May 14, 2024/CSL Research
The Nigeria Bureau of Statistics capital importation data showed the telecoms sector attracted investments worth US$134.75m in 2023 compared to US$456.83m in 2022, a significant decline of 70.50% y/y. Quarter on quarter, foreign capital inflow into the telecoms sector decreased by 64.33% to US$22.84m in Q4 2023 when compared with the US$64.05 million received in Q3 2023.
The NBS data also revealed that the telecoms sector accounted for 2.10% of the total capital inflow into the economy in Q4 2023 compared to the 9.78% it recorded in Q3 2023. We note that Nigeria’s total capital importation into Nigeria in 2023 was US$3.91 billion, lower than the US$5.33 billion recorded in 2022, indicating a decrease of 26.77%. On a q/q basis, capital importation increased significantly by 66.27% to US$1.09bn in Q4 2023 from US$654.65 million in Q3 2023.
The telecommunications sector is feeling the strain of the country’s economic challenges, evident in the shrinking industry metrics. In 2023, the sector’s GDP growth rate dipped to 8.90% from the previous year’s 10.70%.
According to the Nigerian Communications Commission (NCC), active mobile subscriptions saw a decline of 0.30% in March 2024, dropping to 219.30 million from 219.97 million in February 2024. Teledensity, which measures active telephone connections per 1,000 inhabitants, also saw a slight decrease from 101.47% in February to 101.16%.
It is clear that industry players are contending with significant challenges, particularly regarding operational costs. These challenges are exacerbated by factors such as foreign exchange devaluation and scarcity.
The profitability of major operators such as MTN Nigeria and Airtel has been significantly impacted by these challenges. To mitigate these obstacles, telecom companies are pushing for tariffs that accurately reflect costs. We argue that a tariff adjustment upward is necessary in the short term to safeguard profit margins and sustain sector growth.
Nevertheless, we maintain an optimistic long-term perspective on the telecom sector. This optimism is rooted in several factors: the increasing adoption of advanced technologies, an internet market with untapped potential, an underserved rural population, and favourable demographics. Despite current setbacks, we believe the Nigerian telecom market still holds considerable untapped potential and will likely maintain its position as Africa’s largest mobile market for the foreseeable future. Therefore, it remains an attractive destination for investors.
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