Building a digital Nigeria - … · Building a digital Nigeria is an Economist Intelligence Unit ... nation. Economic ... the role of digital in Nigeria’s current growth and

An Economist Intelligence Unit report

Building a digital Nigeria

Commissioned by

1 © The Economist Intelligence Unit Limited 2016


Contents

About this research 2

Executive summary 3

Chapter 1: Towards a digital Nigeria 5

Chapter 2: A networked Nigeria 7

Mapping Nigeria’s digital infrastructure 7

FMCG case study 9

Digitalfinancialservicescasestudy 10

Chapter 3: Democratising digital 11

Chapter 4: Comparative case studies 15

Conclusions and recommendations 19



Building a digital Nigeria is an Economist Intelligence Unit report.Thefindingsarebasedondeskresearch,interviewsandfieldworkinNigeriaconductedbyTheEconomistIntelligenceUnit. The research was sponsored by Accenture. The Economist Intelligence Unit would like to thank the following interviewees who participated in the interview programme:

l Juliet Ehimuan Chiazor,NigeriaCountryManager,Google

l Sacha Poignonnec,co-CEO,AfricaInternetGroup

l Tim Hatt,ResearchDirector,GSMA

l Russell Southwood,CEO,BalancingActAfrica

l Akanksha Sharma,SeniorAnalystatGSMA

l Kenechi Okeleke,SeniorAnalystatGSMA

l Jason Njoku,Founder,irokotv

Inadditiontoqualitativeinterviews,thisreportisinformedbydatafromtheNigerianCommunicationsCommission,Ericsson,theUnitedNations,theAfricanDevelopmentBank,KPMG,the World Economic Forum and Nigerian media reports. The Economist Intelligence Unit bears sole responsibility for the contentofthisreport.Thefindingsandviewsexpressedinthereportdonotnecessarilyreflecttheviewsofthesponsor.Eleanor Whitehead and Michael Martins were the authors. The editor was Adam Green.

About this research



WithaGDPof$568billion,NigeriaisAfrica’sbiggesteconomy.Hometomorethan180millionpeople1,itisalsothecontinent’smostpopulousnation. Economic liberalisation has drawn investorsfromacrosstheworld,andthenon-oilsector is growing at a healthy clip.

Digital technology is helping to drive growth inpromisingnon-oilsectors,frommediaandentertainmenttofinanceandfast-movingconsumergoods.Butwhileaccesstomobileandinternethasincreasedsteadily,itremainsunequal.Low-incomecitizens,andthosedwellinginruralandsemi-urbanregions,struggle to access these increasingly powerful services.

Improved access depends on Nigeria’s underlying ‘digitalinfrastructure’,whichisaffectedbybothsector-specifictrends,andbroadereconomicandpoliticalheadwinds.Thisreport,basedondeskresearchandexpertinterviews,examinesthe role of digital in Nigeria’s current growth and thestate-andfutureprospects-ofitsdigitalinfrastructure.

Key findings

Digital technology is essential for Nigeria’s economic diversification. Access to internet and mobile has improved markedly over the last

Executive summary

decade,helpingdrivenon-oilGDPgrowth.Thecreativeindustries,financialservices,fast-moving consumer goods and leisure have all benefitedfromdigital.However,thecountryisstill overly reliant on oil for public revenues and exportearnings,andpovertyratesarestubbornlyhigh,suggestingtheeconomictransformationhas further to go. The current low oil prices lend further urgency to the issue. Digital technology could play an enabling role in increasing access to government services like health and education,improvingfinancialinclusionthroughmobilemoney,andhelpingbusinessesovercomeinfrastructuredeficits.

Nigeria faces a widening ‘digital divide’. Regulatoryandphysicalchallengeshamperdigitalinfrastructureinruralandsemi-urbanregions,causingawideningdigitaldivide.Whileaccesstomobileandinternetisincreasing,thisis largely among wealthier users with multiple devicesandSIMcards,andisclusteredinurbanregions.Digitalinfrastructure,andthusaccesstointernet,computingandmobile,lagsinrural regions. Complex and costly regulatory frameworks,geographicalchallenges,poor‘connective’infrastructurelikeroadsandpower,and sabotage (such as theft and vandalism) are main obstacles.

In an era of low oil prices, the ICT sector is an important source of revenue for government:

1WorldPopulationProspects,UnitedNations2015



transparency and consistency are essential to balance fiscal needs with sector growth and investment. A fall in oil prices has led the current Nigerian government to seek a wider revenuebase,includingtheICTsector.While

thisisunderstandable,andabroadertaxbaseisbeneficialforthecountry,thereisaneedfordialoguebetweenregulatorsandICTfirms.Atransparentandconsistentfiscalregimewillensure capital investment grows.



Towards a digital Nigeria1WithaGDPof$568billion,NigeriaisAfrica’sbiggesteconomy.Hometoover180millionpeople2,itisalsothecontinent’smostpopulousnation.Over17yearsofcivilianrule,itsdemocracyhasconsolidated,culminatinginapeacefultransferofpowerin2015-againstthepredictions of many observers.

Economic liberalisation has drawn investors from across the world attracted by the country’s vast market-notjustitsoil3.Infact,overthepastdecadeaverageGDPgrowthratesofaround7%weredrivennotbyoil,themajorexport,butbythenon-oilsector4. The most recent data suggest thatservicesaccountfor57%ofGDP,inpartthanks to growth in ICT5.Thesectorgrew7.7%inthethirdquarterof2015(aboveoverallgrowthwhichslowedto4.7%inthesameperiod)6. And the National Communications Commission (NCC) estimatedthattelecomscontributedupto10%toeconomicoutputin2015,withthepotentialtoincreaseto25%by20507.

Yet oil remains a commodity on which the government relies – it still accounts for about two thirds of public revenue and almost all export earnings.OilpriceshavehalvedsincethenewgovernmentcametopowerlastMay,sendingincomeforthethirdquarterof2015plummetingbyalmost30%relativetothesameperiodtheyear before. Foreign reserves have dwindled by

$9billionin18months,andthestockmarketisdownbyhalffromitspeakin2014.

Combine this with broader economic challenges -thehighratesofpoverty,andawideninggapbetweenthewealthyandthepoor-andNigeria’s need to diversify its economy becomes clearerstill.“Now,morethanever,there’sanunderstanding that we can’t continue to rely onoil,”saysJulietEhimuanChiazor,Google’scountry manager for Nigeria. “Technology will play a key role in enhancing human dignity and lifting people out of poverty. That is big on the agendaofthecurrentgovernment.”

Digital technology is key in this regard: it helps businesses“leapfrog”poorroadsandrailnetworks and connects consumers to markets. Internetaccesscreateswork,bringsfinancialservices to unbanked populations and allows governments to provide health and education servicesonline.A2010studycommissionedbyEricsson,acommunicationscompany,foundthatforevery10percentagepointincreaseinbroadbandpenetration,GDPincreasesby1%.8

The government recognises the need to reorient its economy and the role of ICT and digital technologyinthatprocess,andtherulingAllProgressivesCongress(APC)viewsthecurrentprolonged period of lower oil prices as an

2WorldPopulationProspects,UnitedNations2015

3NigeriaDataPortal

4AfricanDevelopmentBank,NigeriaEconomicOutlook

5AfricanDevelopmentBank,NigeriaEconomicOutlook

6 Nigerian Telecommunications SectorSummaryReport,Q32015.NationalBureauofStatistics

7“NCC:TelecomsWillSurpass25%ContributiontoGDPby2025”,ThisDayLive,2November2015

8Ericsson,ArthurD.Littleand Chalmers University of Technologydata,September2011



opportunity to restructure the economy. Its budgetfor2016makesambitiousprojectionsforrevenuesfromthe“non-oilsector”(mostlycomingfromtaxation).ICTcanplayamajorroleinthattransition.However,digitaltechnologycanonly go as far as the underlying infrastructures

that enable it to function. This report evaluates the current state of Nigeria’s digital infrastructure,andmakesrecommendationsto help widen access to digital for all Nigeria’s citizens.



A networked Nigeria2Inthepastdecade,NigeriahasbecomethelargesttelecomsmarketinAfrica,anditsbiggestinternetuser.Lastyear,theICTministryclaimedthatNigeriaaccountsfor29%ofinternetuseonthe continent.9 “At the moment we have about 97 millioninternetusersinNigeria.In2012itwasabout28million,soithasreallyescalated,”notesGoogle’sMsEhimuanChiazor.

Inpart,internetexpansionhasbeendrivenbyfallingcostsofmobilehandsets.Ofthe43%ofNigeriansthatusetheinternet,themajoritydoso through their mobile devices.10 “A lot of new [phone]modelscomingoutarebelow$150andincreasinglybelow$100[so]thecostasashare

ofincomecontinuestodecline,”accordingtoTimHatt,researchdirectoratGSMA,themobileindustry association.

SachaPoignonnec,theco-CEOofAfricaInternetGroup,whichrunsasuiteofe-commercecompaniesincludingJumia,anAmazonequivalent,agrees:“Nigeriadoesbetterthanother African countries in terms of access to cheaphandsets,”hesays,citingexperienceddistributors,andpredictablecustomsandVATregimesasreasons.“Withoutthat,itdoesn’tmatterifyouhavethebest4Gintheworld,becausenoonewilllogon.”

Nigeria is connected to the Internet by 5 submarinecables,allofwhichlandinLagos,11 providing upwards of 11 terabytes of bandwidth persecond,muchhigherthanmanyotherWestAfricancountries,althoughonlybetween10and20%ofthiscapacityisactuallyused.Thisgapreflectsthelackofnecessarysurroundingdigitalinfrastructureslikefibreopticcableandbasetransceiverstations(BTS).Thereisalsoadividebetweennear-absentfixed-wireandmoreprevalent wireless broadband uptake. The submarine cables connect to a network

offibre-opticcables.Asof2012,therewerearound41,000kilometersofterrestrialandaerialfibre-opticcables,althoughthemajorityare duplicated or triplicated cables along the routesconnectingLagos,Abuja,andPortHarcourt.Thenetworkcarriesinternettrafficto and from the landing point to the ‘last mile’ infrastructure,namelyfixed-wirebroadbandthathomesandbusinessesaccess,ortothebase transceiver stations that provide mobile broadband via microwave radio waves.

Mapping Nigeria’s digital infrastructure9“NigeriaNowUses29%ofAfrica’sInternetAccess”,ThisDayLive,18May2015

10 International Telecommunications Union

11ThecablesaretheSouthAtlantic3-WestAfricaSubmarineCable(SAT-3/WASC),theMainOneCable,theGlo-1Cable,theWestAfricaCableSystem(WACS),and the African Coast to Europe (ACE) cable.



valuedat$3billion,butunderminedbypirates,who copy the movies and sell them mostly throughstreethawkers.MrNjoku,whorecentlycompletedafinancingroundof$19million,believesthatvideo-on-demandcanincreasetheglobalreachofNigerianfilm–andmaketheindustrymoreprofitable.“InsideNigeria,ifallthepeoplewithsmartphonesactuallyusethem,I think it’ll completely revolutionise Nollywood andcontentdistribution,”hesays.

E-commerceisanotherboomingsectoremergingthanks to digital. Nigeria is the biggest e-commercemarketinAfrica,valuedat$550million a year.12AmongthemajorplayersisMrPoignonnec’sAfricaInternetGroup,whichoperates in 23 nations with services as diverse as HelloFood,anonlinetakeawayservice,Lamudi,apropertylistingsite,andEasyTaxi,ataxiapp.

“Wefindthatconsumersareveryopentoe-commerceandnewwaysofaccessingproducts,so penetration is growing faster than in other markets,”heargues.“Whenallourmarketsareatequalmaturity,webelieveNigeriawillaccountforaquarterofourbusiness.”WiththeUNpredicting 17 Nigerian cities with over a million peopleby2025,thedemographicdriversofe-commercearefavourable.13 While the declining priceofoilthreatensaneconomicdownturn,consumers tend to maintain purchases of FMCGs likefoodstuffs,andforegoluxuryitems.

Usercostshavefallentoo.Sincethetelecomssectorbeganliberalisingintheearly2000s,thefourmajorproviders(MTN,Globacom,Etisalatand Airtel) have spent billions of dollars on terrestrialfibreand2Gand3Gbasestations.Asmobileconnectionsbecomemoreaccessible,datacostshavefallen.“Fiveyearsago,internetwasexpensive.Irememberitcosting$30-40forabundle,”recallsJasonNjoku,thefounderofirokotv,anonlinedistributorof‘Nollywood’movies. “Those similar bundles are now down to $4-6.Soit’scomedownquiteconsiderably.”

Driving the non-oil sectorThis rise in access to digital infrastructure has attracted multinational investors including Google,MicrosoftandIBM,andstimulatedadynamic local market of ICT providers and digital businesses.Globacom,theonlyindigenousfirmamongthefourmajortelecomsproviders,isamong the country’s most successful examples oftheformer,nettingrevenuesofbillionsofdollars.Ofthelatter,companiesfrommediatohuman resources and leisure are all building their businessondigitaltechnology.OneexampleisMrNjoku’sirokotv,dubbedthe“NetflixofAfrica”,which is trying to formalise the distribution of Nigerianfilms.

Byvolume,NollywoodchurnsoutmoremoviesthananyotherfilmindustrybutBollywood.Itis

The overall retail outlook for Nigeria is optimistic.Retailsaleshavegrownfrom$83.5billionin2010to$124bnin2015,andtheEIUforecaststhesectortoreach$184.5by2019.As digitally savvy consumers increasingly demand‘omni-channel’(onlineandoffline)searchingandbuyingoptions,retailcompaniesare looking to the role that digital could play in their business model. High ICT penetration in urban centres (especially Lagos) also indicates potentialformoredigital-enabledconsumertrade.

JumiaandKongaaretwobigonlineconsumerretailplayers,competingformarketsharewithhugeadvertisingcampaigns.Retailersand telecoms providers are also teaming up; a 2014dealbetweenMTNandShopriteallowedcustomers to purchase air time and data bundles whileshoppingatShopritestores.Amongdiversifiedonlineretailers,thereisanambitionto widen their retail activity to potentially includemoreFMCGactivity.In2015,Jumiaincorporatedover150%moreSMEretailersanddoubled the number of products available on its online marketplace.14

Digital case study: FMCGs, to your door (sometimes)

14KPMG,SectorReport:Fast-MovingConsumerGoods in Africa

12“Nigeria’sE-CommerceSectortoGrowtoN2.5tnby2018”,ThisDayLive,10June2015

13KPMG,SectorReport:Fast-MovingConsumerGoods in Africa



15NigerianCentralBankandGrameen Foundation data

16 Consultative Group to AssistthePoor

17“Nigeria:GLOLaunchesNational Mobile Health InsuranceProduct”,TheGuardian(Nigeria),29April2015

More experimental companies are moving toonline-basedFMCGtransactions,givingcustomersweb-basedpurchasing,anddeliveringto their door on the same day. Hello Food offers mealdelivery,inpartnershipwithvariousbrandsincludingKFC.ItsdeliverymotorcyclescanbeseendodgingtrafficinthemoreaffluentpartsofLagos.Gloo.ng,Nigeria’slargestonlinesupermarket,offersfreesame-daysupermarketgoods delivery in parts of the commercial capital,offeringaplethoraofservicesincludingone-clickcartadditionsandpricecomparisons.Gloo.ng seeks to appeal to customers by savingthemtime,andhelpingthemavoidtheproblem of limited formal retail outlets. Its cash-on-deliverymodelisalsofavouredbymanyconsumers who remain reluctant to pay online. OnlineretailerslikeJumia,too,allowcustomersto pay this way.

However,digital-drivenFMCG–withcustomersmakingpurchasesonline,andtakingdelivery

from couriers and motorbikes – are only feasible in the more developed urban spaces. A dispersed population with patchy electricity androadaccessposeschallengesforthesector,especiallybecauseretailersneedthesteadyflowof consumers only typical in urban areas. Yet the successofIndia’sDabbawalsector,whichseesmillions of cooked meals delivered to Indians everyday,suggestsfooddeliverycouldflourisheven in areas of patchy infrastructure.

InNigeria,serviceprovisionismixedwithreportsofslowornon-deliveryaffectingtheready-mealsector.Aslogisticsnetworksimprove,onlineFMCGcouldflourish–andthe experience of India shows that poor infrastructure need not prevent delivery of perishablefoodstuffsinanefficientway.Butservice quality needs to improve: delays to durable goods delivery are less of a worry than slow delivery of perishable foods and FMCG.

Infinancialservices,consumerscannowpickfromawideningarrayofmobilemoneyofferings,includingPaga,whichletsuserssendcashandpay bills using their phones. Another mobile money offering comes from Funds and Electronic TransferSolutions(FETS)whichfocusesonthefirm-sidebyservingasapaymentplatformforretail and corporate distribution networks. To improve transparency and cut down on bribery andtheft,itprovidesawebportalthroughwhichfirmscansettletheiraccountsandgetreal-timeaccesstosettlementdata.FETSwasgivenafurther boost by the central bank’s decision to go

‘cashless’,bypenalisinglargecashtransactionsinan effort to move them online. It now processes billions of naira payments each month.15

Government services are increasingly being deliveredthroughDFSaswell.Amobilewalletsystem created by the previous government administrationallowsupto8millionfarmersto subsidise the cost of their fertiliser by up to 50%16. Globacom partners with the National HealthInsuranceSchemetoprovidemobileinsurance to its customers by remitting premiums through the subscriber’s mobile phone.17



Nigeria’sdigitalfinancialservices(DFS)sectortookrootin2009,followingregulatoryreforms.TheCentralBankofNigeriahasbeenactivelychampioningthebenefitsofa‘cashless’economysincethen,throughmoree-paymentsystems and platforms.

By2011,thefirstmobilemoneylicenseswereissued;2012broughtthe‘firstwave’ofDFSthrough‘mobilewallets’,billpayments,airtime,CCTandcashtransfers.By2013,serviceswereexpandingintosalarypayments,savingsproductsandremittancesandby2013productsemergedonthemarketforretailactivity,ATMwithdrawals,healthandinsurance(includingmicro-insurance).Airtel,Etisalat,GlobacomandMTNhaveallpartneredwithbanksinnon-exclusiveagreementstopursueDFS.

ButDFS–especiallyintheprivatesector-isstill limited mostly to the already banked population.Evenamongthem,thereissomereluctancetogo‘cashless’.DFSproviderssuchasPagatechandeTranzactshowsignsofgrowth,but customer numbers are low in relation to Nigeria’s population.

Fraudulentactivities,bothonthecustomerandstaffside,areoneworryforDFSproviders.Asecond problem is more limited services in rural regions,andespeciallyinthenorth,partlyduetoworriesaboutterrorismfinancing,partlydueto weak surrounding infrastructure.18

Researchin2014bytheHelixInstitute,acollaborativeventurebetweentheBilland

MelindaGatesFoundation,theUNandtheInternationalFinanceCorporation(IFC),arguedthat technologies like provider platforms and USSDchannelswerenotreliableenoughtoinspiremarketconfidence,andagentnetworksformanagingDFSwerefartoosmall.19

AfurtherlimitationtoDFSisweakinfrastructure. Inadequate capital outlays onthepartofmobilenetworkoperators,inadequatepowerandroadinfrastructure,lackofcustomerawarenessofDFS(especiallyamong lower income customers) and limited interoperability and interconnectivity among networks are other structural obstacles facing the industry.

Inadequate power supply is a particularly seriousproblemfortheFSsector:whensystemsgodown,itcanjeopardisereal-timetransactionalactivities(forinstance,‘crashes’inthemiddleofatransaction,leadinguserstobe unsure if the transaction has successfully completed). It can lead agents to conduct offlinetransactions,wheretheycollectcustomer’s cash and conduct transactions later when the system is available – which is risky for customers as it can be abused by dishonest agents.Point-of-salesystemsremainfaulty,withregularcarddeclines,socustomersstillcarry considerable sums of cash to pay at supermarket and restaurants. For the vast majorityofthepopulation,cashisstillking.Clearly,digitalinnovationcanonlygoasfarasthe underlying infrastructure allows.

Digital financial services: Untapped potential

18 European Investment Bank,“DigitalFinancialServicesinAfrica:BeyondtheKenyanSuccessStory”,December2014

19 Helix Institute



While digital has clearly helped Nigeria’s economicdiversification,itsfruitsareunevenlydistributed. Large swathes of the population arestrugglingtoaccessthebenefitsofdigitaltechnologyinanaffordableway,andnationaldataondigitalusage,whendisaggregatedbyincomelevelsandgeographies,showssignificantinequalities.

Fixed-wiredbroadband,whichisfasterthanwirelessmobilebroadband,ismuchmoreexpensive,costingapproximately$896.40annually,orabout16%of$5,710,theaverageGNI per capita.20Forthe53.5%ofthepopulationthatliveson$1.90orless,amonth’scostequatestoroughly10%oftheirannualincome.Accordingto the Nigerian Communications Commission (NCC),therewereonly186,772fixedwiresubscribers,orlessthan1%ofthepopulationasofNovember2015.

Secondly,dataimplymoreICTusagethanisthecase.Mobilepenetration,measuredasthenumberofactivemobilesubscriptions,isroughly87.5%,butonauniquesubscriberbasis,actualusageisapproximately30%.Thisisduetothepracticeof‘multi-SIMing’(thetypicalNigerianmobilephoneuserhas2.4SIMs),whereusers’phoneshousemultipleSIMcardsfromdifferentoperators to arbitrage price differentials and guard against downed networks.

Democratising digital3Theurban-ruraldivideislarge.Nigeria’spopulation is split roughly in half between those in cities and those in rural settings. Mobilecoverageismuchlowerinthelatter,ataround15%in2013,accordingtotheNationalBroadbandPlan,comparedtoroughly50%inurbanareas,accordingtoMcKinseyGlobalInstitute. Access and ownership of digital technologiesalsodiffer.McKinseyestimatesthat99%ofurbaniteshaveaccesstoamobiledevice,comparedtoroughly70%ofruraldwellers,accordingtoGSMA.Thedivideholdsforthesouthcompared to the north of the country as well. The southismoreurbanandaffluent,andhashighermobile and internet device ownership and access rates compared to the north.

A huge proportion of Nigeria’s population thusremainsunconnected.A2013studycommissionedbyGooglefoundthat25%ofruralcitizensdidnothavemobilecoverage,andhadtotravelupto10kmtogetit.Subscriberscontinuetoexperiencequalitydifficultiessuchasdroppedcalls,orunpredictableinternetconnections.And although both data and handset costs have fallen,theystillremainbeyondthemeansofmany.

Building out digital infrastructureThere are logistical and commercial reasons why access to digital is more constrained in

20 Data sources are World EconomicForum,NCC,GSMAandMcKinsey



semi-urbanandruralregions.Operationalandcapitalcostsarehigh.Peoplearedispersedwith sparsely populated villages located far apart. Consumers have lower disposable income and are more exposed to external shocks like failedharvestsanddroughts,makingthemaless lucrative customer base. The geographical terrainisdifficulttobuildon,andlackskeyauxiliary infrastructures like roads and electricity makingmaintenancedifficult;aconcerngivenlow availability of skilled technicians and high levelsoftheft,destruction,andvandalism.Collectively,mobileoperatorsreportover70cutsamonthtotheirnationwidefibrenetworks.RussellSouthwood,CEOoftelecomsconsultancyBalancingActAfrica,said:“Manyofthesecutsare due to uncoordinated road construction or deliberatedamage,inthemistakenbeliefthatfibrecableismorevaluablecopperwiring,orto deliberately disadvantage one player over another.”

A lack of reliable electricity is another challenge for rural ICT infrastructure. Each base transceiver station(BTS)isoftenpoweredbyadieselgeneratorwithabackupincasethefirstonefailsorisstolen.Fuelusageeatsintotheprofitabilityofoperators’networks,andaccordingtoATCON,canmakeupto80%ofanoperator’soperationalcosts,comparedto5%inMalawiwherepowerfrom the grid is steadier.21 During an acute fuel shortagein2015,mobilenetworksbegancuttingout when operators could no longer access diesel. These blackouts also undermine the use ofsmartphones,MrPoignonnecnotes.“Thekeyenabler will be the power. The broadband and logisticscanbeovercome,butifyoudon’thavepower,andpeoplecan’tplugtheirphonetocharge,thenit’snothing.”

Enhancing digital policy BuildingNigeria-widedigitalinfrastructurewillrely in part on measures taken by government. TheNCChasdonearelativelygoodjoboffostering a competitive marketplace for mobile operators over recent years. Important achievementsincludenumberporting,which

makesnetworkswitchingeasier,anddifferentialinterconnectrates,whichletsmalleroperatorspay lower fees to larger operators when terminatingacallonthelatter’snetwork,toallow new and smaller operators to compete.22 Targetsfor95%mobilebroadbandnationalcoverageby2020aregoodlodestars.However,there are problems with the current policy and regulatory system which are hampering the expansion of digital infrastructure across the country.

1. Duplicative and overlapping licensingTogrowintonewgeographies,telecomsoperatorsneedapprovalnotjustfromtheNCC,thenationalregulator,butalsofromstate,localandcommunalgovernments,andenvironmentaland town planning agencies. Telecoms providers complainaboutmultipletaxationbylocal,stateandfederalgovernments,andengagementwithmultipleregulatorsiscumbersome.Someeffortsareunderwaytosolvetheproblem.The‘SmartStates’initiativesoughttoremovearbitrarycharges and eliminate multiple taxation regimes. Sofar,onlyLagosstatehasachievedmeaningfulsuccess,reducingrightofway(RoW)chargesby85%,from3,000to500nairapermetre.RoWcharges and local taxes and levies can make up almost70%ofthecostofrollingouttelecomsinfrastructure in some states.23

2. Unrealistic regulatory standardsOverrecentyears,theNCChasimposedperformance standards benchmarks on telecoms companies,suchasincreasedQoSrequirements,notablyintroducingalessthan1%dropcallrequirement,whichisthenumberofcallsprematurely terminated before being released normallybyeitherparty,dividedbythetotalnumber of call attempts. It has also exacted heavyservicequalityfines,notablytheOctober2015$5.2billionleviedagainstMTN,roughlydoubleMTN’sannualprofitsin2014(althoughthefinewaslaterreducedto$3.4billion).

21 Memorandum on QoS,AssociationofTelecommunications Companies of Nigeria

22 Determination of voice interconnectionrates2013,NCC

23“Nigeria:FGPartnersAnambraOn‘SmartState’Initiative”,TheGuardian(Nigeria),August2014



Whiletheregulatorhastheright-andmandate-tomaintainhighstandards,itmaybedis-incentivising companies from embarking on rural,lowincomeregionswheresuchqualitystandardsseemhardtoattain.TheQoSthresholdmay prove too high for the very rural areas that the government wants telecoms companies to expandinto.Criticsalsoclaimthatfinesmaybemotivated by budgetary pressures.24 The NCC is fundedbythecentralgovernment,whosebudgethas shrunk due to the falling price of oil.25 Either way,punitivemeasuresmaysteerfirmsawayfromprovidinginfrastructuretopoorer,ruralareaswheretheQoS-andprofits-aregoingtobelower.MrHattofGSMAsays:“thehighlevelprinciple for regulation should not be a punitive approachofone-offhitsorhightaxes,butaclimate that encourages long term investment andinnovationinnetworks,mobileinternet,anddigitalserviceaccess.”

A second regulation affecting rural infrastructure isthebanontelecomsfirmsfromtakingamobilemoneyoperator(MMO)role,aruledeterminedbytheCentralBank.Mobileoperatorshavebecomelessthanhelpfulasaresult,providingtheover20licensedMMOstheplatformfortransactions,butchargingafee(N12)foreveryusage.MMOshaveshiftedthisontoconsumers,andformanypoorconsumers,whichrepresentthemajorityofunbankedNigerians,thisfee,inadditiontotheMMO’stransactionfee,provestoolargeahurdle.This is especially the case among poorer rural citizenswhoarealso,duetothelackofbrick-and-mortarbanks,themostinneedofdigitalfinancialservices.

Balancingregulationandmarketforcesisadelicatetaskinvolvingcompromiseonallsides,accordingtoAkankshaSharma,SeniorAnalystatGSMA:“WhileregulationsoncoverageexpansionandexpectationsforQualityofServiceareimportant in ensuring high quality services for consumers,gettingarightbalanceisimportantto avoid delays in the implementation of an operator’sexpansionandupgradeplans.”

3. Governance ‘headwinds’The third obstacle constraining digital penetrationacrossNigeriaisthebroaderfiscalchallenge facing Nigeria’s government. To hold the currency at current levels despite falling oilprices,Nigeria’scentralbankhasenforcedcurrency trading controls and limited access to foreign exchange. Multinationals complain that dollar shortages are making it impossible to remit localearningstotheirhomejurisdictions.Andinvestors who foresee inevitable devaluation haveheldoffprojectsfearingthattheirvaluewillbeundermined.Inthenearterm,thisislikelytolimit infrastructural spend by telecoms operators.

Duetolowoilprices,thegovernmentseestheICTsectorasasourceoftaxrevenue.Lastyear,presidentMuhammaduBuharitaskedhiscabinetwithincreasingitsearningsfromthesector,asinternetpenetration,smartphonesubscriptions,and online transactions increase.26

AdebayoShittu,Nigeria’scommunicationsminister,hassaidpublicly:“IseeICTassomething Nigeria can tap into to regain thehugefinanceswehavelostinthepastinpetroleumresources”27.SomeexpertsbelievethehighcostsofRoWlicensesare“becausealot of states see it as an opportunity to generate internalrevenue,”MsEhimuanChiazorsays.

Clearly,thegovernmentmustensureitsapproachtotaxingICTisconsistentandtransparent,andits need for public revenue is entirely legitimate. Thequestioniswhetheritcanincreaserevenue-raising without deterring capital investment. KenechiOkeleke,SeniorAnalystatGSMA,says: “The lack of a clear taxation framework leaves telecoms operators exposed to arbitrary fees by the lower tiers of government and localcommunities,manyofwhicharefacingincreasingfinancialpressureduetodecliningoilprices.”

Telecomsfirmsareeasytargetsbecausetheydonot have public support behind them (operating indifficultenvironmentscanundermine

24“MTNsees$5.2bnNigerian fine reduced by a third”,BBC,December2015

25 National Communications Commission

26“Buharitoministry:Develop ICT revenue potential”,TheNation,August2015

27“ShittuUnveilsNigerianCommunications Industry Roadmap”,ITTelecomDigest



thequalityofserviceprovided,anissueforpopulationswherepre-paidinternetaccesscanmakeupasignificantproportionofdisposableincome) and because they are perceived to be rich.

The second broader issue is whether the government is facing ‘reform fatigue’ which puts digital regulatory issues low down the listofpriorities.PresidentBuharihasbeen

focusedprimarilyonanti-corruptionmeasuressofar-muchneededinacountrywithsuchapoorrecordongraft.Butitdoeslimithowmuchattentiongetsfocusedonday-to-daypolicyaffairs.AccordingtoRussellSouthwood:“itsometimesseemslikeanti-corruptionisallthat is happening. The business of government developing and implementing its digital strategy hasallbutcometoahalt.”



The digital infrastructure challenges faced byNigeriaarenotunique.Indeed,manyarecommon ‘growing pains’ faced by all emerging markets at particular points in their ICT

maturationcurve.Bothprivateoperators,andregulators,canlooktoamultitudeofexperiencesinothercountriesandcontinentsforideas,practices,andcomparativeperspectives.

Comparative case studies4

Sharinginfrastructurecanbeahighlyeffectivemeans of enticing private operators to enter lower income regions where returns on investmentsarenotsufficienttoattracttheprivate sector. There are two main forms of supply-sideinfrastructuresharing:

l Intra-sectoral: Telecommunications operators share assets (e.g. base transceiver stations).

l Passive infrastructure: Buildingtelecommunicationsnetworks(e.g.fibreopticcables) into new infrastructures such as buildings,roadsandrailways.

Intrasectoral approaches has been pursued inMadagascar,whichexperimentedwithshared towers,inwhichacommunicationstower tender was given to a consortium of operators federated around an infrastructure company to which operators contributed funds and purchases services. Shared broadband backboneisasecondapproach,takeninBurundi,wheremobileandinternetoperatorsformed a private company to operate the nationalbackboneasawholesaler,helpedbyanational subsidy to ensure national coverage.28

Infrastructure sharing

28 Making ICTs Affordable inRuralAreas,WorldBankGrouppresentation,Commonwealth Telecommunications OrganisationForum,DhakaBangladesh,2014.



lAzerbaijan’sgovernmentusedoilrevenuetoinvestindigitalinfrastructureinruralregions,butthisbroughtchallengesintermsoffiscalsustainability when oil prices fell

lInfrastructure-sharinginruralareascanbeacost-effectivewaytoovercomepoorreturnoninvestment,butservicequalityisinevitablylower.

Azerbaijan’seconomybearssimilaritieswithNigeria-theyarebothoil-richemergingmarkets,withanurban-ruraldigitaldivide.Oilcomprises75%ofAzerbaijan’sgovernmentrevenuesand95%ofexports29 and mobile penetration,likeNigeria,issplitalongurbanandrurallines.Roughly54%ofthepopulationisurban,withamobilepenetrationrateof141%versusthe46%ofruraldwellers,whohavea69%mobilepenetrationrate.30

Usingoilrevenues,theAzerbaijangovernmentmadesizeableinvestmentsinthedigitalnetwork.Coverageishigh,ataround99%formobilenetworkand61%forinternet.31 Twostate-linkedcompanies,DeltaTelecomandAzertelecom,usingfundsfromtheStateOilFundofAzerbaijan(SOFAZ),operatethecountry’sfibreopticnetwork,whiletwogovernment-ownedinternetserviceproviders,Bakinter.NETandAztelekomhavethelargestmarket shares.32

Specificdigitalinfrastructureinvestmentsincludea$38million2013fibreopticnetwork

expansionand$130millionbroadbandexpansionledbyAztelekom,inconjunctionwithSOFAZ.33Indeed,SOFAZtransferstothenationalbudgetincreasedby93.7%between2007and2014.34 These expansions support officialtargets;thenationalregulatorwants85%internetpenetrationby2017andahigherqualitybroadbandprovisionof10Mb/secondinall areas.

However,thedecliningpriceofoilhasstalledthe government’s ability to expand broadband internetaccessfurther,asSOFAZfundshavenow been diverted from digital infrastructure expansion to budget consolidation.35 The oil price collapse shows that funding infrastructure from oil revenues can bear fruits only when pricesarehigh,butstallwhenpricesfall.Blendedfundingmodels,perhapswithdonorassistance,mayprovemoresustainableinoil-dependent economies.

AsecondlessonfromtheAzerbaijanexperienceisqualityofservicechallenges.InAzerbaijan’sruralregions,thereisahighdegreeofinfrastructuresharing,wherecompaniesshareexisting assets like base transceiver stations.36 Thisincreasescoverage,butservicequalitylags.LowRoIcoupledwithbandwidthaccessfeesmeanthatwhilecoverageisgood,companieshavelimitedprofitmarginstoinvestinimprovedquality of service.37

Azerbaijan: Oil-funded digital infrastructure

29Reuters,“AzeriSOCARsays oil price fall halves revenue”,September2015.

30GSMA,“MobileforDevelopment Impact: Azerbaijan”

31GSMA,“MobileforDevelopment Impact: Azerbaijan”;FreedomHouse,“Azerbaijan:2015”

32UNESCAP,“AnIn-DepthStudyofBroadbandInfrastructure in North and CentralAsia:January2014”

33UNESCAP,“AnIn-DepthStudyofBroadbandInfrastructure in North andCentralAsia:January2014”;TheWorldBank,“Accelerating the Growth ofHigh-SpeedInternetServicesinAzerbaijan”

34TheStateOilFundofAzerbaijan,“AnnualReport:2014”

35FreedomHouse,“Azerbaijan:2015”

36UNESCAP,“AnIn-DepthStudyofBroadbandInfrastructure in North and CentralAsia:January2014”

37OpenNetInitiative,“Azerbaijan”



lAcompetitivemarket,proactiveregulationandinfrastructure-sharinghavehelpedBahrain’sdigitalinfrastructurepenetration

l Increased online activity has led to political challenges,asthegovernmentincreasinglycracked down on online activism following the 2011uprisings.

BahrainisamongtheArabworld’smostdigitallyconnectednations,withahighpenetrationofmobile cellular and broadband internet and low prices. Wireless coverage extends to over 95%ofthecountry,drivenbyfastservice,packagebundling,andlowprices.Bahrainpunches above its economic weight in the World Economic Forum’s Network Readiness Index,beatingwealthiernationslikeSpain,SaudiArabiaandItaly.Bytheendof2013,82%ofhouseholdsinBahrainhadinternetaccesswhilemorethan90%hadcomputers.Internetaccessisalsowidelyavailableatschools,universities,malls and coffee shops.

Inpart,goodaccesstoICTisthankstoacompetitivemarket.Batelco,theincumbent,facescompetitionfromZain(licensedin2003)andViva(licensedin2009).Theinternetservices market is also competitive and foreign investment is welcomed in ICT.

A second enabler has been the regular publication of proactive digital strategies and reviews. The second National TelecommunicationPlanpublishedin2008sought to nurture competition and improve the investment climate in telecommunications andthethird,in2013,identifiedmeasurestostrengthenBahrain’sICTcompetitiveness.The regulator has been active in reviewing the state of the industry to deal with emerging

challenges,suchasrevokinginactivelicensesanddealingwithincumbents.In2009,theTRAfinedBatelcoforlimitingaccesstosubmarinecables-makingitthefirsttelecomsauthorityin the Gulf Cooperation Council to rule against an incumbent operator.38 More and more playershaveenteredthemarket,andby2013,therewere20activetelecomsandinternetcompanies.

Specificpolicieshavealsohelped.Aclosercollaborationbetweentelecommunications,transport and construction is one effective means of improving digital infrastructure access(forinstance,internetcablescanbedeployed at the same time as highways or roads are constructed). Morocco has taken this approach,throughacollaborationbetweenatelecommunications operator and the national railwaycompany,andinBahrainoperatorsand construction companies cooperate by publishinginformationaboutnewprojects,spacefortelecommunicationsequipment,andtechnicalrequirements,andcoordinatingdeployment activities and network sharing. As Nigeriadevelopsitstransportinfrastructures,similartie-upswithdigitalinfrastructurecompanies could bear fruit.

However,whileBahrainhasachievedahighlevelofICTaccessfromatechnicalstandpoint,this has brought challenges in the political domain.Sincetheuprisingsof2011,thegovernment has cracked down on internet activismtargetingbloggersandinternetusers,blocking sites and censoring. The internet crackdown shows that access to digital is notjustdependentontechnology,butongovernance too.39

Bahrain’s competitive marketplace

38“Bahrain’smaturetelecoms market sees growthfromdatademand”,OxfordBusinessGroup,2015

39“BahrainCountryReport”,FreedomontheNet,FreedomHouse2012.



Key takeaways

lWhileBangladeshhasachievedhighlevelsofmobilebroadbandcoverage,accesstohandsets is expensive. An innovative small scaleprogramme,calledInfoladies,helpsbring‘rented’ ICT services to remote areas.

lBotswana’scitizenshavehighlevelsofmobiletelephone ownership but face among the world’s highest mobile internet tariffs. Kitsong centres bring public internet access to rural Batswanathatareleastconnected.

BangladeshandBotswanafaceoppositedigitalaccessproblems,buthavefoundacommonsolution.InBangladesh,mobilebroadbandcoverageishighthankstoacompetitivemarket,buthandsetsaretooexpensive.InBotswana,ontheotherhand,mobilephoneownershipishigh-theproblemisthetariffs.Yetbothcountries are experimenting with solutions to improveaccesstoICTs,whateverthesourceofthe problem.

Bangladesh’smobilemarket,hometosixoperators,ishighlycompetitive.Mobiletariffsareamongtheworld’slowest,butsotooistheaveragerevenueperuser(ARPU).40 Two thirds of the population live in rural villages that lack ICTaccessbecauseofregularpoweroutages,frequentflooding,andhighlevelsofpoverty.41

Luckily,2Gmobilebroadbandcovers99%ofthepopulationand89.5%ofthecountry,sothekeybarrier is access to mobile handsets.42Only6.3%ofBangladeshishaveaccesstotheinternet,90%ofwhichisdonethroughamobile.43 With 43.7%ofthepopulationlivingonlessthan$1.90aday,amobilephoneisunaffordableformany.44

Giventhiscontext,aBangladeshiNGOcalledD.net,has‘frugallyinnovated’.D.net,throughaprogramcalledInfoladies,broughtdigital

accessibility to the local level. Infoladies are women that ride bicycles between rural villages carryinginternet-enabledlaptopsandmobilephones to provide digital services to villagers who would otherwise be unable to afford access. Theirservicesarecheap.Afive-minuteSkypecallcosts$0.07andmobilecallscost$0.04perminute.45 Many female villagers call their male relatives who are often working in the Middle East,whereinternationalcallsfrommostfixedormobilephonescostabout$0.35perminute,roughly7timesmoreexpensive.Lessaffluentruraldwellerscanalsoavoidpayingupto$3.83foraSIMcardinthisway.ThesuccessoftheprojecthasspawnedinternationalreplicasinLatin America and Africa.46

Botswanafaceddifferentproblemsbutarrivedat a similar ‘rental’ solution. As one of the world’smostsparselypopulatedcountries,withruralelectrificationratesofaround10%andamongtheworld’shighestmobileandfixedbroadbandtariffs,thedigitaldividebetweencity and village is stark.47Only9%ofBatswanausetheinternetregularly,andthemajorityareurbanites.

TheBotswanaGovernment,inapublic-privatepartnership with two of the country’s three mobileoperators,MascomandBTC,createdtheKitsongcentreprogramtobridgethedigitaldivide.Ratherthanbuildingbasetransceiverstationsorlayingmorefibreopticcable,Kitsongcentres,whichactasinformationofficesforruralvillagersandbusinesses,areleasedtolocalentrepreneursonafranchisebasis.Runoutof197BotswanaPostoffices,Kitsongcentresprovidevillagerswithaccesstocomputers,faxmachines,andtheinternet.Batswanaarealsoable to engage with their government in a more transparentandefficientfashion.Thefacilitiescanhandlepassportapplications,andbirthcertificateandschoolregistrations.

‘Renting digital’ in rural areas: Bangladesh and Botswana

40WorldEconomicForum,“NetworkReadinessIndex:MobileCellularTariffs”;GSMA,“DigitalInclusionandMobileSectorTaxationinBangladesh”

41Intel,“InfoladiesMaketheConnection”,2009.

42GSMA,“DigitalInclusionandMobileSectorTaxationinBangladesh”

43GSMA,“DigitalInclusionandMobileSectorTaxationinBangladesh”

44WorldBank,“WorldDevelopment Indicators: Bangladesh”

45Intel,“InfoladiesMaketheConnection”

46AlJazeera,“Infoladiesbring change to rural Bangladesh”,August2014.

47WorldEconomicForum,“NetworkReadinessIndex:Botswana”



Nigeria’s government has notched many achievements in improving access to internet and mobile over the last decade. Telecommunications companies have prospered in a market written off in previous decades. Thriving new sectors havesprungforth,fromon-demandfilmtoe-commerce,fuelledentirelybydigitaltechnology. The next stage is widening digital infrastructureintosemi-urbanruralregions,and making internet and mobile accessible tomorecitizens.Todoboth,theunderlyinginfrastructure is the essential driver of success.

Newcommercialmodelscanplaytheirpart.OnewayofimprovingaccesstoICTsisinfrastructure-sharing,notesGoogle’sMsEhimuanChiazor.“Traditionally,wehavehadasituationwhereeachproviderwaslayingend-toend-infrastructure,which is expensive. That cost gets passed on totheenduser,”shesays.Thatischanging.Telecoms groups have been selling their cable andtowernetworks,alongwithresponsibilityformaintenance,security,andexpansiontounderservedareas,tothirdpartytowerscompanieslikeIHSTowersandAmericanTower.28 Thesetowercompanies,or‘TowerCos’,canthenpool these assets and lease the consolidated networks back to the mobile operators.

“Tower companies’ main mode of entry has beentobuyupexistinginfrastructure,which

is mostly in urban areas. When buying up that infrastructure,manyoftheoperatorshavebuiltinto the agreements the requirement that the tower companies must extend coverage to where they do not already have service. For TowerCos this gives them the potential to get multiple tenants because these areas are ones that offer noqualityservice,”accordingtoMrOkeleke.

However,ruralinfrastructureinvestmentisatoughsell.Difficultgeographies,lowincomeconsumers,theftandsabotageandthelackofauxiliary infrastructures like roads and power are all deterrents to capital investment. Thus the governmentremainsakeyplayer,andmustseektostriketherightregulatorybalance.Bargainsmust be struck to encourage investment into new regions and bring down the costs of accessing internetandmobile,whilealsoensuringthegovernment’srightfulshareoftheproceeds,atatime when public revenue is eroding.

Inawelcomemove,communicationsministerAbdul-RaheemAdebayoShitturecentlysaidtoover400stakeholdersattheinauguralCommunicationsSectorRetreat:“Toourprivatesectorinfrastructurepartners,werecognisemany of the challenges you currently face. We are accessible.Wemakeyouthispledge,tolistentothosecriticalissuesandchallenges.”CominginlateJanuary2016,itistooearlytoknowifthe

Conclusion and recommendations

28“IHSpays$2bntobuyMTNtelecomstowers”,FinancialTimes,September2014



wordswillbebackedbyaction,buttheintentislaudable.

In recognition of the enabling role that digital technologyisplaying,thegovernmentcouldconsider several steps for encouraging greater capital investment in the underlying enabling infrastructures.

l Raising more government revenue from the ICT sector is understandable, but fiscal measures - whether taxes, levies or fines - should be transparent and consistent, to avoid deterring longer term investment planning.

l More transparent, better coordinated fiscal regimes across tiers of government would promote investment by internet service providers and telecoms operators across broader geographies.

l Power generation and distribution must be expanded in rural regions, which would have both direct beneficial effects on citizens’ access to power, and reduce the reliance of providers on expensive generators, helping the business case for investment.

l Allowing the currency to devalue, in accordance with market forces, will reassure investors and unlock further expenditure on broadband and mobile networks.

l Government may need to consider more lenient Quality of Service rules in difficult terrain.

Digital technology has played an essential roleinNigeria’snon-oileconomicgrowth.Thegovernmenthastakencrucialsteps,fromcashless banking to its broader competition policy,tosupportdeepeningaccesstointernetandmobile.Butthelowhangingfruit,ofmoreaffluentconsumers,anddenselypopulatedurbanregions,hasnowbeenplucked.Toadvance,Nigeria now needs to address the widening digital divide: both between rich and poor citizens,andbetweencitiesandruralregions.Puttinginplacetheenablingpolicyframeworkcould encourage greater capital investment inNigeria’sdigitalinfrastructure,helpingthecountry’seconomicdiversificationandprosperity.

While every effort has been taken to verify the accuracy of this information, The Economist Intelligence Unit Ltd. cannot accept any responsibility or liability for reliance by any person on this report or any of the information, opinions or conclusions set out in this report.

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