Guardian

YEAR on year the country rolls out drums to celebrate its liberation from the throes of NITEL’s inefficient services, with news editors jostling to describe the glorious advent of mobile telecommunications services in Nigeria, aka GSM phone services in 2001. For their modest achievements, mobile service providers have attained deity status. Indeed, compared with our much celebrated 4,000 MW of power supply for 160 million people since independence (53 years), 107 million subscribers in 12 years must be quite an achievement worthy of commendation.

On the flip side, much as the hordes of analysts would like us believe that telecoms sector contribution to GDP growth in the last few years has increased exponentially, so little of the wealth created by the over 107 million everyday Nigerian subscribers is retained in Nigeria. The structure of the Nigeria telecommunications landscape and the pervasive dominance by a few companies is such that the advance in telecommunications has not augured particularly well for the country in terms of real economic growth and wealth retention, commensurate with the level of escalation in telecoms spending over the last few years.

As it is, the sector is dominated by foreign players, who account for over 80 per cent of the subscriber base, with only one of the four major network operators indigenously owned. MTN Nigeria, as the market leader, owns over 40 per cent of the subscribers in the voice segment and more than 50 per cent of the segment’s combined revenue. In terms of ownership, MTN Nigeria was about 79 per cent owned by the South Africans, and a recent acquisition by the South African Shanduka group further increased the foreign ownership stake in the Nigerian subsidiary.

Using MTN’s financial results to illustrate the point, it becomes easy to appreciate the macro-economic disadvantages foreign dominance in the telecoms sector implies for Nigeria’s economy. Though MTN is licensed and operates in 21 countries with about 141 million subscribers globally, Nigeria alone accounts for about 30 per cent of its group revenue at $4.8 billion and almost 40 per cent of EBITDA margin (Earnings before Interest, Taxes and Depreciation) from its over 47 million subscribers in the country. Its operations in Nigeria generated an estimated yearly profit of over $1 billion last year alone. Other than its debt servicing and corporate taxes, for which it received exemption for the first 5 years on the basis of a pioneer status advantage, its total expenditure in Nigeria is estimated at no more than 25 per cent of its revenue to cover local expenses. And then of course, the bulk of its profits are repatriated via Nigeria’s hard earned foreign exchnage to its home country in South Africa where the company is a bellwether of the Johannesburg Stock Exchange (JSE).

The ominous effect of MTN’s dominance is even more glaring when its contribution to the Nigerian economy is compared with those of its contemporary in advanced markets such as the United States. As an example, Verizon with over 144 million subscribers generated $116 billion in year 2012, whilst MTN Nigeria with 47 million subscribers generated about $4.8 billion, a ratio of almost 25:1. Yet of that revenue amount, Verizon’s EBITDA margin is only $37.5 billion as against MTN’s EBIDTA margin at $7.2 billion with ratios dropping to 5:1 thus showing the skewed profitability ratios the MTN business enjoys in Nigeria.

Similarly, Apple, which only recently lost the title of the most valuable company of all time, had achieved 0.4 per cent contribution to U.S. GDP. It is also the country’s largest tax payer, but recently faced congressional hearings to determine whether or not it is contributing enough to the U.S. economy. Whereas, in Nigeria, MTN, an international service company with its huge profits and revenues that are 2 per cent of GDP, is not listed in the Nigerian capital market, but continue to complain about multiple taxation.

Without restrictions to protect the development of local businesses in the ICT sector, it is unlikely that any country would truly benefit from sector growth in terms of meaningful economic benefit and wealth creation for its citizens. It is on record that in emerging economies, where telecommunications has played a significant role, including trail blazers such as South Korea, Brazil and China, there is a 49 per cent threshold for foreign ownership or control in telecoms sector, and in Malaysia 50 per cent foreign ownership is permitted, but it must be reduced to 30 per cent within three years. South Africa, the home country of MTN group now allows foreign ownership but goes the extra mile of prescribing minimum requirement for black ownership of 35 per cent in ICT businesses in line with the Black Economic Empowerment Act (BEE).

Advocates of unrestrained FDI will argue that the indigenous telecommunications operators that predated MTN made no impact in the sector for years and thus we should be grateful that we have MTN. Others may even argue that new breed mobile service providers like MTN deserve more credit than they get given the harsh operating environment in Nigeria; and the absence of legacy infrastructure – both telecoms and non-telecoms – including power supply, in achieving as much as they have. However, in retrospect, no indigenous operator was offered five years exclusivity on mobile services prior to the GSM era or given the level of protection that MTN received to protect their investment and give them a good head-start in the market. Also, Globacom has since demonstrated that local companies can indeed thrive if given the requisite support and opportunity to particpate.

Undoubtedly, FDIs are not necessarily pariah money. In fact, the level at which they come demonstrate investors’ confidence in a country. While FDIs are a required catalyst for economic growth, promoting unrestrained dominance by foreign companies, particularly in critical sector such as telecoms, is not only economically unhealthy, but strategically unsound, given the importance of these companies’ infrastructure and assets to national security.

Above all, with the tendency of these operators to aggressively drive profitability at all cost, limited attention is being paid to building sustainable  structures in the macro-economic environment in Nigeria e.g. the capital markets, technology transfer etc. since they are not real stakeholders. For them, the buck stops at the bottom-line. Furthermore, MTN has utilized its early-mover advantage to gain dominance, which it uses for undue market advantage even though significant public concessions  were granted in allowing it to deploy such infrastructure. That has now started to stifle growth in the smaller, albeit indigenous segments of the telecommunications market.

The NCC as the industry regulator is taking bold steps to address the challenges posed by dominant players like MTN, fully aware that this would only benefit consumers in terms of improved services and better affordability.  Other policy makers need to support these efforts by reviewing existing laws to create a more competitive atmosphere and encourage local participation, job and wealth creation. At this time, when Nigeria is focusing on becoming one of the top 20 economies in the world by creating a non-oil dependent economy and jobs, it is imperative that the wealth created from telecoms and increasing dependence on ICT is retained in the country if it is going to drive sustainable national economic growth and development.

• Umar wrote from Abuja.