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June 6, 2023

Nigerian telco industry struggles to attract foreign capital for 4G and 5G infrastructure deployment

Key highlights 

  • Stakeholders in Nigeria’s telecom are worried that the declining foreign investments in the industry may affect the country’s broadband plan. 
  • A major factor identified as discouraging investments is forex instability. 
  • While FDIs in telecoms have been declining over the last 7 years, they plunged further to $107.6 million in 2021, a 74% decline when compared with the figure recorded in 2020. 

Experts in the Nigerian telecommunications industry have expressed worry over the current low foreign capital inflow into the sector. They said this could hamper the country’s move to deepen broadband penetration through 4G and 5G infrastructure deployment.   

Although the capital importation data released by the National Bureau of Statistics (NBS) for Q1 and Q2 2022 showed that telecoms attracted $57.79 million and $153.50 million in the respective quarters, the figures were seen as insignificant to meet the current needs of the industry in terms of infrastructure.  

While the figures for Q3 and Q4 2022 are yet to be released industry experts said the country is already lagging in the estimated $100 billion investments required to bridge the infrastructure gap in the next 10 years.  

Factors militating against investments in Nigeria’s 5G infrastructure

Citing several factors discouraging investors from bringing money into the country despite being the largest market in Africa, the President of the Association of Telecommunications Company of Nigeria (ATCON) and CEO of Medallion Communications, Engr. Ikechukwu Nnamani said Nigeria may not attract the needed investments in telecommunications infrastructure unless the country’s foreign exchange regime is stable. This is even as he declared that the current instability in the country’s forex market has been a major discouragement for many foreign investors who are interested in the country’s telecoms. 

While noting that a lot of foreign investors, who had seen the huge opportunities in Nigeria were willing to invest but feeling concerned about the instability of the exchange rate, he said: 

  • “It has been estimated that the country would require $100 billion n investments in the next 10 years to bridge the existing infrastructure gap in the telecom sector, but where is the money going to come from? 
  • “The exchange rate situation in Nigeria is of serious concern for foreign investors, they are not sure of what the situation would be by the time they want to repatriate their returns. Their returns on investments could be halved due to the fluctuations in the exchange rate. If we want to see the investors, we have to first address the foreign exchange situation.”  

Nnamani said another factor hindering foreign investment in the sector is the high cost of doing business in Nigeria. According to him, investors would always look for markets where there is the ease of doing business and where their returns on investments are guaranteed. 

The way forward

Suggesting ways Nigeria could attract more investments into the sector, a former Nigeria Country Director of Alliance for Affordable Internet (A4AI), Mr Olusola Teniola said: 

  • “One of the things we need to do continuously is to ensure that we make our industry attractive to FDI by ensuring we have a very conducive and stable environment. A stable environment will mean that policies have to be consistent and seen to be working. We have always said this in the past before Coronavirus came to our shores; we need the government to create an enabling environment, to create the right incentives that will continue to attract foreign direct investments.” 

Consistent decline in telecoms FDI: For the first time in five years, the sector recorded an increase in FDIs in 2019, as it attracted $944 million against $114.43 million recorded in 2018.  

  • The decline, however, continued in 2020 as the industry attracted $417.48 million in the year, a 56% decline compared with 2019.  
  • In 2021, foreign investments in the telecom industry also plunged further to $107.6 million, according to NBS data. This showed a 74% decline when compared with the figure recorded in 2020, which was even the year of COVID-19. 

Telecom operators seek alternative sources

Meanwhile, as foreign investments continue to decline, telecom operators in Nigeria are looking inwards to raise funds for their network expansion. MTN, for instance, recently completed the issuance of an N115 billion bond to enhance network expansion.  

  • The transaction, which was 1.68 times oversubscribed was MTN Nigeria’s first issuance under its new N200b Bond Programme and third bond issuance in the debt capital markets. The book build for the dual-tranche (four-year Tranche A and 10-year Tranche B) bond issuance began on September 15, 2022, and closed on September 21, 2022, with a total value of N168.54b in bids received, representing a 1.68 times oversubscription (of the intended N100b issuance).  
  • Chief Executive Officer of MTN Nigeria, Karl Toriola, said the company was pleased with the outcome of its third outing in the domestic bond market. He said the offer was well-received with active participation from a diverse range of investors, including pension funds, insurance companies, asset managers, other financial institutions, and high net-worth individuals.  
  • Toriola said MTN would use the net proceeds of the offering to finance its network expansion, optimise working capital and for general corporate purposes. 

Why more investments are needed

The declining investments are happening amid the implementation of the Nigeria National Broadband Plan (NNBP 2020-2025) for which the country is estimated to need $3.4 billion in investments in infrastructure. In the plan, the country is targeting 70% broadband penetration by 2025. 

As of January 2022, broadband penetration in the country stood at 48% according to data from the Nigerian Communications Commission (NCC). 

In line with the broadband plan, the NCC has also issued 5G licences to 3 telecommunications operators which include MTN, Mafab, and Airtel. While MTN rolled out commercial 5G last September, the network availability is still limited to a few cities and select areas within the cities, thus requiring more investments to expand.  

Mafab (Mcom) which announced its official launch this January, has yet to deploy the service as it seeks investments to build the required infrastructure. Airtel is also expected to launch its 5G network aby time from now and will be needing more investments to build the infrastructure across the country.  

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