Improving access: The federal government focuses on extending broadband

Transforming Nigeria into a knowledge-based economy is the centre of the government’s policy on information and communications technology (ICT). There is much optimism about the sector’s ability to drive socioeconomic change in the country and growth across economic sectors, but how to achieve this and where to direct the state’s efforts and revenues has been the focus of much debate over the past few years.

IMPETUS: The current impetus for the nationwide expansion of broadband internet services has come from private firms in the mobile telecoms sector, encouraged to invest in infrastructure by the state regulator, the National Communications Commission (NCC). Their investments are aimed at improving mobile coverage, as well as increasing bandwidth to raise the speed of data access and lower the costs of internet connections. This in turn should push up the currently low internet penetration rate, which is estimated at approximately 23.4%, according to data from the Ministry of Communication Technology (MCT). From around 400,000 fixed-line telephone lines in 1999 to 92m active mobile subscribers in 2012, the Nigerian market has seen rapid growth in its telecoms sector, which has had consequences for ICT development in the country. With the majority of the people now connected via mobiles, this will be the major platform for future broadband internet growth. According to the ICT draft policy report, mobile penetration stands at 56%, while fixed-line penetration is as low as 0.48%. In 2012 the number of internet users was estimated at 47m.

KEY CONTRIBUTOR: IT and telecoms are key economic drivers, contributing 5.67% to GDP by the end of the fourth quarter 2011, according to the National Bureau of Statistics. But access to internet services is still mainly the preserve of a minority of the population. Nigeria now has four submarine fibre-optic cables with up to 7.78 TB ps of capacity at its disposal. One of the challenges facing ICT development is extending capacity from the cable landing sites nationwide, given the high expenditures involved in laying fibre-optic cables.

In more general terms, the sector has also suffered from a lack of coordinated strategy, but this looks set to change. Following the April 2011 national elections, the MCT was established, and a new ICT policy has been drafted and is currently under discussion. MCT minister Omobola Johnson, a former managing director at a multinational consulting firm, has a background in telecoms and IT, which is widely regarded as an asset.

STRATEGY & STRUCTURE: More effective coordination between industry participants is the aim of the draft ICT policy (see analysis). According to the new plan, all ICT-related activity would be combined under one umbrella, including telecoms, IT, broadcasting and the postal sector. Universal access to broadband internet services is the primary goal, as well as developing local software capability. A new ICT Act is planned to provide the legislative framework to bring greater clarity to the sector. The draft policy is candid in its description of past structural difficulties. “Though there have been significant gains in the last decade, especially with regard to mobile telephony, the lack of industry convergence in the Nigerian ICT industries has resulted in fragmentation and inefficiency in the management of resources in the sector,” the document states.

More effective administration will be needed if the government is to start meeting its ambitious objectives.

Under the Vision 20:2020 economic development plan, ICT is seen as a means to bring about rapid growth and expand production in sectors such as agriculture, manufacturing and services. By 2015 it would like to see 50% of the workforce acquiring IT skills, with a target of 100% by 2020. Integrating e-government and e-education initiatives across all federal and state ministries, agencies, schools and universities is also part of the vision, with public services to be online by 2020.

ICT has formed part of government thinking since the country outlined its National Information Technology Policy to guide the sector in 2000. This was followed by the National Information Technology Development Agency (NITDA) Act in 2007. NITDA and the NCC along with the National Broadcasting Corporation (NBC), have been the primary government regulatory bodies and development agencies overseeing a sector that is now dominated by the mobile telephone market.

FUTURE GROWTH: Opportunities for foreign and domestic firms to provide IT services to the government and the private sector are increasing, as new products are sought. Data hosting centres and services is one market segment expected to see increasing interest over the coming years. “This is definitely a growth area,” Emmanuel Onyeje, the country manager at Microsoft, told OBG. “Virtually every telecoms operator is looking into data hosting centres. At Microsoft we would not directly host the data but provide software solutions to allow them to do so. An operator might come to us asking for specific tailored services to small and medium-sized enterprises (SMEs), for example.”

The IT industry is heading in the direction of cloud computing services, through which individuals or corporations access software via a web-based service that houses all the programmes they need. Remote servers, run by another firm, operate and manage all the data generated and the software programmes themselves. This allows for web-based sharing of resources, software and documents between government ministries or divisions of major multinational firms, for example.

“The financial services sector such as all the major private banks and the Central Bank of Nigeria (CBN) are particularly interested in cloud computing as a means of reducing costs by sharing services,” said Dele Akinsade, the director of developer platforms for West, East & Central Africa and Indian Ocean Islands at Microsoft. With the advent of mobile money software systems currently under development by the financial services sector, the need for improved data storage capacity and efficiency is a priority.

These systems allow subscribers to send and receive money via their mobile phones, make deposits, and pay utility bills and taxes. Effective data storage services are required to ensure the smooth running of this system and to maintain the public’s trust in it. The central bank has so far licensed 16 mobile money service providers, including banks and third-party payment firms such as eTranzact and Paga, and all of the major telecom operators have formed alliances with local banks to exploit this market segment.

PUBLIC SECTOR: In the public sector there are also a range of opportunities for software solutions. In September 2011 the CBN received a $510,000 grant from the US Trade and Development Agency to develop a shared disaster recovery centre for the central bank and 19 commercial banks. “The central bank is seeking an effective data storage centre, and financial services more generally will be one of the main drivers for data centres not just for banks but for stockbrokers, insurance firms and the stock exchange,” Rex Mafiana, the district manager for West Africa at NetApp, a US-based vendor for data management solutions, told OBG. “Most private SMEs host their email and data abroad, however, if you can provide hosting solutions that involve a more personal, face-to-face approach I think companies would prefer this rather than interacting with an offshore calling centre.”

In other areas of e-government, ministries are seeking to move their services online. For example, the Nigerian Immigration Service uses US-based SW Global to provide online registration for visa and passport services. The Independent National Electoral Commission is also proposing an electronic voting system in time for the next general elections in 2015.

As the IT sector evolves, there will undoubtedly be additional opportunities for data service provision for the public and private sector, which a number of local and international IT firms are already investigating. But others are less convinced that the sector has yet reached the level of maturity to allow local firms to offer the full array of IT services. “Data services is an area we are starting to look at, but I would not get involved with data hosting. There are too many challenges with power outages and security issues for a medium-sized firm to take the risk. It is also very capital-intensive,” Stanley Oduah, the chief operating officer of local internet service provider Cyberspace, told OBG. “The public sector may have the funds, but given the challenges in the Nigerian market, many local corporates find it cheaper to host their services abroad, and I don’t see Nigeria joining the cloud computing space in a meaningful way until connectivity improves.”

INFRASTRUCTURE: Indeed, connecting fibre-optic networks across the country tops the list of requirements for future IT development. There are now four submarine fibre-optic cables with up to 7.78 TB ps of capacity serving the country. In early May 2012 the newest, the West Africa Cable System (WACS), went operational. The consortium in charge of this newest cable link, which connections South and West Africa to Europe, is led by the South African firm MTN, the largest telecoms operator in Nigeria. Existing cables include the SAT-3 cable, operated by fixed-line state operator Nitel; the Glo1 cable, managed by local operator Globacom; and the submarine cable, operated by the Main One Cable Company. These cables have allowed for high-bandwidth services. But much of this capacity is centred around Lagos and the network that has been built so far has been along the length of the Lagos-to-Abuja spine. Extending terrestrial networks to other states is the next step, but the steep cost of laying fibre-optic cable has slowed progress. Stanley Jegede, the CEO of Phase 3 Telecom, told OBG, “One impediment to the roll-out of nationwide fibre is the lack of government funding. The private sector largely has to invest alone, which reduces the possibilities for less dense areas to be linked.” Right-of-way issues, security threats and sabotage are all factors inhibiting extension as well.

BUILDING A BACKBONE: Nevertheless, the country has set itself the goal of building a national fibre-optic backbone by 2015. Since 2006 state-run Galaxy Backbone has provided connectivity and internet access to all government and state ministries and agencies, as well as for e-education implementation. The firm is aiming to provide a variety of platforms for internet access, including fibre-optic cables, microwave radio and very-small-aperture-terminal (VSAT) systems to provide satellite internet services.

Given the difficulties with laying fibre-optic cables, satellite solutions are increasingly sought out as a means of delivering broadband internet services. In December 2011 the government approved the launch of the NigComSat-1R satellite, which provides telecoms, broadcast and navigational services. The satellite is operated by Nigerian Communications Satellite, a state-owned company that is part of the MCT.

In addition, telecoms operators are now investing heavily in expanding their networks under strong encouragement from the NCC. MTN will spend up to $1.4bn over 2012 in expanding its network. Other operators, including Globacom, Airtel, Etisalat and the code division multiple access (CDMA) operator Visafone, are also investing in modernising their networks and expanding capacity. Globacom is spending $6m on backhaul infrastructure and Airtel has been building 2000 new base stations across the country. Etisalat has signed a $118m contract to upgrade its 2G and 3G networks, and Visafone is spending $20m on expanding its broadband infrastructure in Lagos.

These combined investments in fibre optics and satellite technology should help spread access to broadband services across Nigeria. With a population of 164m people and a growing GDP per capita of $1545, the IT sector has a lot of potential in terms of local software and hardware development, but state support for these market segments is still in the early stages.

HARDWARE & SOFTWARE: Improved access to fixed-line broadband services could also boost demand for computers, according to Austin Okere, a group CEO for Computer Warehouse Group, an ICT-solutions provider. “The main driver for the acquisition of computers by the broader population will be broadband penetration,” he told OBG. The Nigerian market for personal computers (PCs) is already growing quite quickly, with the draft ICT plan projecting that it will expand at a rate of 21.5% per year between 2009 and 2014, with a significant shift to laptop sales. The hardware market is divided among several local original equipment manufacturers, such as Zinox and Omatek Computers, both based in Lagos, and multinational firms operating in Nigeria. Zinox is planning to commission a new digital plant in Lagos in 2012 that will serve the domestic and wider African export market, but it has not given details of expected annual capacity at the plant.

INCUBATORS: In the software market, foreign firms predominate, with 90% of software imported. The National Office for Technology Acquisition & Promotion has calculated that the country loses $1bn per year from software imports. The new ICT plan aims to develop a local software market, as MCT minister Johnson announced in January 2012. As part of this initiative, the government will invest N1bn ($6.2m) to create incubation centres across the country to spur the development of local software content.

So far most ICT incubators have been developed by the private sector. Two examples are the Co-creation Hub and the Institute for Venture Design (IVD). The former, a not-for-profit centre in Lagos, was set up by two Nigerian entrepreneurs, Femi Longe and Bosun Tijani, and has partnership agreements with Nokia, Google, BlackBerry and Main One Cable Company, among others. It gives technology firms, entrepreneurs, potential angel investors and government officials a space to exchange ideas with a view to creating start-ups. The IVD follows the same philosophy and is part of the FATE Foundation, a Lagos-based non-governmental organisation that develops entrepreneurial skills. FATE set up the institute in partnership with the Centre for Design Research at Stanford University.

Developing applications for mobile platforms is one area of expected growth. “Over the next five years as the telecoms market matures, operators will be looking for alternative sources of revenue. Data services is one area but applications has the potential to become a multibillion-dollar industry in the country. Both MTN and Etisalat are already looking into this segment. This in turn will drive start-ups to create local content,” Shina Oyetosho, a developer at Microsoft, told OBG.

BUILDING THE BASE: As yet, there has been no central location in the country that could act as a base for IT firms, however, moves are currently under way to create one. One option that has attracted much attention is the Abuja Technology Village (ATV), located in the capital city. The village will encourage research into not only IT, but the bio-technology and energy fields as well. Plans for this facility first emerged in 2005, but funding for the scheme was delayed during the onset of the global financial crisis. Currently between 55% and 60% of the funding for basic infrastructure is in place, and once the 70% target is reached, the Federal Capital Authority in Abuja, which is supporting the project, will seek a private developer to fund the remainder. ATV has already signed a letter of intent with US-based Cisco, and Microsoft is still in negotiations with the village over the extent of its involvement.

Despite the optimism coming from plans for future technology parks and creative centres, difficulties remain for Nigerian start-ups, not least their challenges in accessing credit. “The local banking system is still cautious, only offering loans with very stringent collateral obligations, sometimes worth much more than the loan you are trying to get,” Segun Bright, the managing director of THGIRB, a web development firm, told OBG. Bureaucracy is also a factor. “To process transactions, you have to partner with one of the money payment firms such as eTransact or Interswitch to get a merchant ID, but the whole procedure can take at least two months from start to finish,” Bright told OBG.

Nevertheless, Bright is of the opinion that there are opportunities emerging for e-commerce. “[ Lagos-based] Iroko Partners has developed several web brands that involve the digital distribution of film and videos. They fund many ‘Nollywood’ film directors and then get money back through advertising revenues,” he told OBG. Twinpine is another local firm that runs mobile internet advertising campaigns in Nigeria, Ghana and Kenya. With the government currently shifting a number of its services online, other segments that possess revenue-earning potential include car registration applications and payments, as well as a variety of other government-to-individual services.

OUTLOOK: While there are a number of opportunities to develop the Nigerian IT sector, the field is not without some challenges. These stem from the lack of connected terrestrial infrastructure, which is acting as an obstacle to growth. Unlike many other West African states, Nigeria is in the fortunate position of being served by four submarine cables with 7.78 TB ps of capacity, but the difficulty has been in making this capacity available to the population beyond the major cities of Lagos and Abuja. Over the medium term, this should change, given the significant investments being made in satellite technology and by telecoms operators in fibre-optic networks and base stations.

As the government shifts more of its services online, it is a favourable time for local IT firms to provide secure payment systems, general software solutions and data hosting services. Similarly, in the financial services sector, data hosting is increasingly being considered by local banks, stockbrokers and insurance firms.

In addition the mobile market, which is the main driver in the telecoms sector, will remain the platform through which the majority of Nigerians access broadband internet services in the future, whether via phones or other portable devices. The development of the mobile money industry not only has implications for telecoms companies, but also for the data storage possibilities it represents to IT firms. With an active ministry devoted to converging telecoms, broadcast and IT services, and a draft plan to guide future development, there is an expectation that the Nigerian IT sector will become one of the more dynamic markets in Africa.