Nigerian telecom operators are strategically preparing to confront another crunchy year as they navigate disturbing macroeconomic headwinds that have already resulted in significant losses for the sector.
The telcos, a major contributor to the country’s economy, are dealing with a range of issues, including volatile exchange rates and soaring inflation, which is currently at 34.6 per cent.
After nearly a year of urging the federal government to intervene to save the sector by approving a tariff hike, telcos have finally received approval, but it remains unlikely that this will be enough to overturn the back-to-back losses on their balance sheets.
While they implement the new tariff, analysts say operators must find ways to initiate talks with the regulator, Nigeria Communications, and the central bank to establish a stable exchange rate, the key conundrum that has eroded their profit margins.
The Director at Adaba Consult, a telecom consultancy firm, Ejikeme Onyeaso, told The PUNCH, “Foreign exchange volatility completely eroded profits, so the push for tariff increases became like a sing-song for the telcos.
“This year, telcos should prioritise engaging with the Nigeria Communications Commission, the Ministry of Finance, or the Central Bank of Nigeria to explore measures for stabilising foreign exchange rates,” Onyeaso added.
Nigeria’s economy, once valued at over $500bn and now below $200bn in a span of 10 years, remains beset by ongoing struggles, with several major corporations, including the telcos, experiencing substantial financial losses.
This has largely been a consequence of President Bola Tinubu’s decision to float the naira and eliminate fuel subsidies, both of which have exacerbated economic instability in the past 18 months.
The naira, now among the weakest-performing currencies in sub-Saharan Africa as highlighted by the World Bank’s latest Africa’s Pulse report, has further undermined business confidence and profitability.
The cost of importing essential telecom equipment, such as base stations, batteries, and other infrastructure, has increased due to the weakened naira.
Speaking on the 2025 outlook, MTN Nigeria CEO, Karl Toriola, said on Arise TV recently, “2024 was an exceptional year in terms of volatility.
“I don’t anticipate a repeat of that level of instability in 2025. We expect more stability as we move towards a freer and more market-driven foreign exchange system.”
For the nine months ending September 2024, the country’s biggest operator, MTN, reported a staggering after-tax loss of N514.9bn, driven primarily by significant foreign exchange losses and heightened economic volatility.
While Airtel Nigeria has yet to release its third-quarter 2024 results, its second-quarter report revealed a $31m profit after tax, tempered by $80m in forex and derivative losses.
Mobile money operators spent approximately N71.3bn monthly on diesel, amounting to N570bn in total expenses between January and August, according to The PUNCH analysis.
They also contended with substantial tax burdens. In 2023, the sector paid over N2.4tn in taxes, spread across nearly 50 distinct levies imposed by federal, state, and local authorities.
However, operators are banking on President Tinubu’s tax reforms to alleviate the longstanding tax burden.
MTN contributes over N200bn in Value Added Tax monthly, making it the largest contributor to the nation’s VAT pool.
The Chairman of the Association of Licensed Telecommunications Operators of Nigeria, Gbenga Adebayo, stated, “Our regulator has been significant in looking at the issue of multiple taxes.”
“For now, we will wait and see what the outcome will look like, and hopefully, some of our worries about multiple taxes will be addressed,” he told The PUNCH.