GDP: Shrinking consumer wallet could have contributed to slower telecoms growth

GDP: Shrinking consumer wallet could have contributed to slower telecoms growth

Ayobami Omale, a Research Analyst at Tellimer Research, discloses to Nairametrics that the reduced Telecoms GDP growth rate in the recent GDP report from 17.64% in Q4 2020 to 7.69% in Q1 2021 could be partly a factor of shrinking consumer wallets as the disposable income of Nigerians has been under intense pressure and could have influenced activities in the telecommunication sector.

The National Bureau of Statistics recently reported that Nigeria’s Gross Domestic Product grew by 0.51% (year-on-year) in real terms in the first quarter of 2021.

The information and Communication Sector grew at a real-term pace of 6.31% year over year. Compared to the rate reported in the equivalent period of 2020, there was a decline of 1.18% points. In real terms, the sector contracted by 14.80% in the first quarter.

READ: $32 billion invested in Telecoms in the past 5 years – NCC

The industry contributed 14.91% to aggregate real GDP in Q1 2021, more than in the same quarter of the previous year in which it was 14.07%, but lower than the previous quarter’s figure of 15.06%.

Nigeria’s telecoms sector, which falls under Information, constitutes about 11.66% of real GDP and grew at a rate of 7.69%, the slowest since the first quarter of 2018 when it grew at just 1.88%, compared to 17.36% and 17.64% in Q3 and Q4 2020 respectively.

The drop in new SIM card sales which happened during the quarter due to restrictions on registering new SIM cards on individuals who have not obtained their National identity Number(NIN), may have also contributed to the drop in telecoms growth.

READ: Foreign portfolio investments in Nigeria drops by 77.4% in Q1 2021

Nairametrics reported earlier this month that the four major telco players in Nigeria lost a total of 11.8 million customers since the implementation of NIN-SIM card policy by the federal government in December 2020.

When asked about the impact of the NIN-SIM registration policy on telecoms growth in Q1 2021, Omale had this to say:

“The earnings result of the two listed Telecom players – MTN and Airtel does not corroborate this assumption. MTN Nigeria for instance increased service revenue by 17.2% as subscribers increased usage of existing SIM cards. Airtel also grew revenue by 12.0%.”

READ: GDP: Agriculture sector grows by 2.28% in Q1 2021

She added that a possible explanation for this is that people are restricted to using the existing SIMs instead of getting new ones, noting that the growth in 2020 was strongly driven by the COVID-19 pandemic and the impact on our way of life.

Other factors that may have contributed to the slowdown in telecoms GDP growth rate

According to Omale, “Another factor that could have contributed to this is shrinking consumer wallet.

The disposable income of Nigerians has been under intense pressure and could have influenced activities in the Telecommunication Sector. However, I strongly believe that the high base effect from 2020 is the biggest factor.”

She urged that SIM registration can go on simultaneously with SIM sales, as stakeholders agencies will just require that SIM card be sold to only individuals with NIN.

“To make that possible, proper integration of the Telcos, NCC and NIN database is very important – which should have been the first step,” she added.

READ: African cities with the highest internet speeds in Q1 2021

Bottomline

The telecoms sector growth of 15.9% in full-year 2020 from 11.41% in 2019, may have been an outlier due to COVID-19 affecting people’s way of life, as more people spent more time working from home, and spending more on home internet entertainment to deal with the boredom. The restriction on SIM card sales and shrinking consumer wallets are contributing factors, which should be a worrying sign for the FG considering that consumers, who are heavily beset with the high food inflation problem, may have less to spend on the telecoms and other sectors.

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