Nigeria’s efforts to achieve a 70% broadband penetration by 2025 are facing significant challenges due to the ongoing foreign exchange crisis, which is affecting further investments in telecom infrastructure.
The capacity of operators to invest in equipment has been diminished by the declining value of the Naira, coupled with a consistent decrease in Foreign Direct Investments (FDIs) into the telecom industry.
According to recent data released by the National Bureau of Statistics (NBS), FDIs in the telecom sector experienced a sharp decline of 70.5% in 2023.
The Minister of Communications, Innovation, and Digital Economy had last year declared that the country would need an estimated $2 billion investment to lay fiber optic cables nationwide to meet the broadband target. However, in the same period, the telecom industry managed to attract only $134.75 million in FDIs.
Local operators are also struggling to import new equipment for network improvement and expansion, as the dollar-to-naira exchange rate soars.
Impact of forex instability
According to Mr. Gbolahan Awonuga, the Head of Operations at the Association of Licensed Telecommunications Operators of Nigeria (ALTON), the significant rise of the dollar from about N460 last year to over N1,600 this year has disrupted the operators’ plans for importing equipment.
Furthermore, the Chief Financial Officer of MTN Nigeria, Mr. Modupe Kadri, discussed the company’s infrastructure investment plans for this year, noting the difficulty in justifying new investments to shareholders due to the forex issue. He stated,
- “The reality is that as a business, you continue to explore your options. We have a strict capital allocation framework that allows us to determine where we allocate our CapEx. However, the ultimate bottom line is the return to the shareholders.”
- “Now, if there is no investment case due to the terrible macroeconomic conditions we face, it becomes challenging to justify the necessary investments at the governance level. Nonetheless, we have made significant investments in enhancing our 4G and 5G networks, and our fiber assets are also increasing,” he added.
Kadri also lamented the current instability in the country’s forex market, emphasizing the critical need for forex stability to enable businesses to plan effectively and mitigate the impact of forex fluctuations on their bottom line.
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Declining FDI
In a conversation with Nairametrics regarding the dwindling investments in the telecom industry, the Chairman of the Association of Licensed Telecommunications Operators of Nigeria (ALTON), Engineer Gbenga Adebayo, expressed significant concern. He pointed out that the telecom sector in Nigeria requires increased investment to thrive.
- “As indicated by last year’s National Bureau of Statistics (NBS) report, which highlighted a decline in Foreign Direct Investment (FDI), we are apprehensive that this trend may persist. The dynamics of the exchange rate are influencing many aspects of the industry,” he explained.
Adebayo elaborated on the investment downturn, noting,
- “The current investment figures are a clear indicator of the challenges facing the industry. This is adversely affecting the expansion of network infrastructure, and we fear that FDIs may continue to decline, further impacting the performance of operators.”
He also mentioned that, apart from the reduction in investment, the limited access to foreign exchange is impeding the operators’ capability to expand and implement more broadband infrastructure.
70% broadband penetration doubtful
With diminishing investments and the current forex issues confronting telecom operators and businesses across the board, it appears improbable that Nigeria will meet its broadband penetration target by next year.
According to the latest figures from the Nigerian Communications Commission (NCC), broadband penetration in Nigeria was 43.71% at the end of 2023.
This indicates that the country must boost penetration by nearly 27% from now until next year to achieve the 70% target outlined in the National Broadband Plan (NBP 2020-2025), a goal that necessitates swift infrastructure deployment nationwide.
Given the declining Foreign Direct Investments (FDIs) and the forex challenges operators are facing, achieving this target within the remaining 21 months of the Broadband Plan’s timeline seems unattainable.
When the Plan was initiated in March 2020, penetration was at 39.85%, as per NCC data. This means that over the past four years, the country’s broadband access has only improved by 3.86%.
Why it is important
A World Bank report has demonstrated that every 10% increase in broadband penetration can enhance a country’s GDP by at least 4.6%.
This significant finding underscores the importance of swiftly expanding broadband services in Nigeria, aiming to tackle a variety of socio-economic challenges, such as economic growth, broadening the tax base, and enhancing digital literacy and educational standards.
- This rationale motivated the Nigerian government to formulate a second National Broadband Plan (NBP 2020-2025) after successfully reaching a 30% penetration milestone with the first plan (NBP 2013-2018).
- The NBP 2020-2025 sets ambitious objectives, including achieving internet speeds of 15Mbps in rural areas and 25Mbps in urban areas by 2025.
- Additionally, it aims for the interconnection of 90% of all Local Government Areas by fiber and seeks to attain 70% population penetration. Another goal is ensuring that 100% of tertiary institutions are within 5km of a fiber Point of Access.
Moreover, the plan targets reducing the average cost of data to N390/Gb or less and establishing at least one local assembly or manufacturing plant for smart devices within Nigeria, further promoting the nation’s technological advancement and self-sufficiency.
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