How Telcos’ Mounting Losses Are Affecting Nigeria’s FX Drive

The telecom sector has always been the “poster boy” of the gains of doing business in Nigeria, with impressive returns—until recently.

Experts say the industry, which boasts over 15,000 direct employees and contributes no less than 15% to the nation’s GDP, is bleeding—and profusely too.

Highly placed players across top companies tell gripping stories of sustained losses—including wiped-out shareholders’ funds—that have forced heavy borrowing to sustain operations.

These revelations are backed by reports that in the third quarter of 2024, foreign investments in Nigeria’s telecommunications sector experienced a significant decline, plunging to $14.4 million—a staggering 87% drop from the $113.42 million recorded in the previous quarter.

It is interpreted that the decline in foreign investments in the telecommunications sector reflects how its profitability and stability are perceived outside the country.

And it also has a larger implication for the economy regarding foreign exchange (forex) inflows, sources insist.

“Aside from the huge Nigerian shareholders that they pay fantastic dividends, many Nigerian telcos have foreign parent companies or international stakeholders. These investors expect returns through profit repatriation, but losses prevent telcos from sending dividends abroad.

With fewer forex inflows from the sector, Nigeria’s dollar reserves shrink, worsening the country’s forex shortage,” added checks revealed.

As part of efforts to address the situation, stakeholders, in a unified push through the Association of Licensed Telecom Operators of Nigeria (ALTON), advocated for a 100% increase in tariffs that have remained stationary—amid galloping inflation and an astronomically rising cost of living.

“The out-of-this-world rising cost of doing business while the price of telecom services has remained pegged at the same spot is at the heart of the sustained losses by telecom operators,” stakeholders declared.

While the industry regulator, the Nigerian Communications Commission (NCC), slashed the proposed tariff increase to 50%, the Nigerian Labour Congress (NLC) is campaigning for a lesser figure, with threats of industrial action.

However, stakeholders warn that a reduction of the NCC’s 50% counteroffer poses great risks for the telecom industry because the proposed adjustment is “just to keep the lights on”—maintaining services as they are.

“It is simply about sustainability. It is simply about keeping the lights on—just keeping it on—so that what we have now, we can continue to have,” Tobechukwu Okigbo, the Chief Corporate Services Officer at MTN Nigeria, said regarding the 50% tariff being contested by the NLC.

And he emphasized, “We are getting to a point where we simply won’t be able to provide these services. And if we can’t provide them, what it will take to get back to where we are now will be so much that we could be looking at three times the effort it took to get here just to achieve the same thing.”

Findings revealed that Okigbo’s warning, which echoes the concerns of other players, is against the backdrop of losses that have forced telcos to cut back on capital expenditures.

“Telcos reinvest profits into expanding broadband coverage, improving 5G deployment, and strengthening network reliability. Like other businesses, when they suffer losses, it is inevitable that they stop investments to protect operations,” insiders point out.

However, deeper investigation revealed that the associated problems of not reinvesting include infrastructural challenges that affect rural connectivity, slow down internet penetration, and reduce service quality—all of which discourage multinational businesses that rely on strong telecom infrastructure.

“And foreign tech firms, e-commerce platforms, and digital banks will hesitate to expand into Nigeria if they perceive weak telecom infrastructure as a risk to their operations—and that is another blow to forex inflows,” another industry expert provided insight.

Checks revealed that the unraveling in the Nigerian telecom sector comes at a time when the President Bola Tinubu administration is making a very intentional push for foreign investment to revamp the nation’s struggling economy through much needed foreign exchange.