The country’s desire to deepen broadband penetration nationwide is hinged on capital investment into the telecom sector. IFE OGUNFUWA examines how the sector has fared in investment in the past two years Punch NG reports.
Foreign capital investment into the telecoms industry rose by $659.03m between 2016 and 2018, representing a 70.8 percent increase in capital inflow into the sector.
In 2016, the telecom sector aggregate investment was valued at $931.2m, analysis of data from the National Bureau of Statistics showed.
The sector had the second-highest investment in the country after the banking sector, which had $932.51m.
In the first quarter of 2016, a sum of $13.44m was invested in the sector; $118.71m in the second quarter; $244.8m in the third quarter and $554.25m in the fourth quarter of the year.
In 2017, the total capital investment in the telecom industry was $544.6m, falling into fourth place after the services, production and banking sectors.
Analysis of the NBS data indicated that the capital inflow rose to $1.48bn from 2016 to 2017, recording a 58.5 percent increase. In Q1 of 2017, investors pitched $145.78m into the telecom sector; $174.18m in Q2; $33.68m in Q3 and $191.01m in Q4.
The year 2018 saw investors back the telecom sector with $114.43m, the lowest annual investment in the sector in more than five years.
Services, production, financing, and banking sectors attracted more investment than the telecoms in 2018.
According to NBS statistics, in the first quarter of 2018, investors pitched $87.25m in the telecom sector, $11.12m in Q2; $11.42m in Q3 and $4.64m in Q4.
By the end of 2018, the NBS data showed that investment in the telecom sectors had risen to $1.59bn from 2016 to 2018, representing 70.8 percent improvement from the 2016 figures.
Industry analysts said the bulk of the investment in the sector went into the procurement of equipment, which was not readily available in the country.
According to them, the telecom industry is highly dependent on infrastructure that needs to be upgraded regularly in line with changing technologies.
The President, Association of Telecommunications Companies of Nigeria, Olusola Teniola, explained that during periods when the sector experienced mergers, acquisitions, and consolidation, there was huge capital inflow into the country.
“During the rollout of networks, mergers and acquisition and consolidation phases in the market, the value of foreign currency inflow into the economy reflects the actual importation required to acquire equipment,” he said.
The latest capital importation report by the NBS showed that the sector received a capital injection of $884.85m between July and September of this year.
The third quarter of this year recorded the highest quarterly investment the sector had seen in the past four years.
The Chief Executive Officer, Pan Atlantic Towers, Mr. Wole Abu, said long-term finance was the best form of funding for telecom business but added that this type of finance was not available in the country.
He said the uncertainty in the business environment and the risk of losing the investment in infrastructure to vandalism were discouraging investors.
Abu said, “We keep sourcing for innovative ways to finance our business with long-term funds and that has a lot to do with the environment of our business.
“You can’t control the appetite of private equity firms; they decide what risks they want to take and how long they would do it for.”
Raising the capital required to build infrastructure is really the challenge, Abu said.
He added, “Once you have the capital, building and maintaining it is just operations and that is normal for everybody. The amount of capital required is not available within the country, so you have to bring it from outside.
“The people need to see that Nigerians are serious about investing and they have the discipline to manage investments at that level.”
Commenting on the recent boost in capital investment in the Q3 of 2019, Teniola said it could be a reflection of the shares purchased from telecom companies listed on the Nigerian Stock Exchange.
The ATCON president said it was important for the sector to attract more Foreign Direct Investments into the sector than foreign portfolio investment.
This, according to him, is because portfolio investors can easily sell their shares at any sign of distress that can affect share price and their investments.
Teniola added, “As you know, MTN is on the stock exchange and there are international investors who are mopping up some MTN shares that are available.
“A combination of equipment purchase, mergers and acquisitions, and capital market activity could have resulted in a slight pick-up.
“We need to ensure that the cash flow coming into the country reflects investments that will be used to develop the industry.”
Citing the statistics released by the Central Bank of Nigeria, he said the amount of FPI exceeded the amount of FDI.
Teniola explained, “FPI is easy to convert to capital flight but for FDI, there is an incubation period and a maturity period. This takes more than three years.
“Though we are encouraged by activities around areas of growth and interest in the industry, really what we need is a sustained import and flow of capital into the sector.”
He called on stakeholders to seek an investment that reflected the capital expenditure required to be able to make 4G pervasive.
The ATCON boss said there was an urgent need to replace 2G technology with 3G or 4G in the next two years.
He added that the extensive investment in infrastructure would support the deployment of 5G technology by 2025.