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GSM Companies Joint Framework for Action: National Economic Empowerment Development Strategy
28 July 2005 - GSM companies propopse Joint Framework for Action:
On the 15th of March 2003, the President of the Federal Republic of Nigeria launched the National economic Empowerment Development Strategy (NEEDs), an economic strategy plan with an implementation plan and specific industry targets designed to rejuvenate the Nigerian economy into a leading African and global economy.
National representative body of the wireless mobile operators in Nigeria namely MTN, V-Mobile, Glo-Mobile and M-Tel. GSMCF seeks, to promote the advancement of the Nigerian mobile sector, and a better understanding and synergy on key industry issues between GSM operators and the industry regulator, the Nigerian Communications Commission (NCC), Government at all levels, consumers, the public and all stakeholders.
As a demonstration of commitment to the Government's medium-term economic recovery programme, GSMCF engaged Phillips Consulting Limited to assist in undertaking a study on a joint economic development programme with the Government to actualize the policy objectives as enunciated in NEEDS. The purpose of the study is to secure the sustained development of a vibrant Nigerian telecommunications sector in line with global trends and best practices through a Nigerian mobile sector. The study reviews the impact of telecoms on the Nigerian market and examines communication goals set in the NEEDS document. Using key NEEDs strategies, the study identifies 7 critical areas where the sector is being challenged and proposes solutions, highlighting the respective roles of Government and Mobile Operators.
The primary goals of NEEDs are the achievement of public sector reform, enabling a robust private sector-led economy and the implementation of an effective social charter. These are with a view to reducing poverty, creating wealth, generating employment and re-orientating national values. The roles for Government and the private sector can be summarized thus:
- The Government is an enabler, facilitator and regulator
- The Private Sector is the executor, investor and manager of business
The primary aim of the Government in the communications sector is to develop and sustain a modern information and communication technology capacity that improves the quality and standards of living of Nigerian citizens and reduces poverty. Further goals include Improving teledensity, access to internet connectivity and the level of computer literacy/usage; promoting ICT as a tool of mass education, growth and development and facilitating the development of a national communication backbone and multimedia super-corridor.
The Nigerian Telecoms Market
It has been empirically established that an increase in teledensity has a positive proportionate impact on a nation's GDP, economic and social development. The Nigerian telecoms market exceeded all expectations by being one of the fastest growing markets in the world. In view of its infancy, it is still far form realizing its potentials and requires adequate support and protection from the Nigerian Government. Growth has been of over 90% at the beginning of 2005.
The GSM sub-sector has created an extensive value chain of inter-relationships and business that impact every facet of the economy. Direct and indirect employment has been created.
Over 120,000 viable businesses have been created including dealers, distributors, retailers, suppliers and content providers. Cumulative contributors, retailer, suppliers and content providers.
Cumulative contributions to date to the National Treasury are estimated at over N200 billion. The socio-economic influence extends to rejuvenating family & social relationships, narrowing the divide between urban and rural areas, enhancing the level of business in other industries and the robust growth of SMEs.
Forecasts for the Nigerian market envisage a US$7 billion market. Profitability of an enterprise is not the same as obtaining a return on investments. Business projections envisage that GSM companies will not break even until 2008. Furthermore, the full recovery of investment by investors will not occur until 2016, 15 years after the commencement of business operations. Investment in the Nigerian telecoms sector is therefore a long-term enterprise that requires effective planning.
The cost of procuring finance in Nigeria is 24%-30% higher than 16.13%, cost of funding at 22.03% compounded by the fluctuating value of the Naira 1 there is an increasing threat of rapidly rising cost of operations especially with expansion of the networks throughout the length and breadth of Nigeria.
Reductions in average weighted airtime charges of up to 46% have resulted in a squeeze in available capital for re-investment.
Due to the infrastructural challenges, Operators have built and are operating 3 separate networks: a core telecom network, a transmission network and a power generation grid. Extensive investment is therefore needed to achieve the full potential of the Nigerian mobile telecoms market. The projected capital investment to develop a robust communications infrastructure is a minimum of US$3 billion annually over the next 5 years. To date, Operators have invested over US$4 billion but continued investment is greatly dependant on a number of key factors enumerated below:
- Inadequate Power Supply
- Customs Clearance Processes
- Multiple Taxation
- Lack of Fiscal and Financial Incentives
- Inappropriate Infrastructure support (Transmission backbone)
- Absence of local Manufacture and Maintenance Capacity
- Regulatory framework
Keys to Sustainability
1. Power Sector Reform
Current power supply is inadequate to meet the needs of the Nigerian Mobile Sector. NEPA currently provides only 16.87% of the requirements of Operators. In other words, operators will have to invest heavily in generators for about 84% of their power needs.
Projected 138% increase in power generation by 2007 will not satisfy the power requirements of the mobile telephony sector given the projected growth rate of the sector. Power sector reform must therefore be accorded NATIONAL PRIORITY status in our developmental plans. The power sector reform process must address appropriate performance milestones for licensees including rural penetration targets. Government may need to guarantee power supply agreements with NEPA/unbundled entities and there is need for synergy between the NCC and the power sector regulator to avert a multiple regulatory regime.
2. Customs Reform
95% of mobile telephony equipment is imported. The pace of network rollout obligations and the need to maintain / improve the quality of network standards demands a speedy importation process. Imports are however currently subjected to a tedious clearance process, which could slow down network deployment.
With a view to reducing clearance periods to 48 hours and abridging trade processing, Government should simplify tariff classifications; standardize FX rate; reduce CRI lead-time to 24 hours after shipment; allow clearance from payment of duty subject to requisite conditions; and expedite Ports concessioning under Ports reform. Operators should, in return commit to supporting the implementation of ASYCUDA2 and provide digital/ICT support to port reform processes.
3. Simplify Taxation
Operators are currently contending with demands for taxes, levies and various charges at all tiers of Government often leading to double and regressive taxation. Government should determine which tier should collect specific taxes; establish parameters for tax collection and enact the comprehensive tax reform bill. The associated challenge is the dramatic increase in statutory levies and charges. Recently, a Federal Government Agency is seeking to increase fees by between 1000% to 5000%!. There is need to establish the basis for annual tax increments indexed against inflation and other relevant economic indicator.
Operators should proved practical input into the harmonization process and support Government e-taxation initiatives.
4. Apply Fiscal/financial Incentives
The level of investment required by the sector to compensate for infrastructural inadequacies in the economy, meet the teledensity and tele-access requirements of the sector, build a national transmission backbone justifies the need for financial and fiscal incentives for fledgling industry with great potential. Further, Operators have already outstripped network rollout targets prescribed in their mobile licence and expectations in NEEDS, In Nigeria, as at end of 2004 there were just under 10 million mobile lines translating in an increase of teledensity of 1:17 in 2004, which is expected to rise to 1:10 by 2007.
The Indian example is worthy of emulation with the introduction of tax exemptions and reductions in 2004 to encourage higher network development especially for infrastructure providers.
Government should therefore provide fiscal & financial incentives to encourage & sustain private sector investment matched against achieving specified NEEDs targets; implement the uniform ECOWAS custom tariff bands; provide duty exemptions for telecom equipment used for developing backbone infrastructure and telecom equipment manufacture; and review annual operating levies, spectrum charges downward to encourage rapid expansion of telecom services.
Operators should be obliged to strictly comply with regulatory requirements while supporting local SMME initiatives.
5. Construction of Backbone Infrastructure
As NITEL's infrastructure is inadequate to meet the present and future needs of the GSM network, Operators have had to construct their own microwave and fibre optic network to meet network rollout obligations and provide efficient services. To date fibre optic networks span over 20,000 km across Nigeria. As NEEDS prescribes the development of a national communication and telecommunications backbone, Government should provide adequate incentives to encourage the construction of fibre optic networks. We must emphasize that this backbone will provide support for full multi-media and data capability. Self-regulation and industry guidelines agreed amongst Operators should ensure the optimal use of such backbone infrastructure.
6. Encourage Local Manufacture & Maintenance Capacity
There is a need to encourage an indigenous industry that manufactures terminal, network and component supplies as over 95% of telecom equipment is imported at an estimated value of N1.2 billion. Key strategies would be a local content policy for manufacture of telecom equipment and supplies; the provision of supporting incentives, grants, loans, tax holidays and subsidies; and the encouragement of information and communication clusters. A comprehensive industry survey with phased targets would greatly assist in achieving this goal. Operators could commit to supporting local industries, and encouraging equipment suppliers and manufacturers to establish local production plants and facilities.
7. Light Touch Regulatory Framework
The manner of regulation often dictates the level of development achieved in the sector concerned. There is currently a need to align the present regulatory framework with market realities; balance the needs of customers with the level of support needed by a fledging telecoms sector and engender regulatory certainty by establishing formal consultation and rule-making processes.
These measures will provide a suitable enabling environment for growth in the industry and ensure transparency on the part of the NCC.
We there counsel that the NCC introduce regulations on consultation and rule making processes; remove onerous licence obligations and processes; conduct bi-annual industry and market studies with stakeholder participation; withdraw from regulating operational activities and encourage industry self-regulation. Government should further establish Competition Commission to manage competitive practices in the economy. The obligations of Operators in this regard include the timely provision of relevant data and statistics to NCC; strict compliance with licence obligations; active participation in stakeholder engagement sessions; and delivery of qualitative and competitively priced services and products.
This framework for action was prepared in the spirit of effective public-private sector partnership as enunciated under NEEDS.
GSM Operators have a direct stake in the National Economic development of this country and will continue to support this goal with increased investment and network roll-out throughout Nigeria.
The recommendations are made with the highest sense of responsibility and we shall kindly request that Government should accord serious consideration to the issues raised.
CEOs' of GMS OPERATING COMPANIES IN NIGERIA
Glo Mobile, MTN. Vmobile. Mtel
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