The protection of existing businesses and new investments against recession’s firestorm is crucial to the achievement of the objectives of the federal government’s economic recovery and growth plan, AGBO-PAUL AUGUSTINE writes.
The last two years have been most challenging period for Nigeria in recent years. Owing to a combination of different factors, the economy contracted and slipped into recession in 2016, and both the public and the private sectors have come under the weight of the economic slowdown.
Many businesses have shut down resulting in massive jobs’ loss while unemployment rate has quadrupled. Rise in inflation rate is double-digit as the unfriendly macro-economic environment continues to bite on all fronts.
Though several sectors have been cringing under the prevailing economic hardship, the telecommunication sector appears the worst hit despite contributing N1.6 billion to the GDP, according to the Nigerian Communications Commission (NCC) and National Bureau of Statistics (NBS). Telecom companies have also been roundly applauded as the key drivers of digital revolution and enablers of SMEs growth in Nigeria.
In spite of the myriad operational challenges, the telecom operators continue to weather the recession storm by innovating with products, services and solutions that can help individuals and businesses solve every day problems.
For example, Etisalat Nigeria, the fourth entrant into the Nigerian telecoms market, has shown resilience and ability to grow in the face of tough challenges. Such is not common among businesses in this clime.
Etisalat Nigeria, which serves over 23 million subscribers as of the last count, has been in the news lately over its negotiations with a consortium of 13 banks from which it obtained $1.2 billion in 2013. When this loan deal was consummated, exchange rate was N197 to a dollar and the Nigerian economy was still experiencing growth.
In line with global best practices, Etisalat Nigeria secured the loan for the purpose of expanding its network, and improving the quality of its service nationwide. Accordingly, the dollar-denominated loan was scheduled to be repaid in dollars. There the problem lies.
The telco serviced the loan, maintained and still maintains amicable relationship with its creditors, until the Nigerian economy went out of control and the naira-dollar exchange rate inflated to above N500 to one dollar early in the year.
A hornets’ nest was stirred when Etisalat Nigeria sought to re-negotiate the loan deal having served the banking consortium a notice that it would miss the repayment schedule for February due to the fact that the loan has multiplied three times over its naira value – both principal and interest.
Collaborative negotiations have been ongoing regarding the loan repayment vis-à-vis the future of the Etisalat business. Feelers arising from the negotiations have also shown amicable outcome, a further proof that Etisalat Nigeria, which has in the past nine years established itself as a very viable business, faces no threat of bankruptcy or extinction.
There are many possible outcomes. In all likelihood, the shareholding structure of the business would change with several investors having expressed interest in buying into the company, in the event that any of the shareholders decides to opt out.
There have been recent media reports that the chief shareholder, Mubadala Development Company, the managers of the Sovereign Wealth Fund of Abu Dhabi, UAE, may be reconsidering its shareholding status in Etisalat Nigeria.
Though Mubadala, whose representatives visited Nigeria, recently, has rebutted those reports, this remains a possibility. That is the nature of negotiations of this kind. Another possible outcome is the emergence of a second indigenous telecoms firm. The Nigerian telecoms sector has come of age.
Whatever the outcome, it is a great relief that Etisalat Nigeria will not go under. This is significant for the Nigerian economy hence there are reasons for the federal government and other levels of government to get involved and rally behind Etisalat Nigeria at this point in time.
It was reported that about 2 million Nigerians lost their jobs in 2016 and the NBS puts the country’s unemployment rate at 14.2 per cent. Imagine having thousands more – employees of Etisalat Nigeria and its several partners – lose their jobs in one swoop.
Also according to NBS, the total value of capital imported into Nigeria in the first quarter of 2017 was estimated to be $908.27 million, the lowest in 10 years. This means Foreign Direct Investment (FDI) into the country dropped by $640.61 million, representing 41.36 per cent decline, as the FDI attracted by the country in the fourth quarter of 2016 was placed at the $1.55 billion. Considering its pro-business posturing, federal government needs to do whatever it takes to support local and foreign investors who have shown interest in investing in and sustain Etisalat Nigeria as a business.
Nigeria has the reputation of being one of the worst places to do business in the world and has in the last two years lost its enviable position as a top investment destination in Africa. Whichever way the pendulum swings for Etisalat Nigeria, several investment decisions will be made as per the viability or otherwise of Nigeria as an investment destination.
It is commendable that the NCC and the CBN have shown considerable interest in resolving the issue. However, the telecommunications regulator and the apex bank need to do more to preserve investment in the telecom sector like other sectors. In the immediate, the two regulators should ensure that the official forex window is opened to accommodate importation of telecommunications equipment and invisibles. Telcos like Etisalat Nigeria should be given access to 60 per cent concessionary Forex allocation that was granted to the manufacturing sector.
Seeing that Etisalat provides critical services to over 10 million SMEs and some large corporations that are into e-commerce, technology services, entertainment, fashion, transportation, hospitality etc, disrupting its services for one day means huge losses in revenue for several businesses across the country.
Supporting Etisalat Nigeria is an opportunity for quick wins for federal government in its bid for economic recovery and growth. It will also be a good signal to the international community and boost investors’ confidence, particularly at this time of economic and political fragility.