By Olabisi Olaleye
Investment in the Information and Communication Technology (ICT) industry is increasingly becoming skewed towards foreign than indigenous participation, which should be a major concern to every stakeholder in the sector as well as all tiers of government.
Industry watchers allege that local investors shy away from investing in the sector due to the fear of Economic and Financial Crimes Commission (EFCC) running after them unlike the foreign investors. And that is the reason foreign investors gain an upper hand in the industry, as some local investors are even planning to either relocate or wind down their businesses owing to the harsh operating environment.
Another school of thought believes that intervention funds and tax holiday should be encouraged to boost indigenous investment in the country.
According to an ICT stakeholder and the publisher of Political Economist magazine, Mr. Ken Ugbechie, most local investors lack the financial muscle to play big in the capital intensive market. Telecom is a money consuming venture and makes huge demand on investors especially at the early stages.
“Sadly, the local firms have not been able to attract big loans from banks not that telecom business is not profitable but because it is a long term investment with long term Return on Investment (RoI). Nigerian banks prefer to finance short term businesses like trading. They would rather finance importation of rice than financing rice farming.
“Indigenous companies find it difficult to roll out because they simply don’t have the big money to do so. Many have licences but no money to execute what the licence entails. Government could help by giving incentives, creating special funds with low interest rate. It is called intervention fund, and governments around the world do it to encourage local enterprises. In the case of broadband investment, the Nigerian Communications Commission (NCC) adopted open access model. One of the high points of this model is that the government would, at a point, grant some funds to operators after they must have shown good cause that they are serious in investing in broadband, meaning the operators must have put down their own money and have made considerable progress. I hope the NCC still pursues this model.”
Ugbechie lamented that Nigeria loses much when local operators do not have good stake in the industry, saying, “nobody can be more patriotic than local investors. The nation loses in terms of not having more Nigerians employed at the high command of the companies. It loses in capital flight because most of the foreign firms do little to keep their profit here. They remit them to their parent countries at the speed of light. When foreign firms dominate the telecom sector or any sector, it serves little to build local capacities.
“There is also the issue of national security. Just imagine the implication if the biometrics of Nigerians are left in the hands of foreign firms. There is the matter of national pride and patriotism. Globacom, for example, has invested in Nollywood more than any telco; that is patriotism. The gains of having local players playing big roles and having high stakes are limitless.”
In his views, the Executive Secretary of Association of Licensed Telecommunications Operators (ALTON), Mr. Gbolahan Awonuga, noted that government policy on local content is not strong enough to encourage local investors.
According to him, government is more particular about Foreign Direct Investment (FDI) at the expense of local investors. Most of the jobs in Nigeria are being taken up by foreigners because of the currency advantages. Before any local investor can invest, he/she needs to have financial power six times better than his offshore peer before they can compete for the same job. A local investor will need trailer loads of money than foreigners that will come in brief cases.
“Another thing is that we believe that a foreigner is more competent than his local counterpart and until this phenomenon is stopped, local investors will continue to be at the background. The Local Content Policy should be strong enough to encourage local investors to thrive. Bank interest rates should be reduced so that local investors can access fund.”
He added that access to fund is key, stating that the Universal Service Provision Fund (USPF) guideline to access fund should be reviewed so that the likes of Mainone and others can have access to funds for expansion.
On his part, the Executive Secretary of Association of Telecommunications Companies of Nigeria (ATCON), Mr. Ajibola Olude, observed that it was high time governments came to the aid of local investors by giving them long term loans without interest for a minimum of 10 years.
He said: “Local investors need to come together to play in this market. I mean, they need to put their resources together. Resources in terms of finance, human capital and the rest. It should be stressed that this sector is capital intensive, so operating individually would not give them any edge. In the business world, it is called consolidation. I think with this approach, they would make more impact.”
Olude added that there are several factors that make local investors shy away from serious investment in Nigeria, including lack of policy that protects the local investor.
“Governments at all levels need to put policies in place that would protect Nigerian investors as well as review all existing investment policies. If government is serious about encouraging local investors, all existing laws must be reviewed with the aim of protecting local investors,” he said.
Highlighting the importance of investment at an event recently, NCC Executive Vice Chairman, Prof. Umar Garba Danbatta, reiterated that Africa is still very promising for investments.
According to him, telecom investors have huge opportunities to explore the African continent, which still has huge potential for returns on investment.
“The developed parts of the world are almost saturated with different types of telecom services. Therefore, Africa stands a chance to make desirable impact in the next few years if we get our plans right. Therefore, this is another opportunity to advise fellow regulators that we need to keep our eyes on the ball for the benefit of the continent’s faster development.”
Danbatta added that the recent report of the National Bureau of Statistics (NBS) has put the contributions of the telecommunications sector to the GDP at N1.4 trillion at the first quarter of 2016.
“This is a positive indication that more investments, more deployments and more economic activities around the sector will continue to impact positively in the sector. However, it was good reason for various agencies of government, and governments at all levels in Africa, to show greater understanding and support for the quest by various regulators in Africa to improve the telecommunication environment.
“I will not fail to mention the global expectations of the impacts of broadband and efforts by various countries to achieve fast deployment of broadband infrastructure. We all know that broadband is an enabler of other economic and human activities. The World Bank and the International Telecommunications Union (ITU) have made recommendations about broadband that cannot be ignored by any progressive telecom regulator.”
However, the Chief Executive Officer of Computer Warehouse Group (CWG), Mr. Austin Okere, said local companies are dying at a time when many economies are booming on the backdrop of technology entrepreneurship because they didn’t get their priorities right.
Said he: “While the global vendors ensured that they benefitted from the doubling of Annual Technical Support (ATS) fees from 10 per cent to 23 per cent, they did nothing about the setting up of technical support centres in the country nor ensure that 40 per cent of the increased ATS is paid to local companies that are the channels for delivery of the technical support services. Lack of enforcement is at the heart of the collapse of an otherwise fair trade regulation.
“Unfortunately, this is not without the mal-acquiescence of the local companies who will rather engage in cut-throat competition by sabotaging the system to collect a paltry 5-10 per cent of ATS fees than insisting on the stipulated 40 per cent instituted by the National Office for Technology Acquisition and Promotion (NOTAP) to protect them from unfair trade, and help them grow, thrive and contribute to the economy.
“What the indigenous companies do not realise is that this unhealthy competition and sabotage of the regulation can only lead to a race to the bottom. Take a typical case where a local software Value Added Reseller (VAR) receives a paltry 5 per cent of the ATS fees, and is also expected to bear the full tax liability on the transaction (including that of the global software company that pays absolutely no taxes in Nigeria on the transaction).
“Now, the applicable withholding tax on software and services is 10 per cent of the transaction value. In essence, the local company has already incurred a deficit of 5 per cent in operating margin (a clear and outright loss, without even factoring in operating expenses). This is one of the main reasons most of the local companies are dying at a time when many economies are booming on the back of technology entrepreneurship.”