ETISALAT, BUSINESS AND RECESSION

The CBN should assist the telecom sector by opening up the forex window, writes Joseph Nwandu

TELECOM INDUSTRY HAS FAR REACHING IMPACT ON THE ECONOMY, DRIVING THE FINANCIAL SERVICES, EDUCATION AND HEALTHCARE

In the last few months, Etisalat Nigeria has been in negotiations with its bankers over a $1.2 billion credit facility it took in 2013. The company is hopeful that both parties would come to an amicable resolution. However, the telecom company’s experience shows how vulnerable big business is in a recession and under unstable macroeconomic environments. It took the loan at a time the exchange rate was officially at N197 to a dollar. Three years later in 2016 the naira had crashed by over 100 per cent, yet the facility has to be paid back in dollars. That is the company’s challenge to raise more naira to buy dollar and repay the loan, a reason it defaulted.

As the fifth entrant into the GSM space in Nigeria, Etisalat Nigeria came in to meet a market where the odds were stacked heavily against it, paying $400 million to acquire the Unified Access License (UAL), which offered it a mobile licence and spectrum in the GSM 1800 and 900 Mega Hertz (MHz). The risk of a late entrant into a market involves doing everything else at twice the cost. Nigerians received the network enthusiastically. In less than six years, it has secured over 18 million subscribers. The need to expand and modernise its network became acute to ensure that high service quality was delivered to the customers.

Nigeria’s economy contracted by -1.5 per cent in 2016 as it slipped into a crippling recession that saw inflation figures rise double digits to 18 per cent and commodity prices were hiked by over 50 per cent. Telecommunication equipment and invisibles for instance were excluded from the Retail Dutch Auction System in the last quarter of 2016, forcing the companies to scramble to purchase foreign exchange at rates almost twice the market rate. This hindered the ease of doing business in the sector.

The telecommunication sector is highly capital intensive, and investors crave an environment that affords them the opportunity to secure reasonable returns in order to drive further investment. From the standpoint of securing much - needed foreign investment and protecting Nigerian shareholders in the company, this calls for deeper regulatory intervention.

A high volume of foreign exchange (forex) is required as most transactions are forex – denominated, including payments to equipment suppliers and foreign vendors for services that are not available locally. This has hindered the ease of doing business and materially driven up operational costs. The CBN can do more to support the industry by quickly opening up the FX window to include the telecom sector, equipment and invisibles such that operators too, not just the few earlier mentioned sectors have access to the 60% FX available from banks for allocation.

While the company is currently facing challenges, there is no doubt that its board and management have delivered good result in terms of network technology and ingraining the brand through various projects that have touched lives. The board and management of the company deployed technology and money in a huge attempt to catch up and maintain a comfortable presence in the industry, at a time margins had dropped and competition had become stiff.

Its investment in technology paid off as, barely six months into operations in Nigeria, the Nigerian Communications Commission (NCC) pronounced Etisalat Nigeria’s best network based on quality of service indices. In November 2012, Etisalat again received another award from the NCC for excellent customer service. There were many more, including the most innovative corporate social responsibility company. In 2013, the Etisalat Prize for Literature was created and is the first ever pan-African prize celebrating first-time African writers of published fiction books. Awarded annually, the prize aims to serve as a platform for the discovery of new creative talent out of the continent and invariably promote the burgeoning publishing industry in Africa. The winner receives a cash prize of £15,000 in addition to a fellowship at the University of East Anglia.

The mobile telephony provider appears to have a soft spot for the art industry as evident from its sponsorship of art festivals, competitions and art related talent hunt show across the nation.

They have partnered the African Artists’ Foundation (AAF), Lagos photo exhibition to promote Nigeria’s rich cultural heritage through the power of photography. They extended the sponsorship to the amateur photographic competition which afforded the wider population including children an opportunity to use their cameras and phones to record images of large and vibrant country. Also, they have sponsored talent hunt TV show running on television stations called Nigerian Idols.

For the Nigerian economy, clearly a viable resolution is one that keeps the company in business, resolves all the issues and the company repays the loans to creditors. Big companies employ many people and have wider economic linkages, which is why all over the world governments play an active role in keeping them in business.

Nigeria has over 83 million unique subscribers, accounting for 45 per cent of the population. Telecom industry has far reaching impact on the economy, driving the financial services, education and healthcare. The market is still viable, so government and regulators need to intervene to ensure the survival of Etisalat, as indeed big companies that face economic shocks. Nwandu wrote from Abuja