Driving Nigeria’s Digital Economy – The Vital Role and Challenges of the Mobile Sector

Nigeria’s mobile telecom industry is booming, driving innovation and economic growth. In 2023 alone, the mobile sector accounted for 13.5% of total GDP. Yet, certain challenges pose a significant barrier to the sector’s expansion.

The mobile and telecommunications sector is a cornerstone of economic vitality in Nigeria, driving innovation, connectivity, and economic growth. As one of the key contributors to government revenue, the telecoms industry is vital for driving formalization and broadening the tax base in the country. In the face of the country’s economic challenges, digitalization emerges as a pivotal tool for managing interactions between the state and the private sector.

However, the sector faces numerous challenges that hinder its digitalization efforts and overall development. Drawing insights from the latest GSMA Report on “The Role of mobile technology in Driving the Digital Economy in Nigeria,” we delve into the Nigerian context as a case study. The report underscores the indispensable contribution of the mobile telecoms sector to the nation’s economy, where it accounted for a substantial 13.5% of total GDP in 2023. This contribution extends beyond direct value-added by the ICT industries to enhance productivity across various sectors, reflecting a total GDP contribution estimated at 33 trillion NGN in 2023, with tax revenue contributions reaching 2.4 trillion NGN.

Significant Challenges Facing the Mobile Sector in Nigeria 

In recent years, the performance of the mobile industry in Nigeria has experienced a notable slowdown following a prolonged period of growth. Despite an increase in the number of subscribers, the financial performance of key players such as MTN Nigeria and Airtel has been adversely affected. According to the GSMA Report, MTN Nigeria reported a loss of N137 billion for the period ending December 31, 2023, while Airtel’s operating profit fell by 7% between 2022 and 2023. 

These challenges facing mobile service providers in Nigeria are worsened by hurdles that are either specific to Nigeria or more severe compared to other countries in Africa. Some of these challenges include; 

Tax Policies 

African governments have increasingly turned to taxing the mobile communications sector as a means of generating additional revenue. Even the smallest African nations are joining this trend in search of new sources of income. 

In Nigeria, for instance, the mobile sector faces a barrage of taxes at both federal and state levels. At the federal level, general taxes such as Companies Income Tax, Capital Gains Tax, Withholding Tax, and Stamp Duty are imposed on mobile service providers. The overall tax burden on the mobile sector in Nigeria has been steadily rising in recent years, making the tax environment increasingly complex and burdensome.

Taxing mobile services hinders sustainable investment in a continent with vast rural areas where expanding the network is particularly expensive for Telco operators. These sector-specific taxes stifle the potential for investment needed to improve infrastructure and attract foreign direct investment (FDI) to the continent.

The unpredictability of tax policies and the inconsistency in their application in the country create an uncertain business environment for mobile operators and foreign investors. This uncertainty makes it difficult for operators to make long-term investment plans, as they cannot accurately predict their future tax liabilities.

Infrastructural Limitations 

Many parts of Sub-Saharan Africa, including Nigeria lack adequate infrastructure, including reliable electricity and internet connectivity. The lack of infrastructure hampers the expansion of telecommunications networks and limits access to mobile services, particularly in rural and remote areas. The mobile industry requires substantial capital expenditure to operate and expand its services, covering activities such as network expansion, infrastructure upgrades, regulatory fees, and customer service improvements. However, operating costs have risen sharply, driven by soaring fuel prices and increased power costs for network sites. 

Fiber networks, essential components of modern mobile networks, are particularly vulnerable to damage. These networks are at risk of damage during construction work or other activities if not tightly controlled. Damage to these fiber networks can have a significant disruptive effect on mobile networks, as they carry high volumes of data traffic between network nodes. Network outages, slowdowns in data rates, and other disruptions can occur as a result of cable damage, impacting large parts of the network and affecting service reliability.

Consequently, the construction and upkeep of fibre networks in Nigeria incur higher-than-necessary expenses. The repercussions of damage to fiber-optic cables extend significantly. Resources allocated to repairing cable breaks could have otherwise been utilized to expand networks into presently underserved regions.

Complex Regulatory Environment 

The regulatory environment significantly impacts the sustainability of mobile service providers by influencing their ability to finance operations. While many countries globally adopt regulatory frameworks that foster competitive markets and consumer protection, some regulatory environments in Nigeria may impose burdensome regulations, such as excessive levies and fees, which hinder the industry’s growth and innovation. Inconsistent or excessive regulation in Sub-Saharan Africa can create barriers to competition and innovation, limiting the industry’s potential for growth and development. 

Construction of fiber networks, essential for mobile service providers, usually takes place along existing infrastructure corridors, such as roads, pipelines, and electricity transmission networks. In Nigeria, mobile service providers must obtain permission from government authorities to build networks, with fees for Right of Way (RoW) issuance. Although a national framework for these fees exists, they are often set by individual state and local authorities, leading to high and varying RoW fees depending on the location of the network. This creates additional financial burdens for mobile service providers, further hindering the expansion of telecommunications infrastructure across the country. 

The Need to Address Challenges: A Wake-Up Call

To address the challenges to enhanced digitalization and mobile technology expansion in Nigeria, there is an urgent need for tax policy reform and regulatory framework reform is critical to realizing the full potential of Nigeria’s digital transformation. 

The GSMA Report on the Role of Mobile Technology in Driving the Digital Economy in Nigeria  recommends reforms of taxes, stating, 

“We recommend a comprehensive review of the level and impact of taxation on the sector and the Government’s digital economy objectives.” 

Simplifying and reducing the tax burden on the mobile sector is essential to encourage investment and innovation in the industry By streamlining tax policies and reducing tax rates, governments can incentivize investment in infrastructure development, network expansion, and the provision of affordable mobile services to underserved communities.

Secondly, adapting the regulatory environment to be more supportive of sustainable investment and FDI is vital for the long-term growth of the mobile sector in Africa. By implementing clear, consistent, and transparent regulatory policies, governments can create a more conducive environment for investment, innovation, and competition in the mobile industry.

In addition to tax policy reform and regulatory adaptation, Nigerian government should also prioritize efforts to bridge the digital divide and promote digital inclusion. Investing in infrastructure development, expanding access to affordable mobile services, and promoting digital literacy and skills development are essential for ensuring that all citizens can fully participate in the digital economy and reap its benefits.

To wrap up, it is evident that the challenges faced by the mobile industry in Nigeria are not unique to the country but are also experienced in other African nations. Therefore, there is a pressing need for concerted efforts to address these challenges and promote sustainable growth in the telecommunications sector. This underscores the importance of collaboration and partnership between the mobile industry and the government. 

By working together, stakeholders can overcome regulatory limitations, improve infrastructure, and create an enabling environment for the expansion of mobile services, particularly in rural and remote areas. This partnership is essential for driving economic development, enhancing connectivity, and fostering innovation across the region. 

For a more in-depth analysis of the Challenges facing the telecoms sector in Nigeria, Read the latest GSMA report on “The Role of Mobile Technology in Driving the Digital Economy in Nigeria”

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