Why Telecom Sector’s Contribution To GDP Fell By N220bn – NBS

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By Ken Afor

The National Bureau of Statistics’ most recent report reveals that growth in the telecommunications sector decelerated during the third quarter of 2023 due to the escalating effects of high inflation and the foreign currency unification policy.

The sector’s contributions in real terms decreased by N219.97 billion in the current quarter, representing an 8.38 percent drop compared to the previous quarter. This is parallel to the significant foreign exchange losses reported by telecom companies.

In Q3, 2023, the telecoms sector played a significant role in driving the country’s economic growth, despite experiencing a decline. It contributed N2.63tn to the real GDP, which was slightly lower compared to the N2.85tn recorded in Q2, 2023.

In Q3 2023, Nigeria experienced a 2.54% year-on-year growth in its GDP, with the service sector, including telecoms, playing a significant role. This sector witnessed a growth of 3.99% and contributed 52.70% to the overall GDP.

The National Bureau of Statistics (NBS) remarked on the expansion of the Information and Communication sector, encompassing telecommunications stating that “The sector in the third quarter of 2023 recorded a growth rate of 6.69 per cent in real terms, year-on-year.

“From the rate recorded in the corresponding period of 2022, there was a decrease of 3.84 percent points. On a quarter-on-quarter, the sector exhibited a growth of -10.30 per cent in real terms.

“Of total real GDP, the sector contributed 15.97 per cent in the 2023 third quarter, higher than in the same quarter of the previous year in which it represented 15.35 per cent and lower than the preceding quarter in which it represented 19.54 per cent.

The telecoms sector has been a significant contributor to the GDP in recent years, indicating its growth. Nevertheless, the current macroeconomic situation poses a challenge to its sustainability.

1. The current inflation rate has reached an all-time high, resulting in a decrease in buying power, while the revaluation of the currency has also impacted profit margins.

MTN Nigeria and Airtel Africa, the sole publicly traded telecommunications companies in Nigeria, incurred a loss of N479 billion due to currency revaluation during the initial nine months of the year. Consequently, their profit margins experienced a decline.

“Loss after tax was $13m driven largely by a foreign exchange loss of $471m recorded in finance cost before tax and $317m after tax because of the devaluation of the Nigerian naira in June 2023. This impact has been classified as an exceptional item,” said Airtel.

In the firm’s financial statement for the nine-month period ending on September 30, 2023, Karl Toriola, the Chief Executive Officer of MTN Nigeria, addressed the difficulties faced in the operating environment.

His words, “The operating conditions in the first nine months of 2023 remained tough. This was in line with expectations following the removal of the fuel subsidy, the currency devaluation due to the liberalisation of foreign exchange (forex) management, and the impact of the 2023 Finance Act.”

Toriola emphasized that the upward pressure on overall inflation had eroded consumer purchasing power.

He added, “This is supported by the government’s reform programmes aimed at creating an environment that enables businesses to thrive. Furthermore, the liberalisation of the forex management in June 2023 resulted in a 68.5 percent upward movement in the exchange rate from N461/$1 in December 2022 to N777/US$ at the end of September, resulting in higher cost of doing business.”

The two telecom giants in Nigeria – MTN and Airtel firmly held the belief that the prevailing economic difficulties in the nation would yield advantageous outcomes in the long run.

The telecommunications industry is expected to contribute 22% to the GDP by the end of 2027, as the Federal Government aims to double its revenue from this sector within the same timeframe.

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