Local Content Policy Development in the Telecommunications Sector is a research paper co-authored by Dr. Ebinimi Tebepah and Clement Inyambe. This paper was published in the African Wireless Communications yearbook by Kadium Publishers (United Kingdom) in 2009. It is a research work that examines the increasing impact of the Telecoms sector on Nigeria’s economy and calls for a deliberate policy to address indigenous technological capacity development.

Abstract
Purpose – the purpose of this paper is to provide the need for the development of a Local Content Policy Development in Nigeria, which is one of the fastest growing telecommunications market in the World.
 

Design/Methodology/Approach – the paper is basically based on secondary research.
 

Findings – the Paper finds that although Nigeria has benefited enormously from this sector in terms of huge growth in terms of subscribers’ base, earnings to the government, increase in GDP, teledensity, and increase in foreign direct investments into the sector, its understanding of the technological dimension of the industry appears to be low. What happens if suddenly foreign companies operating in the sector disengages, what implication will this have for the telecommunications sector? In order to avoid the pitfalls of the oil industry reoccurring in the telecommunication sector, a conscious policy attention is in development of human skills and technological competences to fill in the gaps in the sector. This will tend to prevent the negative trend (low indigenous technological capabilities) as evident in the oil industry from occurring in the telecommunication sector.
 

Research limitation/implications – the paper has a lack of sufficient analysis of what the local content policy should entail
 

Practical Implications - the paper highlights the importance of having a local content development policy to enable developing countries such as Nigeria to understand the dynamics of technological development in the telecommunications sector.
 

Originality/Value – this paper brings about local content policy development in Nigeria which has been absent.
 

Keywords – Telecommunications sector, Local Content Policy, Oil Industry, Nigeria
 

Paper type – Secondary Research
 

Introduction
Nigeria is located in the West African Region of the African Continent and shares land borders with the Republic of Benin in the West, Chad and Cameroon in the eastern part, and the Niger Republic in the North. Its coast lies on the Gulf of Guinea, a part of the Atlantic Ocean, in the south (Wikipedia 2009). On the first of October, 1960, Nigeria got its independence from its colonial master, the United Kingdom and it became a republic three years later (Ojo, 1998).

With a population of over One Hundred and Forty Million People (140,000,000) according the 2006 Census Figures (Federal Republic of Nigeria Official Gazette, 2009), Nigeria has a land mass of over 900,000 square kilometres and is considered to be the most populous country in Africa and accounts for over half the population of West African Sub region. Considered to be the hub of exploration and exploitation of hydrocarbons, it has been the largest producer of crude oil in Africa with over 2.5-2.6 million barrels of crude oil being produced daily, and belongs to the league of top ten (10) producers of crude oil in the world. Nigeria is also noted to be the fastest growing telecommunications market in the African continent (Tell Magazine, October, 2007), with private investment of over $11 billion (US) for 2008 (see table 2).

The Telecommunications in Nigeria has witnessed unprecedented growth particularly from 2001 to date. With the full liberalisation of the sector, several Digital Mobile Operators, Fixed Wireless Access Operators, Internet Service Providers and a Second National Carrier were granted licenses to operate by the Nigerian Communications Commission (NCC) which is the regulatory body for this sector (NCC’s Annual Report and Accounts, 2006). This sector has witnessed huge growth in terms of the subscribers’ base, earnings to the government, increase in GDP, teledensity, and increase in foreign direct investments into the sector.

Although Nigeria has benefited enormously from this sector in the above named period, its understanding of the technological dimension of the industry appears to be low. What happens if suddenly foreign companies operating in the sector disengages, what implication will this have for the telecommunications sector? The oil industry represents one sector where the formulation of a local content policy was ignored over the years, and in spite of several decades of the contribution of the sector to the growth of the national economy no significant indigenous technological contribution can be noticed in the total production process.

In order to avoid the pitfalls of the oil industry reoccurring in the telecommunications sector, a conscious policy attention is in development of human skills and technological competences to fill in the gaps in the sector. This will tend to prevent the negative trend (low indigenous technological capabilities) as evident in the oil industry from occurring in the telecommunications sector. This paper therefore considers the development of a local content policy in the telecommunications sector.

The paper is divided into four sections. Sections 1 examines the history of telecommunications in Nigeria while section 2 looks at the trends in the telecommunications industry. Section 3 provides a general overview of the oil industry and finally, section 4 gives the recommendation for the development of a local content policy.

History of Telecommunications in Nigeria
The history of telecommunications in Nigeria can be classified in three eras- colonial, pre revolution (1960-1999) and the Revolutionary phase (2000- to date). In the colonial era, facilities of telecommunication in Nigeria were first established in 1886 and according to the National Telecommunications Policy (2000), the concepts of telecommunication during this era were purely for administrative functions as against the provision of socioeconomic development.

In the pre revolution era, several key developments occurred in the Nigerian Telecommunication sector. Between 1960 and 1985, the sector consisted of the department of Posts and Telecommunications (P&T) which administers internal network and the Nigerian External Telecommunications (NET) responsible for external services (National Telecommunications Policy, 2000). These were split to form the Postal Division and Nigerian Telecommunications Limited (NITEL) . In 1992, the Nigerian Communications Commission (NCC) was established by Decree 75 (Nigerian Communications Act, 2003). This serves as the regulatory body for the telecommunications sector with the following main objectives: creating a regulatory environment to facilitate the supply of telecommunications services and facilities; facilitating the entry of private entrepreneurs into the telecommunications market; and promoting fair competition and efficient market conduct among all players in the industry.

In 1999, a draft copy of the National Policy on Telecommunications was approved by the government of Olusegun Obasanjo, the former president of Nigeria and was officially launched in October 1999. Its overriding objective was to achieve the modernisation and rapid expansion of the telecommunications network and services to enhance national economic and social development based on affordability, efficiency, reliability and availability to all .

The year 2000 recorded a remarkable growth in the Nigerian Telecommunication industry. With the total liberalisation of the sector by the government, the NCC licensed several Digital Mobile Operators, Fixed Wireless Access Operators, Internet Service Providers and a Second National Carrier, ensuring competition in every segment of the sector (NCC, Annual Reports and Account, 2006). It is further important to note that during the four decades between independence and the end of 2000, an average of only 10,000 lines were added per annum compared to 5 million lines per annum after that period (NCC, Annual Report and Accounts, 2005).

 

Growth in Telecommunication Sector - Revolutionary Phase

The phenomenal growth in Nigeria’s telecommunication sector during the past eight years call for urgent policy measures for the purpose of leaving a positive technological imprint for present and future generations. In a world where economies are largely becoming knowledge driven, the sector bears huge promises of becoming a leading sector in Nigeria’s economy. The telecoms sector is largely technology driven, with new technologies being introduced at an increasing pace.  This would appear to have a potential danger for countries such as Nigeria with comparative technological skills disadvantage. It will therefore suggest that external dominance (companies from the developed world) in this sector may not abate in any foreseeable future if nothing is done to transform this situation.

The oil industry (see the section 3 of this paper), for instance, represents one sector where the formulation of a local content policy was ignored over the years, and in spite of several decades of the contribution of the sector to the growth of the national economy no significant indigenous technological contribution can be noticed in the total production process. The reason for this could be the absence of a conscious and deliberate policy framework necessary to inculcate skills in Nigerians. The question then is: what happens in the event that foreign companies disengage from the oil sector? This could be the fate of the telecommunications sector if no proactive measures are put in place.

In such a scenario as stated above, a local content policy for the telecommunications sector is therefore encouraged to serve as a framework for a deliberate build up of reservoir of indigenous technological capabilities. This strategy should aim at building capacities and competences in low, medium and high technologies in the telecommunications sector in order for indigenous companies of Nigeria to embark on producing equipment, accessories hard and soft wares, and even engage in competition at the international markets in the future. At the moment, there appears to be the dominance of foreign companies in areas such as equipment manufacturing and software development in the telecommunications industry (see table 1).

Table 1: Assessment of Local Content in the Telecommunications Industry

Supplier Category

Location

Market Assessment

Equipment Manufacturers

Foreign

Such equipment are sourced internationally and suppliers are used for installation. Companies such as Alcatel, Siemens, Huawei are used. According to an operator in the Niger Delta Region,  because of the restiveness, Nigerians are being trained to carry out installations in these areas

Software Providers

Foreign

Operators depend on foreign suppliers

Financial Institutions

Foreign and Local

The telecommunication industry is considered lucrative in terms of both cash flow and return on investments. Since it is highly capital intensive,  and with the consolidation by local banks in Nigeria, operators are now involving Nigerian banks as well as their foreign counterparts to finance the deployment of communications infrastructure

Auxiliary Services (Consultancy and Audit)

Local

These services are readily carried out by local companies.

Some Telecommunications Operators in Nigeria and Vendors

 

M-Tel

MTN

GLO

CELTEL

Transmission System/ Network Management System

Ericsson, Motorola, ZTE

Ericsson, DMC, Stratex

Alcatel

Motorola

Billing System

NA

Protek-Flagship/ HP

Schlumberger

EPPIX

No of Switches as at December, 2006

NA

40

NA

20

Switching System

Ericsson

 

Alcatel

Ericsson

Source: Assessment of Structure and Level of Competition in Nigeria’s Telecom’s Market, 2008 (an Unpublished Study by NCC)

A similar scenario can be observed in the Location of R&D facilities of companies involved in the Telecommunications industry. Most companies invests heavily on R&D to have competitive advantage over their rivals and as indicated in table 2, Nokia, Finland appears to have been dominant in terms of investment in R&D 2007/2008. An interesting observation from table 2 is the lack of R&D facilities of any of these companies being located in Nigeria (see table 2).

Table 2 Information and Communications Technology-Selected Companies in R&D Investment (Relevant Companies in 2007/2008)

Companies

R&D Investment (2007/2008) British Pounds Sterling (Million)

Growth over last year (%)

Location of R&D facility in Nigeria

Nokia, Finland

3858.81

42

Nil

Intel, USA

2891.09

-2

Nil

Alcatel-Lucent, France

2473.74

69

Nil

Cisco Systems, USA

2260.12

11

Nil

Motorola. USA

2224.96

8

Nil

Ericsson, Sweden

2138.11

2

Nil

Hitachi, Japan

1855.09

2

Nil

Hewlett-Packard, USA

1814.03

1

Nil

Toshiba, Japan

1771.68

6

Nil

NEC, Japan

1504.81

16

Nil

Source: http://www.innovation.gov.uk/rd_scoreboard/; modified by the authors

Examining the trends in the Nigerian telecommunication market will confirm the huge potentials available, if the necessary policies from the supply side are put in place. Most achievements in the sector so far are from the demand side . The area of supply of telecoms infrastructures, skills and technical know-how is yet to witness any significant local participation. Key indicators showing the unprecedented growth in the sector include the following - high subscriber base, excellent penetration rate, teledensity, private investments, market shares, contribution to the growth rate of GDP, employment generation, increase in government revenue, and other social benefits (Nigerian Telecom Industry Report, 2000-2003).

In terms of the subscriber base, according to table 3, from less than 500,000 lines before 2001, the industry has experienced one of the highest subscriber growth rates in Africa standing currently at about 56 million lines for both Mobile and fixed telephones. The trend is very commendable – from slightly above 2m in 2002 to over 4m in 2003 and 10m in 2004 (see table 3).

Furthermore, the teledensity (number of people in 100 with telephones) rose from just 0.45 in 1999 to 0.51 in 2000 and from 0.73 in 2001 to 1.89 in 2002. From 2003, 2004 and 2005 the teledensity was 3.35, 8.50 and 16.27 (See table 3).

Another remarkable milestone recorded in the industry as noted in table 1 has been the surge in foreign direct investments. From just $50million investment flow in 1999, it rose to $2.1billion in 2002. Others are - $4billion and $6billion in 2003 and 2004 respectively. In 2005, 2006, 2007 and 2008 private investments rose to 7.5, 8.5, 11.5 and 12 US billion dollars respectively (see table 3).

The revenue profile of the government has been highly boosted by the telecommunications sector during the past eight years. As against the era of subsidising the sector to the tune of billions of naira (Official Currency of Nigeria) every year in the past under NITEL, the government has made huge revenues. For instance, the licensing fee paid by Operators – MTN, CELTEL and MTEL in 2001 amounted to $285m each; GLO Mobile paid a fee of $200m, while in recent times, a 5th Mobile license was awarded to Mudala Development Company, an investment company owned by the United Arab Emirate for $400m (Tell Magazine, October, 2007).  Government has also generated revenue from taxes, levies, import duties, VAT and other permits and charges (NCC, Annual Report and Accounts, 2006).

Table 3: The Nigerian Telecoms Sector

 

Dec 1999

Dec 2002

Dec 2003

Dec 2004

Dec 2005

Dec 2006

Dec 2007

Sept 2008

Number of Connected Fixed Lines

450,000

702,000

850,000

1,120,000

1,223,258

1,563,028

*1,579,664

*1,239,382

Number of Connected Digital Mobile Lines (GSM)

None

1,594,179

3,100,000

9,200,000

18,587,000

32,184,861

*40,011,296

*51,710,456

Number of Connected Digital Mobile Lines (CDMA)

None

None

None

None

None

138,924

*384,315

*4,125,826

Teledensity

0.45

1.89

3.35

8.50

16.27

24.18

29.98

38.08

Private Investment

$50m USD

$2.100B USD

$4.000B USD (est.)

$6.080B USD (est.)

$7.500B USD (est.)

$8.500B USD (est.)

$11.500B USD (est.)

$12.000B USD (est.)

* Active Subscribers
Source: Economic Analysis and Corporate Planning, Nigerian Communications Commission

Apart from revenues to government, the telecommunications sector has also contributed immensely to generating employment for Nigerians. More than one million jobs have been created in direct and indirect employment according to the Nigerian Communications Commission. Handset hawkers, accessories dealers, phone trouble shooters and call centres are found in every corner of the streets and business districts contributing greatly to service accessibility.

On account of these increased activities in the sector, the percentage contribution of telecommunications to the growth of the Gross Domestic Product (GDP) has increased (see figure 1). Its positive impact on other sectors like Banking, Oil and Gas, Manufacturing, Commercial, Transport, Health, Security, etc have not only added value, but significantly raise the efficiency levels of their operations (Assessment of the Level of Competition in the Nigerian Telecommunications Industry, 2005). In other words, every facet of the Nigerian society has been positively impacted upon by the telecommunications sector.

Figures 1 Percentage Contribution of Telecommunications sector to GDP (1999-2006)
 gdp-contribution
Source: NBS National Accounts of Nigeria (1999-2006)

However, in spite of these positive developments in the sector, much is left to be desired. The area as indicated earlier in this paper requiring conscious policy attention is in development of human skills and technological competences to fill in the gaps in the sector. This will tend to prevent the negative trend (low indigenous technological capabilities) as evident in the oil industry from occurring in the telecommunication sector. The next section of the paper provides a broad overview of the oil industry with a view to demonstrate the for and the role of a local content policy in on otherwise predominantly foreign-based industry


Overview of the Oil Industry
Although the oil activities in Nigeria dates back to the early 1900s, with the first major oil exploratory work being conducted by a German Company, the Nigerian Bitumen Corporation (Atsegbua, 1999) its discovery in commercial quantity occurred in 1956 in the Oloibiri province of present Bayelsa State in the exotic fresh water swamp and mangrove forest of the Niger Delta, which is claimed to be one of the largest in the world (Onosode, 1998). Commercial crude production was to follow in 1958 in the aforementioned area of Bayelsa State. Since then, there appears to be a significant shift in government’s attitude from other sectors such as Agriculture and Manufacturing in favour of the oil sector (Tebepah, 2005). The government’s dependence on this sector for its foreign exchange can be observed in table 4. Oil exports as a percent of total exports by Nigeria rose from 10.8% in 1963 to 89.4% fifteen years later. Interestily, this figure has never fallen below 90% thereafter (see table 4). The contribution of the oil sector to the revenue base of Nigeria was lowest in 1963 with just over 10 million naira (=N=). This could be attributed to the dominance of the agricultural sector at that particular point in time. A closer scrutiny of table 4 indicates that the contribution of this sector to the Nigerian economy has never fallen since then as it has consistently risen and in 2007 its contribution was over 6 trillion naira to the revenue base of the government.

Table 4: Growth of Nigeria’s Oil Export and Revenue 1963-2007 (selected years)

Year

Crude Oil Revenue (=N= million)

Oil Exports as % of Total Exports

1963

10

10.8

1970

167

57.6

1973

1,016

83.1

1978

4,556

89.4

1983

7,253

96.0

1988

20,934

91.2

1993

106,192

97.5

1998

289,532

95.4

2001
2003
2005
2007

1,340,000
2,074,300
4,762,400
6,700,000

97.1
96.0
95.0

Sources: Computed from IMF International Financial Statistics Yearbook;
BP Statistical Review of World Energy (various years);
Oil Inspectorate, Nigeria National Petroleum Corporation (NNPC)

With the success recorded in the commercial discovery and production of crude oil in the late fifties, there was an entry of several Multinational Oil Companies from different parts of the world. As this sector became more strategic in terms of the economic development of the country, it became imperative for Nigeria to belong to the Oil Cartel, Organisation of Oil Exporting Countries (OPEC) – (Organisation of Oil Exporting Countries, 2009) and this was achieved in 1971.

In a reversal of policy by the Government which hitherto was interested only in collection of royalties and provision of regulatory frameworks, sought to reduce the dominance of Multinational Corporation by the acquisition of equity shares from foreign Multinational Companies through its state owned Oil Corporation, the Nigerian National Oil and Corporation (NNOC), which was to become the Nigerian National Oil Corporation in 1977. See table 5.

Table 5: Government’s Participation in Major Oil Companies in Nigeria

Companies

Government Participation (%)

Date of Acquisition

Shell-BP

35

April 1973

55

April 1974

60

July 1979

Shell*

80

August 1979

60

June 1989

55

August 1993

Mobil

55

April 1974

60

July 1979

Gulf (Chevron)

55

April 1974

60

July 1979

Agip/Philips

33.33

September 1971

55

April 1974

60

July 1979

Safrap (Elf)

35

April 1971