Buhari dials Nigerian telecoms industry, calls telcos to reverse $2.2b ‘capital flight’

President Muhammadu Buhari wants telcos to reverse about $2.2 billion in annual capital flight from the country, as his economic diversification searchlight beams on the Nigerian telecoms industry.

The President has mandated Dr Isa Pantami, Communications and Digital Economy Minister to address the telecoms industry’s foreign exchange dealings averaging $2.2 billion annually, with management fees taking the lion share of $800 million, according to policy documents reviewed by Technology Times .

Telcos spend about $3 billion annually on foreign exchange with the spending line, “Management Fees” accounting for $800 million, the Communications and Digital Economy Ministe r says, underscoring the government plan to promote indigenous content in the Nigerian telecoms industry.

This is in line with mandate given to the Minister to actively collaborate with the private sector to create a large number of well-paying jobs for Nigerians and it will support towards our programme to take 100 million Nigerians out of poverty over a 10-year period."

President Muhammadu Buhari

Overview of Capital Flight in Nigerian Telecoms Industry

Pantami says that statistics by telecoms industry pressure group, Association of Telecommunications Companies of Nigeria (ATCON), show the Nigerian telecoms industry spends an average of $2.16 billion annually in foreign exchange.

A breakdown of the Nigerian telecoms industry’s forex spending shows that CAPEX (capital expenditure) programmes accounted for $750 million; Network Software Licensing, $250 million and Management Fees, $800 million.

Other forex spending lines include Managed Services (Tier 2 & 3 Support), $157 million and Miscellaneous, which represent combined outflows on international circuits, roaming and terminations reconciliations and others, was estimated at $200 million yearly.

The Nigerian telecoms industry’s statistics on forex spendings, which were based on average annual reports of industry players over a five-year period, represent “a significant portion of our average annual budget and it is critical that this trend is reversed”, the Communications and Digital Economy Minister says.

The Nigerian telecoms industry’s capital flight reversal is part of President Buhari’s agenda to promote his administration’s economic diversification drive and place Nigerians as active participants in the telecoms sector as outlined in the “National Policy for The Promotion of Indigenous Content in the Nigerian Telecommunications Sector” that was unveiled recently by the Communications and Digital Economy Ministry.

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As of May 2021, the Nigerian telecoms industry posted 187,026,517 active phone lines representing 97.98% of the population; 140,488,490 active internet connections and 75,569,442 broadband connections, representing 39.59% coverage of the country, according to official data by the telecoms regulator.

Out of the 187,026,517 active phones, the four biggest mobile network operators (MNOs), MTN Nigeria, 74,044,687 (39.66%); Airtel Nigeria, 50,026,788 (26.80%); Globacom, 49,781,215 (26.66%) and 9mobile, 12,842,775 (6.88%) dominated the telecoms market, the data shows.

The Policy is envisioned by the Buhari administration to “develop and patronise indigenous content in the telecommunications sector to create top quality indigenous content to propel the sector.”

Buhari says his administration is shining the spotlight on the telecoms sector under the new policy thrust because it plays an important role in the Nigerian economy, and also serves as a key enabler for other sectors of the economy.

There is also a higher percentage of foreigners among top management staff when compared with other staff, with Nigerians making up 31%, in relation to foreigners who make up 69%.

Nigerian COMMUNICATIONS COMMISSION (NCC)

“The Federal Government is committed to the diversification of the economy, away from an over-reliance on the oil sector, and the telecommunications selector is a prime sector to help in our diversification drive.”

According to the Nigerian President, “the Policy addresses the pertinent areas, including manufacturing, services, people, research and development. Developing the capacity of Nigerians in these areas will ensure an enhanced role for Nigerians in the sector. This is in line with mandate given to the Minister to actively collaborate with the private sector to create a large number of well-paying jobs for Nigerians and it will support towards our programme to take 100 million Nigerians out of poverty over a 10-year period.”

Beyond the tremendous leap in subscriber growth, the Nigerian telecoms industry has over the last two decades experienced an exponential increase in the inflow of foreign direct investment (FDI), according to the Policy.

Figures attributed to Nigerian Communications Commission, the telecoms industry regulator, shows that FDI in the local telecoms industry “moved from a paltry $60 million private sector investment in 2000 to about $68 billion in 2016.”

But for Pantami, “much as there has been a lot of progress in the sector, it is still useful to identify the areas where much progress can be made. One of such is the area of capital flight, which has also been significant.

“The Federal Government is committed to reducing this amount significantly, in line with the mandate of His Excellency, President Muhammadu Buhari GCFR that we “produce what we eat and consume what we produce.”

The Gaps in the Nigerian Telecoms Industry

The Policy also cited that in 2018, the NCC conducted a survey of Nigerian telecoms industry players that resulted in the following findings:

i. The ratio of Nigerians to Foreigners (for Senior, Line, Contract, and Outsourced staff) in the industry is high in absolute terms (i.e. 98% to 2%). However, it should be noted that the larger operators (especially the Mobile Network Operators) have a healthier balance than smaller licensees and service providers; ii. There is also a higher percentage of foreigners among top management staff when compared with other staff, with Nigerians making up 31%, in relation to foreigners who make up 69%; iii. For software, 77% of software in use are foreign, while only 23% are obtained locally; iv. with respect to hardware being used by the companies interviewed, 86% of them are foreign while 14% come from local companies; and v. Data on Base Transceiver Stations (BTS) also revealed a dominance of foreign products over those produced locally, as 88% are foreign with only 12% being manufactured in Nigeria.

To successfully promote indigenous content in the Nigerian telecoms industry, the government policy has zeroed in on four key areas: 1. Manufacturing; 2. Service and Software for Telecoms Sector; 3. People; and 4. Research and Development for Digital Innovation and Entrepreneurship.

Within the context of the Policy, “Indigenous”, which government says is in line with the Presidential Order 005 of February 2018, refers to companies that meet the following criteria:, amongst others:

(i) incorporated or otherwise organized in Nigeria; (ii) having its principal place of business located in Nigeria; and (iii) having at least 51% of its equity held by nationals of Nigeria.

Government says the overall objectives of the Policy for Promoting Indigenous Content in the Nigerian Telecommunications sector include:

i. to create a framework for supporting indigenous telecom businesses to become world class service providers; ii. ensure compliance with existing regulatory guidelines for indigenous content; iii. to highlight and promote indigenous capacities in the telecommunications sector; iv. to foster collaboration between global Original Equipment Manufacturers (OEMs) engaged in the manufacturing of telecommunications equipment and indigenous players; v. to ensure strategic partnerships with relevant regulatory agencies to create joint efforts to promote indigenous content; vi. to enable the indigenous telecom industry to contribute significantly towards the overall development of the telecom industry; and vii. to encourage and incentivise the participation of indigenous telecom institutions in relevant Standards Development Organisations.

NODITS: Special Purpose Vehicle for 'Indigenous' Nigerian Telecoms Industry

To achieve the Policy goals, the government says it is setting up the Nigeria Office for Developing the Indigenous Telecom Sector (NODITS) that serves as a Special Purpose Vehicle (SPV) under NCC to stimulate the development of indigenous content in the telecommunications sector of Nigeria.

The NODITS will implement Policy, as well strategies, standards, guidelines and frameworks aimed at developing indigenous content in the Nigerian telecommunications sector and also function in the following areas:

i. to support the creation and implementation of guidelines for the development of the indigenous content for the telecommunications sector; ii. to stimulate the growth of the sector through a focused, sustainable and incentives-based approach that encourages the active participation of the indigenous telecoms operators; iii. liaise with the Office for Indigenous Content Development at NITDA; (Quarterly Meeting)- for synergy and convergence of digital technologies; iv. to facilitate the sourcing of indigenous products, manpower and services across the entire value chain of the telecom sector; v. to evaluate and endorse Indigenous Content plans for operators in the telecoms sector; vi. to create a platform for research and capacity building programs that prepares Nigerians to play a leading role in the telecom sector; vii. to promote innovation and entrepreneurship in the telecoms sector; viii. promotion of indigenous phones and other telecommunications equipment; ix. to create and update a roadmap for the implementation of this Policy and ensure active monitoring and enforcement mechanisms for promoting indigenous content in the telecommunications sector; and x. to monitor indigenous content compliance by operators and service providers.