Global Financial Crisis: What It Holds for Nigeria Telecoms Sector

When the global financial crisis started to show its effects in the middle of 2007 and into 2008 in United States of America and Europe, little did people know that it will spread to developing countries in spite of their generally weak integration with the rest of the global economy. It started gradually with the world stock markets falling, to large financial institutions collapsing or even been bought out, and governments in the wealthiest nations coming up with rescue packages to bail out their financial systems.
On one hand, many people are concerned that those responsible for the financial problems are the ones being bailed out; while on the other hand, global financial meltdown will affect the livelihoods of almost everyone in an increasingly inter-connected world.
Today, almost every sector of the economy has been affected by the crisis; telecom industry is not left out.
In many countries, traditional telecom infrastructure has been excessively developed, and the saturation of remaining markets has reached critical mass. Bubbles have also emerged in the traditional operations market. Inflation rates are notably higher in emerging markets than in developed countries, and inflation may get out of control in some emerging markets. In some regions, due to slowdown of GDP growth, telecom operators will have weakened investment ability and willingness to do so. Only the strong will survive if there is a negative growth rate of -5%.
According to a recent World Bank release on the effect of the current global financial meltdown on emerging markets, there is going to be financial shortfall of between $270 billion and $700 billion of investment into emerging markets’ economies. This, the bank said will be as a result of private financial organizations shunning the market in view of the global financial crisis.
Telecom investments largely consist of financial capital or sovereign wealth funds, with an emphasis placed on long-term returns. If the markets are stagnant and the economic downturn is chronic, investors cannot see expected returns and they will slow down or stop investing, particularly during transformation in the early stages of telecom development when the balance sheets are still in the red.
 The financial storm will expose the contradiction in the transformation of the traditional telecom industry, and the contradiction between the saturation of per capita access demand and per capita bandwidth demand. It will correct the course of bad investment as in the past, bringing more attention to per capita bandwidth, and cause some market bubbles to burst.
Market growth
The growth of market demand will slow and customers will reduce procurement, leading to a dramatic decrease in operating income for the IT and telecom industries. Financial institutions, large enterprises, and governments are always large consumers of telecom and IT services, spending heavily to replace equipment and upgrade networks each year. The financial crisis will make the financial chain tauter and lead to more complex embedded restrictions.
This position was corroborated by Mr. Bayo Banjo, managing director, Disc Communications. According to him, Nigerian operators are likely to feel the hit of the current global financial meltdown in the area of investment required for network expansion.
He explained that operators seek for facility from financial institutions to import telecommunications equipment for expanding network coverage as well as upgrade, but when the institutions are not strong to advance the facility, it will invariably slow down development in the sector.
He noted that Nigeria operation of some telecommunications equipment vendors may not downsize their staff because they are engaged in more of buying and selling as against manufacturing that is undertaken in the home country operation, which are affected because of low demand for their equipment.
Regulatory effort
Nigerian Communications Commission had responded to this situation when it organized a forum to determine the impact of the current situation on the development of telecommunications in Nigeria.
The forum drew telecom experts and economists to deliberate on the effects of the global economic crisis on the ICT industry in Nigeria and proffer solution on how to ensure that the crisis does not affect the ICT sector in Nigeria.
For telecom operators, it was an opportunity to seek attention to their growing cost of doing business and thereby requested for reduction in fees payable to government, a move they believe is panacea to the effect of the global economic meltdown on the sector and also will allow for inflow of more capital into the economy by no known means.
Chief Bayo Ligali, chief executive officer of Zain Nigeria, said that for the telecom operators to successfully thrive at this critical moment of global economic melt down there is the need for the government to reduce regulatory fees. 
He stressed that there should be liberal interpretation and application of the regulatory provisions that have financial implication to stimulate growth in the sector.
Ligali requested for two years waiver on annual numbering fees as well as two years waiver on Microwave transmission fees, and expected government to also help operators resolve interconnect debt problems.
The Zain boss appealed for waivers of tax noting that tax paid on bad debt by the operators is a burden which NCC should help on by following the definition of revenue as stated by the International Accounting Standard Board on payment of tax on bad debt.
He proposed that the payment limit period should be reduced to three months instead of nine months which is obtainable presently because the early refund of the debt will form at least close to 300 base stations.
Engr. Ernest Ndukwe, the executive vice chairman, NCC, said that the continued success of Nigerian information and communication technology (ICT) is critical to the nation’s ability to ameliorate the effect of the global economic crisis on Nigeria.
He noted that the ICT industry is one private sector that is capable of providing an economic stimulus for the nation; adding that there is the need to evolve innovative ways of employing that industry as a catalyst for economic recovery in Nigeria
Ndukwe pointed out that there have been concerned voices within Nigeria, on the impact the crisis will have on the continued expansion and growth of the ICT industry in Nigeria. “Mobile technologies are the most powerful tools for combating extreme poverty in the most isolated part of the world.”
"As the regulator of the ICT industry and one of the advisers to the government on ICT matters, the NCC has found it expedient to convene the public forum so that as industry players, we can together address our concerns as well as proffer solutions to challenges that have the potential of affecting investment flow to the sector,” he said.
According to him, digital technologies will play a core role in ending poverty and enabling the world to join together through markets, social networks, and cooperative efforts to solve our common challenges.
The EVC observed that Nigeria is already feeling the effect of the global crunch with the oil and gas sector been severely hit leading to a sharp decline in the federal government revenue, stressing that in this period of the crisis only improvement on the ICT can salvage the nation.
Industry watchers that spoke to Nigeria CommunicationsWeek argued that some of the demands by operators to cushion the effect of the current financial crisis are frivolous, citing the issue of tax waivers where the income of operators are not affected due to the culture of Nigerians who prefer making calls to eating food.
They explained that phone usage in the country is not likely to be affected by global financial turmoil, due to Nigerians’ love for telephone.
Since 2008 Q3, more than 90% of enterprises around the world have experienced negative year-on-year growth. 43% of enterprises have started to cut IT spending, and 49% of financial institutions have started to reduce IT budgets. Almost all enterprises have started to cut expenditures in 2008 Q4. In 2009, all enterprises will invariably cut their expenses. Due to various reasons, downsizing has begun in the information industry and around 10% of the total workforce has lost their jobs; and this is in an industry where the number of employees has already been declining.
New dimensions
As governments tighten up monetary policies and financing costs increase, over-expanded and fragile links of the industry chain will run the risk of their finances drying up. This is especially true for newly established companies that rely on venture capital, and many of them happen to be the "anchors" of future supply chains. They will bear the brunt of the trauma. As credit and loans become difficult to obtain and liquidity drops, the traditional telecom industry will see slow development.
Multinational operators must also face the risks of exchange rates and inflation because their revenue is generated in local currencies. Due to the impact of the US dollar economy, most countries have experienced inflation (depreciation of currencies). As a result, most multinational operators’ revenues started to decrease in 2008, and revenues from operating companies will continue to drop. At the same time, multinational operators’ operational baseline is rising with associated growing costs. Job-cutting and other cost reduction measures become an inevitable choice.
The cost of debt and inflation will dramatically increase an operator’s cost. Financing will become a precondition to contract signing for operators both in developed and developing countries. Operators will also adopt light-asset operation models, putting greater pressure on equipment vendors to adopt new models like managed service and capacity service.
Consumers will not give up mobile voice or fixed broadband for now. Internet-related applications and solutions like mobile broadband and mobile Internet devices (MID)/PC-like terminals will become the new stars. In the terminal market, the high-end and the low-end segments will become the focus; iPhone, GPhone, and simplified black-and-white terminals will become primary choices for most people.