There are indications that the telecommunications (telecom) sub-sector would shield Nigeria from the likely effects of impending global recession – a phenomenon the World Bank and the International Monetary Fund (IMF) predict would bash emerging and developing economies in 2023. The telecom sector has maintained a robust performance in recent years, surpassing oil and agriculture in growth and competing with them in contribution to the Gross Domestic Product (GDP).
The World Bank and the IMF have devoted substantial attention to the looming recession that awaits the global economy in 2023 owing to major developments in the European Union, the Russia-Ukraine conflict and American labour crisis. The development will impact severely on emerging and developing economies already battling with multi-dimensional headwinds: weak structural scenarios, debt burden and internal conflicts, among others.
The deadly impact of the Russia-Ukraine conflict, majorly, compounded their bad situation as the world grapples with two global recessions within the same decade – the first time in more than 80 years.
The IMF Managing Director, Kristalina Georgieva, revealed in a media interview in January that one-third of the world’s economies will slip into recession in 2023, with the biggest impacts being felt in emerging and developing economies.
The World Bank in its latest Global Economic Prospects report published in January, states that global sharp, long-lasting global slowdown would hit developing countries hard. It notes that global growth is slowing sharply in the face of elevated inflation, higher interest rates, reduced investment, and disruptions caused by Russia’s invasion of Ukraine,
Specifically, the report posits that in Sub-Saharan Africa—which accounts for about 60 percent of the world’s extreme poor—growth in per capita income over 2023-24 is expected to average just 1.2 percent, a rate that could cause poverty rates to rise, not fall.
“The crisis facing development is intensifying as the global growth outlook deteriorates,” said World Bank Group President David Malpass.
“Emerging and developing countries are facing a multi-year period of slow growth driven by heavy debt burdens and weak investment as global capital is absorbed by advanced economies faced with extremely high government debt levels and rising interest rates.
“Weakness in growth and business investment will compound the already-devastating reversals in education, health, poverty, and infrastructure and the increasing demands from climate change,” Malpass added.
According to the report, growth in Nigeria is projected to decelerate to 2.9 percent in 2023 and remain at that pace in 2024—barely above population growth. It stressed that growth momentum in the non-oil sector is likely to be restrained by continued weakness in the oil sector. It added that existing production and security challenges, and a moderation in oil prices are expected to hinder a recovery in oil output.
“Policy uncertainty, sustained high inflation, and rising incidence of violence are anticipated to temper growth. Growth in agriculture is expected to soften because of the damage from last year’s floods. The fiscal position is expected to remain weak because of high borrowing costs, lower energy prices, a sluggish growth of oil production, and a subdued activity in the non-oil sectors,” the report stated.
Many analysts believe that Nigeria would not slide into recession in 2023. They however warn that the ripple effects of recession in advanced economies will, unavoidably, impact Nigeria. Supply chain constraints, inflation, decline in investment inflows, receding confidence in the domestic economy and high rate of unemployment are some of the scenarios that would define the fate of developing economies during the year.
This will, inevitably, compound Nigeria’s slow economic growth woes arising from two recessions in five years. This generally worsened the weak domestic capacity, high cost of production, elevated inflation and mounting debt burden as GDP drags.
Nigeria’s GDP grew by 2.25 percent (year-on-year) in real terms in the third quarter (Q3) of 2022. The growth rate was a 1.78 percent point decline from 4.03 percent in Q3 2021. On the other hand, it reflected a decrease by 1.29 percent points relative to 3.54 percent in Q2 2022. The GDP growth in Q1 2022 was barely 3.11 percent. These point to a struggling economy which the telecom came to its rescue.
Data from National Bureau of Statistics (NBS) showed that the Telecommunication and Information Services Sector, driven largely by telecom sub-sector, has outperformed oil and agriculture in sustaining the economy. Telecom in Q3 2022 recorded a growth rate of 10.53% in real terms, year-on-year, and contributed 15.35% to the GDP in contrast to oil which recorded a negative growth of -22.67 percent (year-on-year) and contributed 7.49 percent to the GDP. Agriculture recorded a much lower growth of 1.34 percent (year-on-year) in real terms, though it contributed 29.67 percent to the GDP.
Following the same trajectory, telecom grew by 6.55 percent in real terms (year-on-year) in Q2 2022 with a GDP contribution of 18.44 percent. Real growth of the oil sector was –11.77 percent (year-on-year) in Q2 2022 and contributed 6.33 percent to the total real GDP. The agricultural sector though contributed 23.24 percent to the GDP during the reference quarter grew by mere 1.20% (year-on-year) in real terms,
The Q1 2022 performance was not on a different course. The sector where telecom belong recorded a growth rate of 12.07 percent in real terms, year-on-year, with a GDP contribution of 16.20 percent. On the other hand, the real growth of the oil sector was -26.04 percent year-on-year, contributing 6.63 percent to the total real GDP. Agriculture grew by 3.16 percent year-on-year in real terms and contributed 22.36 percent to overall GDP in real terms during the review period.
The Minister of Communications and Digital Economy, Dr. Isa Pantami, said the telecom sector has sustained the growth of the Nigerian economy by creating jobs, cushioning the effects of COVID-19 and boosting tax revenue for the government. The sector has also promoted foreign direct investment (FDI) in the nation’s economy dominated by foreign portfolio investment (FPI).
In the capital market segment of the economy, telecom are play a dominant role since the enlistment of major players about two years ago. The listing of two telecom giants, Airtel Africa Plc and MTN Nigeria Communications Plc, altered the fortunes of the equity market positively. They helped to uplift the market in ICT-related activities. The ICT sector which had tarried in what used to be the obscure dormant stock group over the years, has transformed into the active stock category through the performance of the telecom sub-sector.
Findings by THEWILL revealed that MTN Nigeria Communications is among the top 15 listed companies by assets (N597.29 billion) as of December 31, 2021. The company ranked second to Dangote Cement in Profits with N298.65 billion, and came top in Revenue with N1,65 trillion during the reference period. MTN was also second to Dangote Cement in Market Capitalization with N4 trillion; it also ranked second to Dangote Cement in Tax Payment: N138.03 billion.
The leading telecom firms – Airtel, MTN, Glo and 9Mobile, have been given licence by the Central Bank of Nigeria (CBN) to operate Payment Service Banks (PSBs). The PSB licence empowers the operator to provide financial services through digital means to low-income earners and the unbanked – people that do not use banks or banking institutions for transactions.
The development is a huge success to the Financial Inclusion strategy and has boosted economic activities with the emergence and expansion of mobile money and agent banking operations.
According to Nigeria Inter-Bank Settlement System (NIBSS), the total number of Point of Sales (PoS) machines deployed by merchants and individuals across Nigeria hit 1.6 million in November 2022 from 155 thousand in 2017. The CBN through its financial inclusion strategy, has increased the number of Agents Banking Locations from 86,000 in 2018 to 1.4m in 2022.
These are self-employed people, stimulating the economy, earning legitimate income, facilitating financial services and growing revenue for the government amid a difficult operating environment. Pantami disclosed recently that telecom operators deployed 38,000 generators to power their facilities across the country. This is amid high cost of diesel, elevated inflation and mounting insecurity.
The Federal Inland Revenue Service (FIRS) generated N125.67 billion from Electronic Money Transfer Levy alone in 2022, while the 35 million micro, small and medium enterprises (MSMEs) operate in Nigeria majority of which are in the telecom-related sector. Pantami announced recently that the digital economy, driven majorly by the telecom sector, created 2.2 million jobs in Nigeria between Q1 2022 and Q3 2022.
Analysts at Afrinvest said, although Nigeria will be affected by the impact of the global recession in 2023, the resilience of the domestic economy and strategic policy measures combined with the role of technology, will shield it from the severe impact of the global economic slow-down.