Growing ICT uptake in Nigeria along with robust state support sees technology sector expand

Over the course of 2015 and 2016 Nigeria’s ICT industry has developed rapidly on the back of state-led growth initiatives and also, increasingly, as a result of rising levels of private sector activity. According to estimates compiled by the Federal Ministry of Communications (FMC), in 2015 ICT-related activities accounted for nearly 11% of GDP, up from 6% in 2012 and less than 1% as recently as 2001. Indeed, a local news source reported that during the period between 2013 and 2015, ICT’s contribution to GDP increased at a rate of 34% annually, making it the single fastest-growing sector across Nigeria’s economy.

Given this rate of growth, many local ICT players expect to see their industry eventually overtake more traditional keystone industries, including energy, construction and media. “This administration will not fail in using ICT to drive the economy. We have been doing everything possible in this direction,” Yemi Osinbajo, Nigeria’s vice-president, told local media in June 2016. “If we continue on this path, ICT should be contributing between 25% and 30% to the country’s GDP in a few years.”

CHALLENGES: Nonetheless, Nigeria’s ICT industry currently faces a wide array of interconnected challenges. In terms of digital infrastructure, the country lags behind many other nations, both in Africa and further afield. This is in part due to Nigeria’s size and unique geography. With 184m inhabitants, according to the IMF, spread out over more than 920,000 sq km of challenging terrain, plus varied climate conditions, contested political boundaries and underdeveloped transport systems, extending basic internet connectivity – much less more advanced ICT services – to the entire population remains a unique hurdle.

In recent years the nation’s four major mobile telecoms operators – namely the local firm Globacom, the UAE’s Etisalat, South Africa’s MTN and India’s Airtel – have taken major strides forward in this regard, investing heavily in 3G and high-speed 4G LTE networks, which serve as the primary means of internet connectivity for most Nigerians. At the same time, Nigeria’s National Broadband Plan (NBP) 2013-18 is working to facilitate 30% fixed-line broadband penetration by 2018.

More broadly, the indigenous ICT sector has remained relatively small compared to the number and size of foreign companies participating. “Unfortunately, [the Nigerian ICT sector’s] growth has not yet translated into jobs and commensurate wealth for the nation,” Tunji Olaopa, the FMC’s permanent secretary, said at an ICT forum in Lagos in late 2015. “The reason is simple. Nigerian companies either lack the capacity or the opportunity to leverage this growth potential to participate significantly at many levels of the ICT value chain.”

ICT HISTORY: ICT in Nigeria can be traced back to the late 19th century, when the colonial government installed a cable link between outposts in Lagos and the rest of the country, and between Lagos and London. The first telephone connections were put in place in the 1890s, and the state spent the following four to five decades installing telephone connections in population centres. In the years running up to the nation’s independence in 1960, the faltering colonial government, and then the newly independent country’s own leaders, began working on what was to eventually become Nigeria’s first nationwide telecoms network. Over the following 30 years telecoms network development was a central component of a series of consecutive, state-led five-year development plans. By 1993 Nigeria was home to some 780,000 fixed-line connections. At the same time, a number of Nigerians were nurturing an interest in computer technology. In 1978 a handful of enthusiasts came together to form the Computer Association of Nigeria, which became a major player in the widespread introduction and uptake of digital technology across the country in the ensuing years. Since undergoing a restructuring and rebranding as the Nigerian Computer Society (NCS) in 2002, the organisation has become one of the ICT industry’s major groups and a driving force behind ICT in Nigeria. In late 2015 the NCS broke ground on an N1bn ($3.2m) national ICT centre, which is expected to serve as a technology innovation centre upon completion in mid-2017.

DEVELOPING ICT: Today the government’s primary technology oversight body is the National IT Development Agency (NITDA), which was formally established in 2001 and currently falls under the umbrella of the FMC. NITDA was initially formed to implement the government’s 2001 Nigerian IT Policy, which set targets for a range of IT-related metrics. In 2007, however, the state passed the National IT Development Act, under which NITDA became the state’s IT planning, development and implementation arm. The agency’s mandate was subsequently broadened to encompass regulation of Nigeria’s nascent IT sector, research and policy standardisation, and coordination of the government’s IT-related development programmes.

Today NITDA’s remit includes human capital development, e-government planning and implementation, the regulation of various technology-related segments and infrastructure development. NITDA is one of a wide range of entities that are overseen by the FMC. Others include the Nigerian Communications Commission (NCC), the federal telecoms regulator; the Nigeria Internet Registration Association, which manages the nation’s top-level .ng domain; the NCS; and various government-owned or affiliated entities that control satellite or fibre-optic infrastructure and assets. NITDA has worked with all of these entities in various capacities in the past. The agency also works alongside a range of additional public institutions on ICT-related issues, including the Federal Ministry of Education and the Federal Ministry of Science and Technology, among others. “Human capital in Nigeria’s ICT industry can be improved,” Rex Mafiana, CEO of FlexIP, a Nigeria-based IT solutions firm, told OBG. “Within the university system, students ought to have structures and courses where they can both learn and practice various ICT-related trades.”

HEADLINE TRENDS: With more than 90m mobile data subscribers and a rapidly expanding number of fixed broadband users, Nigeria is the single largest internet market in Africa by volume. Due to the lack of a single, comprehensive source of reliable, up-to-date data, tracking the expansion of ICT in Nigeria can be challenging. Nonetheless, by all metrics the country appears to be on a strong growth track. Data provided by the four mobile operators shows continued robust growth in terms of both total mobile subscribers and mobile data users. There were 149.7m active mobile GSM subscribers in July 2016, according to NCC data. This figure is down slightly on the end of 2015, when the operators reported total subscribers of 149.8m, but up significantly on the end of 2014 figure of 139m. The decrease is due to a range of related factors, including domestic economic volatility and regulatory pressures. However, this represents a slowdown in mobile subscriber growth, compared to other periods over the past decade, when Nigeria had the world’s fastest uptake of mobile telecoms service. The subscriber base increased from around 2.2m in 2002, for instance.

Nigeria is a mobile-centric internet society. Data from global advertising agency We Are Social showed that 82% of all web pages viewed in the nation are from mobile phones, a 10% increase year-on-year and one of the highest rates in the world. In June 2016 there were 92.3m internet users in Nigeria, of which 99.9% accessed the internet via GSM mobile networks, according to NCC data. This figure is down slightly from around 98m in late 2015, as a result of the NCC enforcing mobile operators to disconnect subscribers who fail to register their SIM cards within a certain period. Nonetheless, between 2012 and 2015 the number of Nigerians that subscribed to mobile data services more than tripled.

INTERNET PENETRATION: Meanwhile, data reported by the World Bank and the International Telecommunication Union (ITU), the UN’s telecoms agency, indicated 86.2m total internet users in Nigeria as of July 2016. The discrepancy between this figure and the NCC’s may be due to the ITU collecting household-level data, or the fact that the ITU estimates internet uptake based on older data, as opposed to monitoring mobile network usage in near-real time like the NCC. Regardless, according to the World Bank-ITU data, as of July 2016 internet penetration in Nigeria had reached 46.1%, up from 45.1% at the end of 2015 and just 5.5% in 2006. Even using the NCC’s higher internet penetration figure, internet penetration in Nigeria is currently hovering around 50%, which indicates huge potential for ongoing future uptake. Notably, this number is more than double the 2015 Africa-wide internet penetration figure of around 20%, as estimated by Statista, a Germany-based statistics research firm.

SMART PLANNING: In January 2016 the government introduced the Communications Sector Roadmap 2016-20. The plan, which was reportedly developed in conjunction with industry players, aims to fast-track indigenous ICT sector development, in particular. “The new roadmap involves five steps towards making Nigeria a smart and digital-oriented country,” Adebayo Shittu, the minister of communications, said at the announcement of the new programme in early 2016. “Government will build on ICT sector growth by improving infrastructure and quality of service, using SMART government to deliver ICT, broadband penetration and national security, while migrating Nigeria to a digitally native country through continuous capacity and ICT skills building.”

The first step of the five-step plan involves implementation of the government’s pre-existing NBP, in an effort to overcome the country’s long-standing digital infrastructure deficit. As mentioned previously, under the NBP Nigeria’s previous government had aimed to boost fixed-line broadband penetration to around 30% by 2018, up from roughly 6% in 2013. To achieve this goal, the state aimed to facilitate the faster installation of fibre-optic cable networks and last-mile connectivity, the latter of which remains a key hurdle to uptake across the nation.

Under the second step, the FMC aims to implement a multi-pronged e-government programme designed to make Nigeria’s government SMART – namely social, mobile, analytical (i.e., knowledge-driven), radically open and trustworthy. These objectives are set to be achieved in a number of ways, depending on where in the government they are being implemented. Broadly, the objective here is to turn the government into a key beneficiary of Nigeria’s recent ICT development.

Third, the ministry aims to tackle the long-standing issues of ICT piracy, intellectual property infringement and vandalism of ICT infrastructure, all of which are key challenges for the sector. “Government enforcement of intellectual property rights needs to be stronger,” Stanley Oduah, COO of Cyberspace Network, told OBG. “Too often creative ideas are stolen and over time this will reduce incentives for IT firms to invest in innovation.”

Fourth, the government plans to link up its various ongoing development programmes – which include the NBP, but also the local content policy, the ICT for Development initiative, and others – into a single, comprehensive development blueprint that makes room for the private sector as the primary motor of sector transformation.

Lastly, the fifth step of the 2016-20 roadmap involves stepping up ICT-related training and education in an effort to turn domestic ICT firms and entrepreneurs into a larger component of the market. “We, as a government, will offer every support to ensure that our local ICT firms – i.e., service providers and manufacturers – have a qualitative competitive advantage over others,” Shittu told local press at the announcement of the plan.

PUBLIC DATA: Most of these initiatives are updated versions of previous development plans overseen by the FMC or NITDA. Under the state’s previous Getting Government Online initiative, for instance, which was launched in 2011 in conjunction with the formation of the FMC, the new entity worked to migrate public services online and to ensure that all government employees had an email address. Under the ministry’s Open Data Initiative, meanwhile, the country has worked to ensure that all public data is available online for free, and has encouraged private sector developers to make use of that data for business purposes. In addition, the Nigerian Content Plan involves facilitating more indigenous participation in the ICT sector, in an effort to boost local technology content.

INTERNATIONAL CONNECTIVITY: Nigeria is one of the most connected countries in Africa in regard to international bandwidth. Five submarine fibre-optic cables come ashore in the country, delivering total capacity in excess of 17 Tbps. The nation’s oldest subsea fibre link to the global internet backbone is the South Atlantic 3-West Africa Submarine Cable (SAT-3/WASC), which was completed in 2001 and stretches from Portugal to South Africa, where it meets up with another cable that, in turn, runs on to Malaysia via India. Nigeria’s SAT-3/WASC link-up was financed by the state-owned telecoms operator Nigerian Telecommunications (NiTel), which had a monopoly in the sector at the time. Today the cable system is among Nigeria’s slowest international connections, despite a series of upgrades that have brought its total capacity to 800-920 Gbps. The SAT-3/WASC link fell into a moribund state between 2013 and 2015, as NiTel was shut down and sold off by the state. In 2014 the firm’s assets – including the cable link – were acquired by ntel, a new, local private operator. In early 2016 ntel announced that it would resuscitate SAT-3/ WASC and that the cable system would serve as a key component of its plan to compete with the big four telecoms operators.

In the mid-2000s a spate of submarine cable financing and construction kicked off in Nigeria. The first of these projects to come on-line was the 7000-km Main One Cable in 2010. Developed by the Main One Cable Company, a conglomerate financed by a handful of West African financial services firms, the cable was the region’s first privately owned subsea link, connecting Portugal to Nigeria and Ghana with a 4.96-Tbps line. In 2011 Globacom finished work on its 2.5-Tbps Glo-1 cable, which links Nigeria to the UK with various points in between. This was followed a year later, in 2012, by the launch of services on the West Africa Cable System (WACS), which stretches from the UK to South Africa, and was financed by a consortium of primarily African telecoms operators. South Africa’s MTN, which is the largest mobile telecoms provider in Nigeria, was the largest shareholder in WACS. The link has a capacity of 5.12 Tbps. Additionally, near the end of 2013 the African Coast to Europe (ACE) cable came on-line in Nigeria. Completed a year earlier by a consortium of operators led by the French telecoms firm Orange, the ACE system stretches from France to South Africa and has a capacity of 5.12 Tbps.

DOMESTIC NETWORKS: Despite Nigeria’s relatively high level of international connectivity, the limited state of the nation’s domestic fibre-optic infrastructure network means that broadband penetration has remained low. Indeed, in the ITU’s 2015 ICT Development Index, which ranks countries by digital technology penetration, Nigeria ranked 134th out of 167 countries in total, down slightly from 133rd on the previous index, which was released in 2010. While international internet bandwidth per internet user in Nigeria was at 3150 bps in 2014, up from 2348 bps in 2010, according to the ITU, by most estimates only around 10-15% of the nation’s incoming submarine cable capacity is currently being put to use.

There are a number of reasons for this. First, demand for high-speed internet services – and particularly fixed broadband services, as opposed to mobile data – is still relatively limited, though it has grown rapidly in recent years. Perhaps more importantly, however, is that many Nigerian owners of domestic fibre-optic networks, which include most of the major telecoms players plus a handful of internet service providers, face major bureaucratic hurdles when it comes to obtaining right of way access to various parts of the country. Many Nigerian state governments levy high taxes on the telecoms industry, for instance. According to local media, as of December 2015 some 50-70% of the cost of deploying fibre across Nigeria could be traced back to expenses related to obtaining right of way permissions. These constraints, plus the highly competitive nature of telecoms development over the past decade, have made it difficult for any single operator to build out a comprehensive, nationwide fibre-optic network.

Through the NBP – and now under the first step of the FMC’s five-step programme – the state is working to address these issues, with an eye towards extending broadband services into rural areas. “Right of way issues in laying fibre are a major challenge, particularly when infrastructure crosses state borders within the country, Stanley Jegede, CEO of Phase3 Telecom, a fibre-optic network infrastructure provider, told OBG. “The pricing regime for right of way, which differs from state to state, should eventually level out.”

HARDWARE: As in many other ICT markets around the world, Nigerian technology users have increasingly migrated away from PCs in favour of smart-phones and tablets. The majority of the hardware in use in the country is imported, with major foreign brands like Apple, Dell, HP and Samsung popular among younger, wealthier Nigerians in particular. Meanwhile, a steadily expanding domestic ICT hardware industry has gained traction primarily with public sector organisations, education institutions and the lower end of the retail market. Local computer producers like Inlaks Computers and Brian Integrated Systems assemble PCs from low-cost imported parts, for instance. In recent years these firms have begun to look into building their own tablets and smartphones as well, in order to keep up with the market.

Indeed, smartphone penetration in Nigeria has jumped considerably in recent years. As of mid-2016 some 30% of Nigerian mobile subscribers owned a smartphone, according to data from the domestic research firm Africa Infotech Consulting. This figure roughly coincides with the results of a survey carried out in early 2015 by the US-based Pew Research Centre, which showed that around 28% of Nigerians owned a smartphone, with ownership concentrated among younger, wealthier and more highly educated nationals.

In recent years a number of firms have worked to develop a low-cost smartphone to launch in Nigeria, where Apple and Samsung products are too expensive for many locals. The local manufacturer Solo, which was launched in 2013 by a Nigerian entrepreneur, sells a number of sub-$200 models, which have proven popular in the local market. A variety of major Chinese manufacturers like Transsion and Huawei have also introduced low-cost handsets in Nigeria in recent years.

OUTLOOK: Despite facing many challenges, most local players are broadly optimistic about the future of Nigeria’s technology industry. The rapid uptake of mobile data subscriptions over the past few years, plus the steadily rising number of smart-phone handsets in circulation indicate significant unmet demand for digital products and services.

The nation’s small but rapidly expanding indigenous ICT segment has developed a range of services tailored to the specific needs of this new domestic market, including digital streaming platforms that host large amounts of African content and online marketplaces that sell locally made products. Supporting ICT innovation and entrepreneurship has become a central component of the government’s technology development strategy in recent years to improve the county’s productiveness and efficiency (see analysis). “Investment in ICT often has a trickle down effect to other sectors of the economy, with broader gains in efficiency and productivity,” Olusola Teniola, CEO of IS Internet Solutions, told OBG.

More broadly, Nigeria’s large and increasingly sophisticated market for ICT products and services – it is home to Africa’s largest population and is arguably its largest economy – will likely drive technology sector development and the broader economy in the years to come. “The Nigerian government has shown an active interest in increasing the role ICT plays in the economy and supporting efforts to raise its contribution to GDP,” Frank Li, managing director of Huawei Nigeria, told OBG.