 10, 202043992481421777834794
May 9, 202041512391271174532784
May 8, 202039123861181067931154
May 7, 20203526381108460128184
May 6, 20203145195104553425071
May 5, 2020295014899548123704
May 4, 2020280224594641722912
May 3, 2020255817088240020702
May 2, 20202388220861735119522
May 1, 20202170238691035117512
April 30, 2020193220459731715562
April 29, 2020172819652730713692
April 28, 2020153219545425512322
April 27, 20201337644102559942
April 26, 20201273914152399942
April 25, 20201182873632229252
April 24, 202010951143312088552
April 23, 20209811083231977532
April 22, 2020873912931976482
April 21, 20207821172631975602
April 20, 2020665382311884662
April 19, 2020627862221704362
April 18, 2020541482021663562
April 17, 2020493511841593172
April 16, 2020442351311522772
April 15, 2020407341211282672
April 14, 202037330111992632
April 13, 202034320100912422
April 12, 20203235100852282
April 11, 202031813103702382
April 10, 20203051770582402
April 9, 20202881471512302
April 8, 20202742260442262
April 7, 20202541661442042
April 6, 2020238650351982
April 5, 20202321851331942
April 4, 2020214540251850
April 3, 20202092542251800
April 2, 20201841020201620
April 1, 2020174352091630
March 31, 202013982091280
March 30, 2020131202181210
March 29, 2020111221031070
March 28, 20208919103850
March 27, 2020705103660
March 26, 20206514102620
March 25, 2020517102480
March 24, 2020444102410
March 23, 20204010112370
March 22, 2020308002280
March 21, 20202210001210
March 20, 2020124001110
March 19, 20208000170
March 18, 20208500170
March 17, 20203100030
March 16, 20202000020
March 15, 20202000020
March 14, 20202000020
March 13, 20202000020
March 12, 20202000020
March 11, 20202000020
March 10, 20202000020
March 9, 20202100020
March 8, 20201000010
March 7, 20201000010
March 6, 20201000010
March 5, 20201000010
March 4, 20201000010
March 3, 20201000010
March 2, 20201000010
March 1, 20201000010
February 29, 20201000010
February 28, 20201100010

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Patricia
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FEATURED

Data war: Glo dwarfs MTN, Airtel others in subscribers’ growth over 5 months

It gained 8.302 million data subscribers when it grew from 28.934 million in December 2019 to 37.236 million by the end of May 2020.

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Data war: Glo dwarfs MTN, Airtel others in subscribers’ growth over 5 months

No doubt, competition among major internet service providers (ISP) in Nigeria has been intense, as the ISPs ensure that their brands are known as the best, most affordable and fastest in the industry.

From MTN’s Nedu Proposal Data commercial to  Airtel’s Data is Life, or Glo’s Emoji campaign and 9Mobile’s Moreblase, more affordable, it is obvious that these TV commercials must have cost the ISPs fortunes, as most of them are Nollywood star-studded.

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Despite the intense competition in the last five months (January – May 2020), it appears that one of them has taken others by surprise and attracted more subscribers.

READ ALSO: UBA Records 13% Earnings Growth and Delivers N111billion Profit

According to data released by the Nigerian Communication Commission (NCC) recently for the period ending May 2020, indigenous mobile telecommunication company, Glo dwarfed other competitors, as it gained 8.302 million data subscribers when it grew from 28.934 million in December 2019 to 37.236 million by the end of May 2020, while MTN gained 4.75 million data subscribers. Airtel, which used to be the second-highest in subscribers growth after MTN, recorded 2.795 million, while 9mobile lost 812,827 subscribers within the same period.

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Meanwhile, Nairametrics had reported that the nation’s telecommunication landscape witnessed a high level of competition in terms of data offering in 2019, as operators in the industry intensified their efforts to increase their market share in a fickle industry.

NCC’s data for the period ending December 2019, revealed that Nigeria’s largest mobile telecommunication company, MTN, gained 8.18 million data subscribers, and Airtel successfully edged out Glo in terms of data subscriber numbers, as the telco added 4.06 million subscribers over the indigenous brand.

READ ALSO: $30 billion worth of BTCs disappears forever 

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Competition between two of Nigeria’s largest data sellers, MTN and Airtel took different turns in 2019, as MTN recovered from the drop recorded during the year.

Glo leads the pack ahead of MTN, Airtel

The competition has taken a new twist so far in 2020 (January – May 2020). Though MTN and Airtel, the two Nigeria’s largest data sellers, have 58.863 million data subscribers and 37.317 million subscribers respectively, Glo, which is the third-largest came from behind to outrun the ‘big players’, as more subscribers opted for the service of the indigenous ISP during the economic lockdown imposed by the Coronavirus pandemic.

What it means: While MTN and Airtel managed to attract only 689,593 and 41,791 subscribers in March and April (Peak of the lockdown) respectively, Glo smiled to the bank, as it attracted new 2.072 million data subscribers within the same period.

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In terms of market share, MTN maintains the lead, as it controls 39.61% of the market (May 2020), followed by Glo with 27.12%, then Airtel with 26.83%, and 9mobile with 6.37% within the same period.

Internet quality: Where Nigeria stands in the world

The advent of 4G/LTE in the global telecom industry was accompanied by expectations of fast internet speed. 4G is the fourth generation of wireless mobile telecommunications technology, succeeding 3G. Potential and current applications include amended mobile web access, IP telephony, gaming services, high-definition mobile TV, video conferencing, and 3D television.

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However, years down the line, Nigeria is still faced with poor internet quality. In a recent survey conducted on download speed experiences of subscribers across 87 countries including Nigeria, a Network monitoring outfit, Opensignal, concluded that congestion is messing with the user experience. Nigeria ranked 83 out of 87 of the countries surveyed in terms of download speed experience.

READ MORE: RMB aids acquisition of Nigeria’s Lucky pen by South Africa’s BIC

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Opensignal stated,We saw the widest variety of scores of all our award metrics in Download Speed Experience, with average speeds ranging from over 50 Mbps to less than 2 Mbps. There were 13 countries with Download Speed Experience scores over 30 Mbps, while 35 of the 87 markets we measured fell into the 10-20 Mbps range, and 20 scored under 10 Mbps (Nigeria stands at 5.4Mbps).

While GSM companies continue to jostle for market share, it has often come at the expense of poor service and lack of accountability. Quite frankly, as an average internet user in Nigeria, one is usually left at the mercy of poor mobile internet services which frustrates one into seeking limited alternatives.

Patricia
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