Infrastructure Lessons from Telecommunications

I was at the Nigeria Infrastructure Summit organised by the Federal Ministries of Finance and National Planning in Abuja from August 6th to 8th. It was a commendable initiative by Mallam Sanusi Daggash and Dr Shamsudeen Usman, and the organisation was impeccable. Credit must go the Ministers and to their incredibly dynamic and intelligent Special Assistants, Sufianu Garba, Dr. Yemi Kale and Jaffar Muhammed who displayed organisational skills and commitment rarely seen in the public sector. More important was the implicit recognition that ran through both the conception and design of the proceedings that involvement and engagement with the private sector will be critical in addressing our severe infrastructure deficit.

I was lead speaker at the Telecommunications and Information Technology Session and my take on the discussion was to focus on what lessons Nigeria can learn from the experience in Telecommunications as we seek to overcome our most significant economic challenge-infrastructure, particularly power and transportation. The success in telecommunications has been nothing short of phenomenal, even though as we shall later see, challenges remain. But the current state of the telecommunications sector in Nigeria was frankly inconceivable as recently as 2001. I remember that in 1996/1997 as I tried to obtain an analogue mobile phone (which cost somewhere in the region of N200, 000), I had to seek the help of a friend whose uncle was a federal permanent secretary in the ministry of communications! Just to get a mobile phone!!! Truly at that time, telephones were not for the poor, and it was debatable whether they were even for middle class professionals.

Some statistics will show how radically the situation has changed. As at 2001, we had only 400,000 connected telephone lines and 25,000 analogue mobile phones. I went to the Summit with the last publicly available figures-about 46 million connected lines. The NCC Executive Vice-Chairman, Engineer Ernest Ndukwe who was a co-panelist provided updated figures-over 55 million! The industry has grown by more than 6 million lines every year against an annual growth of only 10,000 in the decades up to 2001. Tele-density today is 38% as against 0.4% in 2001 and today you can get a mobile phone virtually for free. The last statistic however reveals what lies at the root of the exponential growth-as at 2001, cumulative investment in telecommunications amounted to about $50 million, but in the over seven years since then over $12billion of investment has gone into the sector, essentially from private sector institutions.

So the transformation of the telecommunications sector has been achieved without recourse to the public treasury. On the contrary, the government of Nigeria has earned billions of dollars from the sector. You recall three GSM providers paid $285million, Globacom added $200million for its second national carrier license, and Mubadala paid $400million for its GSM license. That already adds up to $1.455billion! Add the payments for unified and 3G licenses and payments for other spectrum licenses, taxes and customs duties, and other charges and the income to the government may be as much as $3billion. This excludes the impact of direct employment of over 12,000 workers and thousands of indirect employees and entrepreneurs and businesses engaged in the sector. Today there are 5 GSM operators, 4 CDMA mobile operators, 26 licensed fixed line operators, 117 ISPs, instead of 1 inefficient government-owned monopoly and several weak private telecommunications operators in 2001

But there are challenges. Fixed and Internet Service growth and penetration has been less successful, with 1.43million active fixed wireless telephone lines as at Feb 2008 and less than 5 million people with internet access. As at 2006, a technology research firm estimated that there were 2,350 cyber cafes, 71,635 dial-up accounts and 2.2 million internet users, a penetration rate of 2.2% of the population. Today internet penetration remains less than 5%. And the problems with power, insecurity, and skill and competency gaps manifest in sub-optimal quality of service. We still lack a domestic IT software and hardware industry and duplication of infrastructure by operators means higher operating costs. But ongoing investments in various submarine cable projects, increased competition with unified licensing, end of GSM exclusivity and 3G licensing portends better service and improved internet and data capabilities in the medium term.

What are the lessons from all this? First market liberalisation and deregulation drives infrastructure growth. No amount of money pumped into NITEL would have delivered this revolution. Indeed while the private telecommunications operators were growing in leaps and bounds, NITEL was dying in government hands. Private capital and management is critical. For the managers of the power sector who seem to prefer to delay privatisation in favour of more government spending, it is a shocking failure to learn from experience including recent revelations about the NIPPs. Government of course has a role-providing strong and competent regulation, creating the right investment climate (incentives, laws, transparent licensing, concessioning or privatisation regimes, security and law enforcement etc.), social investment such as education to provide skills and consumer protection. Finally government must ensure competition and an appropriate and sustainable industry framework dependent on market pricing and not subsidies or price control.