Building a digital Nigeria

An Economist Intelligence Unit report
Building a digital Nigeria
Commissioned by

1 © The Economist Intelligence Unit Limited 2016
Contents
About this research 2
Executive summary 3
Chapter 1: Towards a digital Nigeria 5
Chapter 2: A networked Nigeria 7
Mapping Nigeria’s digital infrastructure 7
FMCG case study 9
Digital financial services case study 10
Chapter 3: Democratising digital 11
Chapter 4: Comparative case studies 15
Conclusions and recommendations 19

Building a digital Nigeria is an Economist Intelligence Unit
report. The findings are based on desk research, interviews and
fieldwork in Nigeria conducted by The Economist Intelligence
Unit. The research was sponsored by Accenture. The
Economist Intelligence Unit would like to thank the following
interviewees who participated in the interview programme:
l Juliet Ehimuan Chiazor, Nigeria Country Manager, Google
l Sacha Poignonnec, co-CEO, Africa Internet Group
l Tim Hatt, Research Director, GSMA
l Russell Southwood, CEO, Balancing Act Africa
l Akanksha Sharma, Senior Analyst at GSMA
l Kenechi Okeleke, Senior Analyst at GSMA
l Jason Njoku, Founder, irokotv
In addition to qualitative interviews, this report is informed by
data from the Nigerian Communications Commission, Ericsson,
the United Nations, the African Development Bank, KPMG,
the World Economic Forum and Nigerian media reports. The
Economist Intelligence Unit bears sole responsibility for the
content of this report. The findings and views expressed in
the report do not necessarily reflect the views of the sponsor.
Eleanor Whitehead and Michael Martins were the authors. The
editor was Adam Green.
About this
research

With a GDP of $568 billion, Nigeria is Africa’s
biggest economy. Home to more than 180 million
people1
, it is also the continent’s most populous
nation. Economic liberalisation has drawn
investors from across the world, and the non-oil
sector is growing at a healthy clip.
Digital technology is helping to drive growth
in promising non-oil sectors, from media and
entertainment to finance and fast-moving
consumer goods. But while access to mobile
and internet has increased steadily, it remains
unequal. Low-income citizens, and those
dwelling in rural and semi-urban regions,
struggle to access these increasingly powerful
services.
Improved access depends on Nigeria’s underlying
‘digital infrastructure’, which is affected by both
sector-specific trends, and broader economic
and political headwinds. This report, based on
desk research and expert interviews, examines
the role of digital in Nigeria’s current growth and
the state - and future prospects - of its digital
infrastructure.
Key findings
Digital technology is essential for Nigeria’s
economic diversification. Access to internet
and mobile has improved markedly over the last
Executive
summary
decade, helping drive non-oil GDP growth. The
creative industries, financial services, fast-
moving consumer goods and leisure have all
benefited from digital. However, the country is
still overly reliant on oil for public revenues and
export earnings, and poverty rates are stubbornly
high, suggesting the economic transformation
has further to go. The current low oil prices lend
further urgency to the issue. Digital technology
could play an enabling role in increasing
access to government services like health and
education, improving financial inclusion through
mobile money, and helping businesses overcome
infrastructure deficits.
Nigeria faces a widening ‘digital divide’.
Regulatory and physical challenges hamper
digital infrastructure in rural and semi-urban
regions, causing a widening digital divide. While
access to mobile and internet is increasing, this
is largely among wealthier users with multiple
devices and SIM cards, and is clustered in urban
regions. Digital infrastructure, and thus access
to internet, computing and mobile, lags in
rural regions. Complex and costly regulatory
frameworks, geographical challenges, poor
‘connective’ infrastructure like roads and power,
and sabotage (such as theft and vandalism) are
main obstacles.
In an era of low oil prices, the ICT sector is an
important source of revenue for government:
1
World Population
Prospects, United Nations
2015

transparency and consistency are essential
to balance fiscal needs with sector growth
and investment. A fall in oil prices has led the
current Nigerian government to seek a wider
revenue base, including the ICT sector. While
this is understandable, and a broader tax base
is beneficial for the country, there is a need for
dialogue between regulators and ICT firms. A
transparent and consistent fiscal regime will
ensure capital investment grows.

Towards a digital Nigeria1
With a GDP of $568 billion, Nigeria is Africa’s
biggest economy. Home to over 180 million
people2
, it is also the continent’s most populous
nation. Over 17 years of civilian rule, its
democracy has consolidated, culminating in a
peaceful transfer of power in 2015 - against the
predictions of many observers.
Economic liberalisation has drawn investors from
across the world attracted by the country’s vast
market - not just its oil3
. In fact, over the past
decade average GDP growth rates of around 7%
were driven not by oil, the major export, but by
the non-oil sector4
. The most recent data suggest
that services account for 57% of GDP, in part
thanks to growth in ICT5
. The sector grew 7.7% in
the third quarter of 2015 (above overall growth
which slowed to 4.7% in the same period)6
. And
the National Communications Commission (NCC)
estimated that telecoms contributed up to 10%
to economic output in 2015, with the potential to
increase to 25% by 20507
.
Yet oil remains a commodity on which the
government relies – it still accounts for about two
thirds of public revenue and almost all export
earnings. Oil prices have halved since the new
government came to power last May, sending
income for the third quarter of 2015 plummeting
by almost 30% relative to the same period the
year before. Foreign reserves have dwindled by
$9 billion in 18 months, and the stock market is
down by half from its peak in 2014.
Combine this with broader economic challenges
- the high rates of poverty, and a widening
gap between the wealthy and the poor - and
Nigeria’s need to diversify its economy becomes
clearer still. “Now, more than ever, there’s an
understanding that we can’t continue to rely
on oil,” says Juliet Ehimuan Chiazor, Google’s
country manager for Nigeria. “Technology will
play a key role in enhancing human dignity and
lifting people out of poverty. That is big on the
agenda of the current government.”
Digital technology is key in this regard: it helps
businesses “leapfrog” poor roads and rail
networks and connects consumers to markets.
Internet access creates work, brings financial
services to unbanked populations and allows
governments to provide health and education
services online. A 2010 study commissioned by
Ericsson, a communications company, found
that for every 10 percentage point increase in
broadband penetration, GDP increases by 1%.8
The government recognises the need to reorient
its economy and the role of ICT and digital
technology in that process, and the ruling All
Progressives Congress (APC) views the current
prolonged period of lower oil prices as an
2
World Population Prospects,
United Nations 2015
3
Nigeria Data Portal
4
African Development Bank,
Nigeria Economic Outlook
5
African Development Bank,
Nigeria Economic Outlook
6
Nigerian Telecommunications
Sector Summary Report, Q3
2015. National Bureau of
Statistics
7
“NCC: Telecoms Will Surpass
25% Contribution to GDP
by 2025”, This Day Live, 2
November 2015
8
Ericsson, Arthur D. Little
and Chalmers University of
Technology data, September
2011

opportunity to restructure the economy. Its
budget for 2016 makes ambitious projections
for revenues from the “non-oil sector” (mostly
coming from taxation). ICT can play a major role in
that transition. However, digital technology can
only go as far as the underlying infrastructures
that enable it to function. This report
evaluates the current state of Nigeria’s digital
infrastructure, and makes recommendations
to help widen access to digital for all Nigeria’s
citizens.

A networked Nigeria2
In the past decade, Nigeria has become the
largest telecoms market in Africa, and its biggest
internet user. Last year, the ICT ministry claimed
that Nigeria accounts for 29% of internet use on
the continent.9
“At the moment we have about 97
million internet users in Nigeria. In 2012 it was
about 28 million, so it has really escalated,” notes
Google’s Ms Ehimuan Chiazor.
In part, internet expansion has been driven by
falling costs of mobile handsets. Of the 43% of
Nigerians that use the internet, the majority do
so through their mobile devices.10
“A lot of new
[phone] models coming out are below $150 and
increasingly below $100 [so] the cost as a share
of income continues to decline,” according to
Tim Hatt, research director at GSMA, the mobile
industry association.
Sacha Poignonnec, the co-CEO of Africa Internet
Group, which runs a suite of e-commerce
companies including Jumia, an Amazon
equivalent, agrees: “Nigeria does better than
other African countries in terms of access to
cheap handsets,” he says, citing experienced
distributors, and predictable customs and VAT
regimes as reasons. “Without that, it doesn’t
matter if you have the best 4G in the world,
because no one will log on.”
Nigeria is connected to the Internet by 5
submarine cables, all of which land in Lagos,11
providing upwards of 11 terabytes of bandwidth
per second, much higher than many other West
African countries, although only between 10
and 20% of this capacity is actually used. This
gap reflects the lack of necessary surrounding
digital infrastructures like fibre optic cable and
base transceiver stations (BTS). There is also a
divide between near-absent fixed-wire and more
prevalent wireless broadband uptake.
The submarine cables connect to a network
of fibre-optic cables. As of 2012, there were
around 41,000 kilometers of terrestrial and
aerial fibre-optic cables, although the majority
are duplicated or triplicated cables along the
routes connecting Lagos, Abuja, and Port
Harcourt. The network carries internet traffic
to and from the landing point to the ‘last mile’
infrastructure, namely fixed-wire broadband
that homes and businesses access, or to the
base transceiver stations that provide mobile
broadband via microwave radio waves.
Mapping Nigeria’s digital infrastructure9
“Nigeria Now Uses 29% of
Africa’s Internet Access”,
This Day Live, 18 May 2015
10
International
Telecommunications Union
11
The cables are the South
Atlantic 3-West Africa
Submarine Cable (SAT-3/
WASC), the Main One Cable,
the Glo-1 Cable, the West
Africa Cable System (WACS),
and the African Coast to
Europe (ACE) cable.

valued at $3 billion, but undermined by pirates,
who copy the movies and sell them mostly
through street hawkers. Mr Njoku, who recently
completed a financing round of $19 million,
believes that video-on-demand can increase
the global reach of Nigerian film – and make the
industry more profitable. “Inside Nigeria, if all
the people with smartphones actually use them,
I think it’ll completely revolutionise Nollywood
and content distribution,” he says.
E-commerce is another booming sector emerging
thanks to digital. Nigeria is the biggest
e-commerce market in Africa, valued at $550
million a year.12
Among the major players is
Mr Poignonnec’s Africa Internet Group, which
operates in 23 nations with services as diverse as
Hello Food, an online takeaway service, Lamudi,
a property listing site, and Easy Taxi, a taxi app.
“We find that consumers are very open to
e-commerce and new ways of accessing products,
so penetration is growing faster than in other
markets,” he argues. “When all our markets are
at equal maturity, we believe Nigeria will account
for a quarter of our business.” With the UN
predicting 17 Nigerian cities with over a million
people by 2025, the demographic drivers of
e-commerce are favourable.13
While the declining
price of oil threatens an economic downturn,
consumers tend to maintain purchases of FMCGs
like foodstuffs, and forego luxury items.
User costs have fallen too. Since the telecoms
sector began liberalising in the early 2000s, the
four major providers (MTN, Globacom, Etisalat
and Airtel) have spent billions of dollars on
terrestrial fibre and 2G and 3G base stations. As
mobile connections become more accessible,
data costs have fallen. “Five years ago, internet
was expensive. I remember it costing $30-40
for a bundle,” recalls Jason Njoku, the founder
of irokotv, an online distributor of ‘Nollywood’
movies. “Those similar bundles are now down to
$4-6. So it’s come down quite considerably.”
Driving the non-oil sector
This rise in access to digital infrastructure has
attracted multinational investors including
Google, Microsoft and IBM, and stimulated a
dynamic local market of ICT providers and digital
businesses. Globacom, the only indigenous firm
among the four major telecoms providers, is
among the country’s most successful examples
of the former, netting revenues of billions of
dollars. Of the latter, companies from media to
human resources and leisure are all building their
business on digital technology. One example is
Mr Njoku’s irokotv, dubbed the “Netflix of Africa”,
which is trying to formalise the distribution of
Nigerian films.
By volume, Nollywood churns out more movies
than any other film industry but Bollywood. It is
The overall retail outlook for Nigeria is
optimistic. Retail sales have grown from $83.5
billion in 2010 to $124bn in 2015, and the EIU
forecasts the sector to reach $184.5 by 2019.
As digitally savvy consumers increasingly
demand ‘omni-channel’ (online and offline)
searching and buying options, retail companies
are looking to the role that digital could play in
their business model. High ICT penetration in
urban centres (especially Lagos) also indicates
potential for more digital-enabled consumer
trade.
Jumia and Konga are two big online consumer
retail players, competing for market share
with huge advertising campaigns. Retailers
and telecoms providers are also teaming up; a
2014 deal between MTN and Shoprite allowed
customers to purchase air time and data bundles
while shopping at Shoprite stores. Among
diversified online retailers, there is an ambition
to widen their retail activity to potentially
include more FMCG activity. In 2015, Jumia
incorporated over 150% more SME retailers and
doubled the number of products available on
its online marketplace.14
Digitalcasestudy: FMCGs,toyourdoor(sometimes)
14
KPMG, Sector Report:
Fast-Moving Consumer
Goods in Africa
12
“Nigeria’s E-Commerce
Sector to Grow to N2.5tn
by 2018”, This Day Live, 10
June 2015
13
KPMG, Sector Report:
Fast-Moving Consumer
Goods in Africa

15
Nigerian Central Bank and
Grameen Foundation data
16
Consultative Group to
Assist the Poor
17
“Nigeria: GLO Launches
National Mobile Health
Insurance Product”, The
Guardian (Nigeria), 29 April
2015
More experimental companies are moving
to online-based FMCG transactions, giving
customers web-based purchasing, and delivering
to their door on the same day. Hello Food offers
meal delivery, in partnership with various
brands including KFC. Its delivery motorcycles
can be seen dodging traffic in the more affluent
parts of Lagos. Gloo.ng, Nigeria’s largest online
supermarket, offers free same-day supermarket
goods delivery in parts of the commercial
capital, offering a plethora of services including
one-click cart additions and price comparisons.
Gloo.ng seeks to appeal to customers by
saving them time, and helping them avoid the
problem of limited formal retail outlets. Its
cash-on-delivery model is also favoured by many
consumers who remain reluctant to pay online.
Online retailers like Jumia, too, allow customers
to pay this way.
However, digital-driven FMCG – with customers
making purchases online, and taking delivery
from couriers and motorbikes – are only
feasible in the more developed urban spaces.
A dispersed population with patchy electricity
and road access poses challenges for the sector,
especially because retailers need the steady flow
of consumers only typical in urban areas. Yet the
success of India’s Dabbawal sector, which sees
millions of cooked meals delivered to Indians
every day, suggests food delivery could flourish
even in areas of patchy infrastructure.
In Nigeria, service provision is mixed with
reports of slow or non-delivery affecting
the ready-meal sector. As logistics networks
improve, online FMCG could flourish – and
the experience of India shows that poor
infrastructure need not prevent delivery of
perishable foodstuffs in an efficient way. But
service quality needs to improve: delays to
durable goods delivery are less of a worry than
slow delivery of perishable foods and FMCG.
In financial services, consumers can now pick
from a widening array of mobile money offerings,
including Paga, which lets users send cash and
pay bills using their phones. Another mobile
money offering comes from Funds and Electronic
Transfer Solutions (FETS) which focuses on the
firm-side by serving as a payment platform for
retail and corporate distribution networks. To
improve transparency and cut down on bribery
and theft, it provides a web portal through which
firms can settle their accounts and get real-time
access to settlement data. FETS was given a
further boost by the central bank’s decision to go
‘cashless’, by penalising large cash transactions in
an effort to move them online. It now processes
billions of naira payments each month.15
Government services are increasingly being
delivered through DFS as well. A mobile wallet
system created by the previous government
administration allows up to 8 million farmers
to subsidise the cost of their fertiliser by up to
50%16
. Globacom partners with the National
Health Insurance Scheme to provide mobile
insurance to its customers by remitting premiums
through the subscriber’s mobile phone.17

Nigeria’s digital financial services (DFS)
sector took root in 2009, following regulatory
reforms. The Central Bank of Nigeria has been
actively championing the benefits of a ‘cashless’
economy since then, through more e-payment
systems and platforms.
By 2011, the first mobile money licenses were
issued; 2012 brought the ‘first wave’ of DFS
through ‘mobile wallets’, bill payments, air
time, CCT and cash transfers. By 2013, services
were expanding into salary payments, savings
products and remittances and by 2013 products
emerged on the market for retail activity, ATM
withdrawals, health and insurance (including
micro-insurance). Airtel, Etisalat, Globacom
and MTN have all partnered with banks in non-
exclusive agreements to pursue DFS.
But DFS – especially in the private sector - is
still limited mostly to the already banked
population. Even among them, there is some
reluctance to go ‘cashless’. DFS providers such
as Pagatech and eTranzact show signs of growth,
but customer numbers are low in relation to
Nigeria’s population.
Fraudulent activities, both on the customer and
staff side, are one worry for DFS providers. A
second problem is more limited services in rural
regions, and especially in the north, partly due
to worries about terrorism financing, partly due
to weak surrounding infrastructure.18
Research in 2014 by the Helix Institute, a
collaborative venture between the Bill and
Melinda Gates Foundation, the UN and the
International Finance Corporation (IFC), argued
that technologies like provider platforms and
USSD channels were not reliable enough to
inspire market confidence, and agent networks
for managing DFS were far too small.19
A further limitation to DFS is weak
infrastructure. Inadequate capital outlays
on the part of mobile network operators,
inadequate power and road infrastructure,
lack of customer awareness of DFS (especially
among lower income customers) and limited
interoperability and interconnectivity among
networks are other structural obstacles facing
the industry.
Inadequate power supply is a particularly
serious problem for the FS sector: when
systems go down, it can jeopardise real-time
transactional activities (for instance, ‘crashes’
in the middle of a transaction, leading users to
be unsure if the transaction has successfully
completed). It can lead agents to conduct
offline transactions, where they collect
customer’s cash and conduct transactions later
when the system is available – which is risky
for customers as it can be abused by dishonest
agents. Point-of-sale systems remain faulty,
with regular card declines, so customers still
carry considerable sums of cash to pay at
supermarket and restaurants. For the vast
majority of the population, cash is still king.
Clearly, digital innovation can only go as far as
the underlying infrastructure allows.
Digital financial services: Untapped potential
18
European Investment
Bank, “Digital Financial
Services in Africa: Beyond
the Kenyan Success Story”,
December 2014
19
Helix Institute

While digital has clearly helped Nigeria’s
economic diversification, its fruits are unevenly
distributed. Large swathes of the population
are struggling to access the benefits of digital
technology in an affordable way, and national
data on digital usage, when disaggregated by
income levels and geographies, shows significant
inequalities.
Fixed-wired broadband, which is faster than
wireless mobile broadband, is much more
expensive, costing approximately $896.40
annually, or about 16% of $5,710, the average
GNI per capita.20
For the 53.5% of the population
that lives on $1.90 or less, a month’s cost equates
to roughly 10% of their annual income. According
to the Nigerian Communications Commission
(NCC), there were only 186,772 fixed wire
subscribers, or less than 1% of the population as
of November 2015.
Secondly, data imply more ICT usage than is
the case. Mobile penetration, measured as the
number of active mobile subscriptions, is roughly
87.5%, but on a unique subscriber basis, actual
usage is approximately 30%. This is due to the
practice of ‘multi-SIMing’ (the typical Nigerian
mobile phone user has 2.4 SIMs), where users’
phones house multiple SIM cards from different
operators to arbitrage price differentials and
guard against downed networks.
Democratising digital3
The urban-rural divide is large. Nigeria’s
population is split roughly in half between
those in cities and those in rural settings.
Mobile coverage is much lower in the latter, at
around 15% in 2013, according to the National
Broadband Plan, compared to roughly 50%
in urban areas, according to McKinsey Global
Institute. Access and ownership of digital
technologies also differ. McKinsey estimates that
99% of urbanites have access to a mobile device,
compared to roughly 70% of rural dwellers,
according to GSMA. The divide holds for the south
compared to the north of the country as well. The
south is more urban and affluent, and has higher
mobile and internet device ownership and access
rates compared to the north.
A huge proportion of Nigeria’s population
thus remains unconnected. A 2013 study
commissioned by Google found that 25% of rural
citizens did not have mobile coverage, and had to
travel up to 10km to get it. Subscribers continue
to experience quality difficulties such as dropped
calls, or unpredictable internet connections.
And although both data and handset costs have
fallen, they still remain beyond the means of
many.
Building out digital infrastructure
There are logistical and commercial reasons
why access to digital is more constrained in
20
Data sources are World
Economic Forum, NCC, GSMA
and McKinsey

semi-urban and rural regions. Operational and
capital costs are high. People are dispersed
with sparsely populated villages located far
apart. Consumers have lower disposable income
and are more exposed to external shocks like
failed harvests and droughts, making them a
less lucrative customer base. The geographical
terrain is difficult to build on, and lacks key
auxiliary infrastructures like roads and electricity
making maintenance difficult; a concern given
low availability of skilled technicians and high
levels of theft, destruction, and vandalism.
Collectively, mobile operators report over 70
cuts a month to their nationwide fibre networks.
Russell Southwood, CEO of telecoms consultancy
Balancing Act Africa, said: “Many of these cuts
are due to uncoordinated road construction or
deliberate damage, in the mistaken belief that
fibre cable is more valuable copper wiring, or
to deliberately disadvantage one player over
another.”
A lack of reliable electricity is another challenge
for rural ICT infrastructure. Each base transceiver
station (BTS) is often powered by a diesel
generator with a backup in case the first one fails
or is stolen. Fuel usage eats into the profitability
of operators’ networks, and according to ATCON,
can make up to 80% of an operator’s operational
costs, compared to 5% in Malawi where power
from the grid is steadier.21
During an acute fuel
shortage in 2015, mobile networks began cutting
out when operators could no longer access
diesel. These blackouts also undermine the use
of smartphones, Mr Poignonnec notes. “The key
enabler will be the power. The broadband and
logistics can be overcome, but if you don’t have
power, and people can’t plug their phone to
charge, then it’s nothing.”
Enhancing digital policy
Building Nigeria-wide digital infrastructure will
rely in part on measures taken by government.
The NCC has done a relatively good job of
fostering a competitive marketplace for
mobile operators over recent years. Important
achievements include number porting, which
makes network switching easier, and differential
interconnect rates, which let smaller operators
pay lower fees to larger operators when
terminating a call on the latter’s network, to
allow new and smaller operators to compete.22
Targets for 95% mobile broadband national
coverage by 2020 are good lodestars. However,
there are problems with the current policy and
regulatory system which are hampering the
expansion of digital infrastructure across the
country.
1. Duplicative and overlapping
licensing
To grow into new geographies, telecoms
operators need approval not just from the NCC,
the national regulator, but also from state, local
and communal governments, and environmental
and town planning agencies. Telecoms providers
complain about multiple taxation by local, state
and federal governments, and engagement with
multiple regulators is cumbersome. Some efforts
are underway to solve the problem. The ‘Smart
States’ initiative sought to remove arbitrary
charges and eliminate multiple taxation regimes.
So far, only Lagos state has achieved meaningful
success, reducing right of way (RoW) charges by
85%, from 3,000 to 500 naira per metre. RoW
charges and local taxes and levies can make up
almost 70% of the cost of rolling out telecoms
infrastructure in some states.23
2. Unrealistic regulatory standards
Over recent years, the NCC has imposed
performance standards benchmarks on telecoms
companies, such as increased QoS requirements,
notably introducing a less than 1% drop call
requirement, which is the number of calls
prematurely terminated before being released
normally by either party, divided by the total
number of call attempts. It has also exacted
heavy service quality fines, notably the October
2015 $5.2 billion levied against MTN, roughly
double MTN’s annual profits in 2014 (although
the fine was later reduced to $3.4 billion).
21
Memorandum on
QoS, Association of
Telecommunications
Companies of Nigeria
22
Determination of voice
interconnection rates 2013,
NCC
23
“Nigeria: FG Partners
Anambra On ‘Smart State’
Initiative”, The Guardian
(Nigeria), August 2014

While the regulator has the right - and mandate
- to maintain high standards, it may be dis-
incentivising companies from embarking on
rural, low income regions where such quality
standards seem hard to attain. The QoS threshold
may prove too high for the very rural areas that
the government wants telecoms companies to
expand into. Critics also claim that fines may be
motivated by budgetary pressures.24
The NCC is
funded by the central government, whose budget
has shrunk due to the falling price of oil.25
Either
way, punitive measures may steer firms away
from providing infrastructure to poorer, rural
areas where the QoS - and profits - are going to
be lower. Mr Hatt of GSMA says: “the high level
principle for regulation should not be a punitive
approach of one-off hits or high taxes, but a
climate that encourages long term investment
and innovation in networks, mobile internet, and
digital service access.”
A second regulation affecting rural infrastructure
is the ban on telecoms firms from taking a mobile
money operator (MMO) role, a rule determined by
the Central Bank. Mobile operators have become
less than helpful as a result, providing the over
20 licensed MMOs the platform for transactions,
but charging a fee (N12) for every usage. MMOs
have shifted this onto consumers, and for many
poor consumers, which represent the majority of
unbanked Nigerians, this fee, in addition to the
MMO’s transaction fee, proves too large a hurdle.
This is especially the case among poorer rural
citizens who are also, due to the lack of brick-
and-mortar banks, the most in need of digital
financial services.
Balancing regulation and market forces is a
delicate task involving compromise on all sides,
according to Akanksha Sharma, Senior Analyst at
GSMA: “While regulations on coverage expansion
and expectations for Quality of Service are
important in ensuring high quality services for
consumers, getting a right balance is important
to avoid delays in the implementation of an
operator’s expansion and upgrade plans.”
3. Governance ‘headwinds’
The third obstacle constraining digital
penetration across Nigeria is the broader fiscal
challenge facing Nigeria’s government. To hold
the currency at current levels despite falling
oil prices, Nigeria’s central bank has enforced
currency trading controls and limited access to
foreign exchange. Multinationals complain that
dollar shortages are making it impossible to remit
local earnings to their home jurisdictions. And
investors who foresee inevitable devaluation
have held off projects fearing that their value will
be undermined. In the near term, this is likely to
limit infrastructural spend by telecoms operators.
Due to low oil prices, the government sees the
ICT sector as a source of tax revenue. Last year,
president Muhammadu Buhari tasked his cabinet
with increasing its earnings from the sector, as
internet penetration, smartphone subscriptions,
and online transactions increase.26
Adebayo Shittu, Nigeria’s communications
minister, has said publicly: “I see ICT as
something Nigeria can tap into to regain
the huge finances we have lost in the past in
petroleum resources”27
. Some experts believe
the high costs of RoW licenses are “because a
lot of states see it as an opportunity to generate
internal revenue,” Ms Ehimuan Chiazor says.
Clearly, the government must ensure its approach
to taxing ICT is consistent and transparent, and
its need for public revenue is entirely legitimate.
The question is whether it can increase revenue-
raising without deterring capital investment.
Kenechi Okeleke, Senior Analyst at GSMA,
says: “The lack of a clear taxation framework
leaves telecoms operators exposed to arbitrary
fees by the lower tiers of government and
local communities, many of which are facing
increasing financial pressure due to declining oil
prices.”
Telecoms firms are easy targets because they do
not have public support behind them (operating
in difficult environments can undermine
24
“MTN sees $5.2bn
Nigerian fine reduced by a
third”, BBC, December 2015
25
National Communications
Commission
26
“Buhari to ministry:
Develop ICT revenue
potential”, The Nation,
August 2015
27
“Shittu Unveils Nigerian
Communications Industry
Roadmap”, IT Telecom Digest

the quality of service provided, an issue for
populations where pre-paid internet access can
make up a significant proportion of disposable
income) and because they are perceived to be
rich.
The second broader issue is whether the
government is facing ‘reform fatigue’ which
puts digital regulatory issues low down the
list of priorities. President Buhari has been
focused primarily on anti-corruption measures
so far - much needed in a country with such
a poor record on graft. But it does limit how
much attention gets focused on day -to-day
policy affairs. According to Russell Southwood:
“it sometimes seems like anti-corruption is all
that is happening. The business of government
developing and implementing its digital strategy
has all but come to a halt.”

The digital infrastructure challenges faced
by Nigeria are not unique. Indeed, many are
common ‘growing pains’ faced by all emerging
markets at particular points in their ICT
maturation curve. Both private operators, and
regulators, can look to a multitude of experiences
in other countries and continents for ideas,
practices, and comparative perspectives.
Comparative case studies4
Sharing infrastructure can be a highly effective
means of enticing private operators to enter
lower income regions where returns on
investments are not sufficient to attract the
private sector. There are two main forms of
supply-side infrastructure sharing:
l Intra-sectoral: Telecommunications
operators share assets (e.g. base transceiver
stations).
l Passive infrastructure: Building
telecommunications networks (e.g. fibreoptic
cables) into new infrastructures such as
buildings, roads and railways.
Intrasectoral approaches has been pursued
in Madagascar, which experimented with
shared towers, in which a communications
tower tender was given to a consortium of
operators federated around an infrastructure
company to which operators contributed funds
and purchases services. Shared broadband
backbone is a second approach, taken in
Burundi, where mobile and internet operators
formed a private company to operate the
national backbone as a wholesaler, helped by a
national subsidy to ensure national coverage.28
Infrastructure sharing
28
Making ICTs Affordable
in Rural Areas, World
Bank Group presentation,
Commonwealth
Telecommunications
Organisation Forum, Dhaka
Bangladesh, 2014.

l Azerbaijan’s government used oil revenue to
invest in digital infrastructure in rural regions,
but this brought challenges in terms of fiscal
sustainability when oil prices fell
l Infrastructure-sharing in rural areas can be
a cost-effective way to overcome poor return
on investment, but service quality is inevitably
lower.
Azerbaijan’s economy bears similarities with
Nigeria - they are both oil-rich emerging
markets, with an urban-rural digital divide.
Oil comprises 75% of Azerbaijan’s government
revenues and 95% of exports29
and mobile
penetration, like Nigeria, is split along urban
and rural lines. Roughly 54% of the population
is urban, with a mobile penetration rate of 141%
versus the 46% of rural dwellers, who have a
69% mobile penetration rate.30
Using oil revenues, the Azerbaijan government
made sizeable investments in the digital
network. Coverage is high, at around 99%
for mobile network and 61% for internet.31
Two state-linked companies, Delta Telecom
and Azertelecom, using funds from the State
Oil Fund of Azerbaijan (SOFAZ), operate
the country’s fibreoptic network, while two
government-owned internet service providers,
Bakinter.NET and Aztelekom have the largest
market shares.32
Specific digital infrastructure investments
include a $38 million 2013 fibre optic network
expansion and $130 million broadband
expansion led by Aztelekom, in conjunction
with SOFAZ.33
Indeed, SOFAZ transfers to the
national budget increased by 93.7% between
2007 and 2014.34
These expansions support
official targets; the national regulator wants
85% internet penetration by 2017 and a higher
quality broadband provision of 10 Mb/second in
all areas.
However, the declining price of oil has stalled
the government’s ability to expand broadband
internet access further, as SOFAZ funds have
now been diverted from digital infrastructure
expansion to budget consolidation.35
The oil
price collapse shows that funding infrastructure
from oil revenues can bear fruits only when
prices are high, but stall when prices fall.
Blended funding models, perhaps with donor
assistance, may prove more sustainable in oil-
dependent economies.
A second lesson from the Azerbaijan experience
is quality of service challenges. In Azerbaijan’s
rural regions, there is a high degree of
infrastructure sharing, where companies share
existing assets like base transceiver stations.36
This increases coverage, but service quality lags.
Low RoI coupled with bandwidth access fees
mean that while coverage is good, companies
have limited profit margins to invest in improved
quality of service.37
Azerbaijan: Oil-funded digital infrastructure
29
Reuters, “Azeri SOCAR
says oil price fall halves
revenue”, September 2015.
30
GSMA, “Mobile for
Development Impact:
Azerbaijan”
31
GSMA, “Mobile for
Development Impact:
Azerbaijan”; Freedom
House, “Azerbaijan: 2015”
32
UNESCAP, “An In-Depth
Study of Broadband
Infrastructure in North and
Central Asia: January 2014”
33
Study of Broadband
Infrastructure in North
and Central Asia: January
2014” ; The World Bank,
“Accelerating the Growth
of High-Speed Internet
Services in Azerbaijan”
34
The State Oil Fund of
Azerbaijan, “Annual Report:
2014”
35
Freedom House,
“Azerbaijan: 2015”
36
Study of Broadband
Infrastructure in North and
Central Asia: January 2014”
37
Open Net Initiative,
“Azerbaijan”

l A competitive market, proactive regulation
and infrastructure-sharing have helped
Bahrain’s digital infrastructure penetration
l Increased online activity has led to political
challenges, as the government increasingly
cracked down on online activism following the
2011 uprisings.
Bahrain is among the Arab world’s most digitally
connected nations, with a high penetration of
mobile cellular and broadband internet and
low prices. Wireless coverage extends to over
95% of the country, driven by fast service,
package bundling, and low prices. Bahrain
punches above its economic weight in the World
Economic Forum’s Network Readiness Index,
beating wealthier nations like Spain, Saudi
Arabia and Italy. By the end of 2013, 82% of
households in Bahrain had internet access while
more than 90% had computers. Internet access
is also widely available at schools, universities,
malls and coffee shops.
In part, good access to ICT is thanks to a
competitive market. Batelco, the incumbent,
faces competition from Zain (licensed in 2003)
and Viva (licensed in 2009). The internet
services market is also competitive and foreign
investment is welcomed in ICT.
A second enabler has been the regular
publication of proactive digital strategies
and reviews. The second National
Telecommunication Plan published in 2008
sought to nurture competition and improve
the investment climate in telecommunications
and the third, in 2013, identified measures
to strengthen Bahrain’s ICT competitiveness.
The regulator has been active in reviewing the
state of the industry to deal with emerging
challenges, such as revoking inactive licenses
and dealing with incumbents. In 2009, the TRA
fined Batelco for limiting access to submarine
cables - making it the first telecoms authority
in the Gulf Cooperation Council to rule against
an incumbent operator.38
More and more
players have entered the market, and by 2013,
there were 20 active telecoms and internet
companies.
Specific policies have also helped. A closer
collaboration between telecommunications,
transport and construction is one effective
means of improving digital infrastructure
access (for instance, internet cables can be
deployed at the same time as highways or
roads are constructed). Morocco has taken this
approach, through a collaboration between a
telecommunications operator and the national
railway company, and in Bahrain operators
and construction companies cooperate by
publishing information about new projects,
space for telecommunications equipment,
and technical requirements, and coordinating
deployment activities and network sharing. As
Nigeria develops its transport infrastructures,
similar tie-ups with digital infrastructure
companies could bear fruit.
However, while Bahrain has achieved a high
level of ICT access from a technical standpoint,
this has brought challenges in the political
domain. Since the uprisings of 2011, the
government has cracked down on internet
activism targeting bloggers and internet users,
blocking sites and censoring. The internet
crackdown shows that access to digital is
not just dependent on technology, but on
governance too.39
Bahrain’s competitive marketplace
38
“Bahrain’s mature
telecoms market sees
growth from data demand”,
Oxford Business Group,
2015
39
“Bahrain Country Report”,
Freedom on the Net,
Freedom House 2012.

Key takeaways
l While Bangladesh has achieved high levels
of mobile broadband coverage, access to
handsets is expensive. An innovative small
scale programme, called Infoladies, helps bring
‘rented’ ICT services to remote areas.
l Botswana’s citizens have high levels of mobile
telephone ownership but face among the
world’s highest mobile internet tariffs. Kitsong
centres bring public internet access to rural
Batswana that are least connected.
Bangladesh and Botswana face opposite digital
access problems, but have found a common
solution. In Bangladesh, mobile broadband
coverage is high thanks to a competitive market,
but handsets are too expensive. In Botswana,
on the other hand, mobile phone ownership
is high - the problem is the tariffs. Yet both
countries are experimenting with solutions to
improve access to ICTs, whatever the source of
the problem.
Bangladesh’s mobile market, home to six
operators, is highly competitive. Mobile tariffs
are among the world’s lowest, but so too is the
average revenue per user (ARPU).40
Two thirds
of the population live in rural villages that lack
ICT access because of regular power outages,
frequent flooding, and high levels of poverty.41
Luckily, 2G mobile broadband covers 99% of the
population and 89.5% of the country, so the key
barrier is access to mobile handsets.42
Only 6.3%
of Bangladeshis have access to the internet,
90% of which is done through a mobile.43
With
43.7% of the population living on less than
$1.90 a day, a mobile phone is unaffordable for
many.44
Given this context, a Bangladeshi NGO called
D.net, has ‘frugally innovated’. D.net, through
a program called Infoladies, brought digital
accessibility to the local level. Infoladies are
women that ride bicycles between rural villages
carrying internet-enabled laptops and mobile
phones to provide digital services to villagers
who would otherwise be unable to afford access.
Their services are cheap. A five-minute Skype
call costs $0.07 and mobile calls cost $0.04 per
minute.45
Many female villagers call their male
relatives who are often working in the Middle
East, where international calls from most fixed
or mobile phones cost about $0.35 per minute,
roughly 7 times more expensive. Less affluent
rural dwellers can also avoid paying up to $3.83
for a SIM card in this way. The success of the
project has spawned international replicas in
Latin America and Africa.46
Botswana faced different problems but arrived
at a similar ‘rental’ solution. As one of the
world’s most sparsely populated countries, with
rural electrification rates of around 10% and
among the world’s highest mobile and fixed
broadband tariffs, the digital divide between
city and village is stark.47
Only 9% of Batswana
use the internet regularly, and the majority are
urbanites.
The Botswana Government, in a public-private
partnership with two of the country’s three
mobile operators, Mascom and BTC, created the
Kitsong centre program to bridge the digital
divide. Rather than building base transceiver
stations or laying more fibre optic cable, Kitsong
centres, which act as information offices for
rural villagers and businesses, are leased to
local entrepreneurs on a franchise basis. Run out
of 197 Botswana Post offices, Kitsong centres
provide villagers with access to computers, fax
machines, and the internet. Batswana are also
able to engage with their government in a more
transparent and efficient fashion. The facilities
can handle passport applications, and birth
certificate and school registrations.
‘Renting digital’ in rural areas: Bangladesh and
Botswana
40
World Economic Forum,
“Network Readiness Index:
Mobile Cellular Tariffs”;
GSMA, “Digital Inclusion
and Mobile Sector Taxation
in Bangladesh”
41
Intel, “Infoladies Make
the Connection”, 2009.
42
in Bangladesh”
43
in Bangladesh”
44
World Bank, “World
Development Indicators:
Bangladesh”
45
Intel, “Infoladies Make
the Connection”
46
Al Jazeera, “Infoladies
bring change to rural
Bangladesh”, August 2014.
47
World Economic Forum,
“Network Readiness Index:
Botswana”

Nigeria’s government has notched many
achievements in improving access to internet and
mobile over the last decade. Telecommunications
companies have prospered in a market written
off in previous decades. Thriving new sectors
have sprung forth, from on-demand film
to e-commerce, fuelled entirely by digital
technology. The next stage is widening digital
infrastructure into semi-urban rural regions,
and making internet and mobile accessible
to more citizens. To do both, the underlying
infrastructure is the essential driver of success.
New commercial models can play their part. One
way of improving access to ICTs is infrastructure-
sharing, notes Google’s Ms Ehimuan Chiazor.
“Traditionally, we have had a situation where each
provider was laying end-to end-infrastructure,
which is expensive. That cost gets passed on
to the end user,” she says. That is changing.
Telecoms groups have been selling their cable
and tower networks, along with responsibility
for maintenance, security, and expansion
to underserved areas, to third party towers
companies like IHS Towers and American Tower.28
These tower companies, or ‘TowerCos’, can then
pool these assets and lease the consolidated
networks back to the mobile operators.
“Tower companies’ main mode of entry has
been to buy up existing infrastructure, which
is mostly in urban areas. When buying up that
infrastructure, many of the operators have built
into the agreements the requirement that the
tower companies must extend coverage to where
they do not already have service. For TowerCos
this gives them the potential to get multiple
tenants because these areas are ones that offer
no quality service,” according to Mr Okeleke.
However, rural infrastructure investment is a
tough sell. Difficult geographies, low income
consumers, theft and sabotage and the lack of
auxiliary infrastructures like roads and power
are all deterrents to capital investment. Thus the
government remains a key player, and must seek
to strike the right regulatory balance. Bargains
must be struck to encourage investment into new
regions and bring down the costs of accessing
internet and mobile, while also ensuring the
government’s rightful share of the proceeds, at a
time when public revenue is eroding.
In a welcome move, communications minister
Abdul-Raheem Adebayo Shittu recently said
to over 400 stakeholders at the inaugural
Communications Sector Retreat: “To our private
sector infrastructure partners, we recognise
many of the challenges you currently face. We are
accessible. We make you this pledge, to listen to
those critical issues and challenges.” Coming in
late January 2016, it is too early to know if the
Conclusion and
recommendations
28
“IHS pays $2bn to buy
MTN telecoms towers”,
Financial Times, September
2014

words will be backed by action, but the intent is
laudable.
In recognition of the enabling role that digital
technology is playing, the government could
consider several steps for encouraging greater
capital investment in the underlying enabling
infrastructures.
l Raising more government revenue from the
ICT sector is understandable, but fiscal measures
- whether taxes, levies or fines - should be
transparent and consistent, to avoid deterring
longer term investment planning.
l More transparent, better coordinated fiscal
regimes across tiers of government would promote
investment by internet service providers and
telecoms operators across broader geographies.
l Power generation and distribution must be
expanded in rural regions, which would have
both direct beneficial effects on citizens’ access
to power, and reduce the reliance of providers on
expensive generators, helping the business case for
investment.
l Allowing the currency to devalue, in accordance
with market forces, will reassure investors and
unlock further expenditure on broadband and
mobile networks.
l Government may need to consider more lenient
Quality of Service rules in difficult terrain.
Digital technology has played an essential
role in Nigeria’s non-oil economic growth.
The government has taken crucial steps, from
cashless banking to its broader competition
policy, to support deepening access to internet
and mobile. But the low hanging fruit, of more
affluent consumers, and densely populated urban
regions, has now been plucked. To advance,
Nigeria now needs to address the widening
digital divide: both between rich and poor
citizens, and between cities and rural regions.
Putting in place the enabling policy framework
could encourage greater capital investment
in Nigeria’s digital infrastructure, helping
the country’s economic diversification and
prosperity.

While every effort has been taken to verify the
accuracy of this information, The Economist
Intelligence Unit Ltd. cannot accept any
responsibility or liability for reliance by any person
on this report or any of the information, opinions
or conclusions set out in this report.

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