FG Introduces New Policy to Cut Telecoms Sector’s $2.16bn Annual Capital Flight

The Federal Government has introduced a new policy targeted at reducing capital flight in the telecoms sector.

According to the policy document approximately $2.16 billion outflow of foreign exchange is recorded in the telecoms sector annually.

The policy also stated that the Nigerian telecom sector has experienced a lot of growth over the last two decades. For example, the sector has experienced a significant increase in the number of subscribers and an exponential increase in the inflow of Foreign Direct Investment (FDI).

The government said the new National Policy for the Promotion of Indigenous Content in the Nigerian Telecommunications Sector, which was launched recently by President Muhammadu Buhari, would address this.

The government, in the policy document, noted that “much as there has been a lot of progress in the sector, it is still useful to identify the areas where much progress can be made. One of such is the area of capital flight, which has also been significant.

The Federal Government is committed to reducing this amount significantly, in line with the mandate of President Muhammadu Buhari that we produce what we eat and consume what we produce.”

According to the document, a breakdown of the forex spending in the telecoms sector as provided by the Association of Telecommunications Companies of Nigeria (ATCON), showed that $750 million is spent on capital expenditure (CAPEX) annually, $250 million on Network Software Licensing; $800 million on Management Fees; $157 million on Managed Services (Tier 2 & 3 Support); and $200 million on Miscellaneous (International circuits, roaming and terminations reconciliations etc).

“This is a significant portion of our average annual budget and it is critical that this trend is reversed,” the government stated. It added that a survey of industry players conducted by the Nigerian Communications Commission (NCC) in 2018, showed, among other things, that there is a higher percentage of foreigners among top management staff of telecom companies when compared with other staff, with Nigerians making up 31 per cent in relation to foreigners who make up 69 per cent.

“A number of reasons are adduced for this disparity, but the most common one is the often stated lack of sufficient technical skills capacity by the indigenous employees to take up more technical roles,” it said.

 

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To address the imbalance, the government said one of the policy’s objectives is to build the skills capacity of Nigerians and the indigenous telecom companies in order to access opportunities within the sector; and to define minimum indigenous content levels for projects across the telecommunications value chain; and to support the development of the local telecom startup and entrepreneurial ecosystem by making the licensing framework less cumbersome for new entrants and telecom startup.

In addition, the policy states that: “Telecoms companies with foreign participation should have clear succession plans for senior management positions with conscious actions at building the capacity and providing the opportunity for indigenes to attain senior management positions within the larger operators.

Further observationon revealed that the larger operators (especially the Mobile Network Operators) have a healthier balance than smaller licensees and service providers.

According to FG, there is also a higher percentage of foreigners among top management staff when compared with other staff, with Nigerians making up 31%, in relation to foreigners who make up 69%; For software, 77% of software in use are foreign, while only 23% are obtained locally; With respect to hardware being used by the companies interviewed, 86% of them are foreign while 14% come from local companies; and data on Base Transceiver Stations (BTS) also revealed a dominance of foreign products over those produced locally, as 88% are foreign with only 12% being manufactured in Nigeria.”

“A minimum expatriate quota requirement, which states that each expatriate employed by a company should be understudied by two Nigerians and that expatriate quota approvals by Ministry of Interior have validity dates, should be adhered to. “Further, the expatriate quota in the telecommunications sector should be referred to the regulator before approval leaving room as this will aid in compliance monitoring.

“To support this approach, modalities should be put in place to ensure that foreign companies are not allowed to trade directly in certain segments of the telecommunications markets unless there is a certain percentage of indigenous content or ownership.”

To boost local capacity in software and hardware manufacturing in the telecoms sector, the government said the policy’s objectives is also to develop indigenous telecommunication companies to become world-class manufacturers service providers; to incentivise the production of cables, connectors, masts and telecom tools in a way that meets global minimum and certification standards; to support local manufacturing through relevant institutions, such as the Universal Service Provision Fund (USPF), Central Bank of Nigeria (CBN), etc; to encourage the establishment of vocational training institutes focused on the design, fabrication and assembly of telecom equipment; and to encourage partnerships and collaboration between global Original Equipment Manufacturers (OEMs) engaged in the manufacturing of telecommunications equipment and indigenous players. In addition, it stated that “telecom operators with foreign participation need to prepare and present to the Regulator plans for local manufacturing of foreign sourced software, equipment and devices.”