NIGERIA’S ECONOMIC GROWTH: THE IMPACT OF DEREGULATION OF TELECOMMUNICATION SECTOR (1999-2013)

Onoja Daniel Abel &  Emmanuel Okokondem Okon
NIGERIA’S ECONOMIC GROWTH: THE IMPACT OF DEREGULATION

 Abstract

The study examines the impact of deregulation of telecommunication sector on economic growth of Nigeria, 1999-2013. The main and minor objectives were: to examine the impact of telecommunication infrastructure development on Nigeria economy: during post deregulation period and to examine how GSM has reduced transport cost in the course of daily business transactions. Chi-square and econometrics technique were used to analyze the data collected in order to capture both the main objective and the minor objectives. However, the findings revealed that GSM has enabled Nigerians to transact their businesses easily by reducing so much transportation cost resulting in higher productivity. The paper therefore recommends that government should provide non-monetary incentives including the funding of development of other infrastructure including electricity
 Keywords: telecommunication sector, economic growth, Nigeria, post deregulation period, transport cost
  1. Introduction

 The world has become a global village with telecommunication being an indispensable tool in the entire process of globalization. However, it is not in dispute that telecommunication and information technology (IT) play essential roles in this process (Asogwa, 2013).  This is obviously why development in this vital sector over the years has been phenomenal all over the world. In fact, this is why emerging trend in socio-economic growth shows high premium been placed on information and communication technology (ICT), by nations, organizations and homes (Lee, 2003).
However, Nigeria today has not been left of this race for rapid development in this sector, after years of gross under-development; the nation’s telecommunication was liberated with the return of democracy in 1999 and deregulation of telecommunication sector.  This led to the granting of global system for mobile telecommunication (GSM) licenses by the Nigeria Communication Commission (NCC) to three providers like ECONET, MTN, and M-TEL. This was followed by the licensing of the Second National Operators (SNO), in 2003.  That is, Global COM and Universal Access services licenses of 2006 which include fixed telephony, VSAT and internet service providers. Also in March 2008 the (NCC) gave license to another GSM operator known as Etisalat (Aigbinode, 2008). The industry has enhanced both foreign direct investment (FDI) and private investment in Nigeria after deregulation which account for at 18 billion dollar in December, 2010 (NCC, 2011).
The paper considers two main questions: What is the impact of deregulation of telecommunication infrastructure development on Nigeria economy? Has GSM penetration enable Nigerians to reduce transport cost in the course of daily business transactions? The paper is organized as follows: Section 2 overviews; Section 3 presents; Section 4 addresses some pertinent issues on; Section 5 concludes the paper. Section 2 comprises Literature review, section 3 discusses the model specification and methodology, section 4 contains empirical evidences and their interpretations, and finally section 5 gives conclusion.
  1. Literature Review

                Early work on economic growth and development highlight the necessity of adequate infrastructure as a basic for development. To Star and Bowker (2001) infrastructure is embedded within other structures and technologies. It is transparent in use, not needing to be reinvented at each use and only becoming evident when it breaks down. Riketts (2002) viewed telecommunication as aiding the coordination of information flow, provides opportunities for increasing the efficiency of interaction and coordination, and in this manner influences the success of economic activities. Economic activities require significant of interaction and coordination in order for them to be conducted successfully and efficiently.
                Alleman et a (2004) asserted that a modern telecommunication infrastructure is not only essential for domestic economic growth, but also a prerequisite for participating in increasingly competitive world market and for attracting new agencies in both developed and less developed countries, as they spend large sums of capital on infrastructure investment so as to positively influence economic activities in terms of employment, value added, productivity, capital formation and income. Furthermore investing in telecommunication like other infrastructure investments will increase the demand for the goods and services used in their production and increase total national output. According to Belaid (2002) most telecommunication investment positively affects economy in three ways: first, reduce the cost of production, second, it increase employment through both direct and indirect effects, third, it increases revenue. Vuong (2008) reported how mobile phones promote economic growth through an example of fisher men in the south of Indian by communicating through mobile phones; they were able to sell their fish in markets where the demand was high. This resulted in less wasted of fish, higher benefits and lower cost of doing business, more access to information, which leads to more efficient operations which in the end affect the economic growth positively.
Also Roller and Waveman (2001) and Waverman et al (2005) in their studies on telecoms, opined  that telecoms growth through many different ways firstly, according to them, investing in the telecom sector itself leads to growth, secondly, increased demand in telecom related goods and  services. Example, producing cables, machines, extra workloads etc contributes to growth. More importantly, as telephone technology improves people communicated more regularly over bigger distances. It therefore, interesting to note that telecoms infrastructure has strong positive effects on economic growth especially for a developing country like Nigeria(Gold, 2011).
                There is also a plethora of evidence in both the theoretical literature and theoretical framework on the relationship between telecommunications infrastructure and economic growth. Saunders et al (1994) cited by Ding and Haynes (2004) provide a positive relationship between telecommunications and economic growth. Intensive review based on the works of Canning (1998), Cronin et al (1993), Wang (1999), Schreyer (2000), Yilmaz et al (2001), International Telecommunication Union- ITU (2003), Datta and Agarwal (2004), Lam and Siu (2010), Show a positive and significant causal link between telecommunications infrastructure and economic growth.

3 Overview of Telecommunications Industry in Nigeria: Post-Deregulation Period

                The establishment of Nigeria communication commission (NCC) in 1992 removes the monopoly enjoyed by the government communication institution and by 2002 three GSM operators (MTEL limited, ECONET Nigeria Ltd and MTN communications Nigeria Ltd were licensed. This major achievement in telecommunication infrastructure increased the tele-density from 0.7 in 2001 to 63.11 in December 2010 (NCC, 2011). During the count in 2012 telephone penetration stood at 81 percent at the end of December, 2012, according to statistics published by the (Nigeria Communication Commission, 2013). Tele-density hits 85.25 percent; Nigeria tele-density has increase from less than 63. 11 percent by end year 2010 to 25.25 percent rise and mobile subscribers in Nigeria have grown to over 120 million in 12 year (NCC, 2012). The NCC (2013) said active telecommunication subscriber’s base in the country peaked at 114.1 million as at the end of January, 2013, an increase of 198.3 million lines over the figure in the correspondent period at last year. The major operators, the private investments as well as the growth tele-density of telecommunication in Nigeria are depicted in table 1 below.
The industry received global acclaim as one of the fastest growing mobile market in the world (Ndukwe, 2006) and has enhanced both foreign direct investment (FDI) and private investment in Nigeria, which account for at $ 18 billion (USD) in December 2010 (NCC, 2011).
                The contribution of the communication sector to economic growth is that GDP increased from an average of 0.4 percent between 1986 and 1989 to about an average of 5 percent between 2006 and 2010, the average annual growth rate of the GDP rose from about 3.7 percent average between 1986 and 1989 to about an average of 8 percent between 2006 and 2010 (National Bureau of statistics, 1986 and 2007), (Central Bank of Nigeria 2007 and 2009). The industry recorded a real GDP growth of 24.42 percent in the third quarter of 2013 up from 22.12 percent recorded in the second quarter of the year. Year-on year however, growth has slowed by 7.2 percent points as 31.57 percent was recorded in the third quarter of 2012 (National Bureau of statistics, 2012). (Table 2) show the big leap observed in the annual growth of telecommunications from 2000 (6 percent) and 2001 (30 percent) can be linked to the fact that most of the licensed were granted to the GSM provider around this period.
  1. Methodology

In addition to the descriptive approach in the preceding sections, the paper adopts an econometric approach in its empirical analysis of impact of deregulation of telecommunication infrastructure development on Nigeria economy. The Ordinary Least Squares (OLS) technique was used. Data employed for the analysis were basically secondary data collected mainly from central Bank of Nigeria’s statistically bulletin, Annual Report and Statement of Account (various years), National Communication Commission (website) and National Bureau of Statistics. The period of study spans between 1999 and 2013.
On the question of GSM reducing transport cost in the course of daily business transactions in Nigeria, the research design adopted is the survey design. The design is directed at collecting data using the questionnaire responses from banks, traders and schools. A total of 116 questionnaires were administered and collected. The data collected were subjected to Chi-square analysis.
  1. Result and Discussion

The summary of regression result above shows that the constant parameter is positively related to gross domestic product (GDP) which implies that when other variables are held constant, GDP will increase by the value of 1603117 units. The result shows that government expenditure (GTEL) is  negatively related to  GDP with coefficient value of -3.715195, which is against the a priori expectation , indicating  that a unit increase in GTEL, will lead to decrease in GDP by 3.715195 units. Nonetheless, GTEL is statistically insignificant with a low t value of -0.346068 indicating that it has no significant influence on economic growth in Nigeria. The negative relationship GTEL and GDP is because of government disengagement in funding the sector during deregulation period.
Furthermore, the result revealed a positive relationship between GDP and GSM tele-density (TELED) indicating that a unit increase in TELED will lead to an increase in GDP by 142144.3 units. The result conforms to economic a priori expectation. However, TELED is statistically insignificant meaning that even though TELED is positively related to GDP, it does not really influence economic growth significantly. This is because most Nigerians have cultivated the habit of having two to three SIM cards though this increase the tele-density but these SIM cards are not efficiently used, therefore, it contribution to GDP is altered. Also in rural area where electricity and network is not efficiently provided, the population in this area may have surplus phones and SIM cards which in no dispute increase tele-density, but do not contribute to GDP hence, they are not efficiently used. In some parts of the country, especially in remote villages, people still climb mountains and trees to access the network and this result to inefficient use of their phones and SIM cards, therefore altering its contribution to GDP.
A closer look at show that electricity (EL) has positive impact on economic growth with a co-efficient value of 333.2223, indicating that a unit increase in electricity will lead to a 333.2223 unit increase in GDP. This is because, since the privatization of NEPA in 2013 government has not stopped funding and regulating the sector, thereby reducing the monopoly power of the sector (market power).  It also shows that electricity is statistically significant with a tcal value of 2.599203, at 5% level indicating that EL has significant influence on economic growth in Nigeria. This result conforms to a priori expectation.
The results show that the value of R2 is 0.989 which means that about 98.9 percent of the total variation in GDP is best explained by the explanatory variables i.e.  GTEL, TELED and EL. It means that the model shows a “good fit” which is supported by Fcal. The adjusted R2 value of 0.989 revealed that over 98.9 per cent of the variation in GDP is best explained by the independent variables. Fcal of 332.86 shows that there is a significant linear relationship between the explanatory variables taken together and the dependent variable GDP. Durbin- Waston statistic value of 2.138 indicates absence of autocorrelation in the regression.

Chi-Square Result

From the structured questionnaire administered, it shows that 36 respondents were bankers, 40 respondents were traders and 40 respondents worked in schools. In all, there were 116 respondents.
In table 5, responses from respondents regarding the question of production cost and failure rate reduced by GSM. The table shows that 65.5 per cent of the respondents agreed that, production cost/failure rate has been reduced by GSM penetration in the banking sector, trade sector (market) and the educational sector. While 34.5 per cent of the respondents disagreed that production cost/failure rate has not been reduced by GSM penetration into the sectors.
The calculated Chi-Square is 57.9 and the Chi-Square Tabulated at 0.05 level of significance is 3.84. Since X2 calculated is greater than X2 tabulated i.e. 57.9 > 3.84, the decision rule is to reject the null hypothesis Ho and accept the alternative hypothesis H1.we therefore, conclude that GSM has reduced transportation cost for Nigerians in the course of their daily economic activities. The above results conform to the study of Vuong (2008) who reported how mobile phones promote economic growth through an example of fisher men in the south of Indian by communicating through mobile phones; they were able to sell their fish in markets where the demand was high.
  1. Conclusion and Recommendation

                In terms of growth, Nigeria is ranked the largest and fastest growing telecom market in Africa and among the ten fastest telecom growth markets in the world, an indication of its robustness to return on investments. The telecom industry has private sector investment, including direct foreign investment. Much has been contributed to the coffers of the federal Government through Frequency Spectrum sales, enabling government to plough back revenues earned from the sector for provision of development infrastructure at the various levels of government (Juwah, 2011). The impact of this on the economic growth has become impressive. However, This paper seek to empirically examine the impact of telecommunication infrastructure development on Nigeria’s economy during post deregulation period and to examine how GSM has reduced transport cost in the course of daily business transactions. Chi-square and econometrics technique were used to analyze the data collected. On the basis of the empirical findings, the following strategic policy options are proffered as follows:
Nigerian government should provide non-monetary incentives including the funding of the development of other infrastructure including electricity.
The government of Nigeria should further expand tele-density and directly make telephone communications cheaper and accessible (Gold, 2011).similarly, government should issue more licenses to GSM operators in order to allow for healthy competition among the GSM operators. In that regard, government should provide adequate electricity to the rural area to encourage rural telephony and enable Nigerians to use their phones and SIM cards efficiently.
To reduce the operating cost of telecommunication business, the operators should consider the strategy of co-location and infrastructure sharing for further improvement and reduction in cost of running telecommunication business in Nigeria and to encourage rural telephony, the Nigerian government should consider providing further concessionary fiscal incentives to investors who are willing to commit resources to the marginally profitable area. The development of rural telephony will greatly assist growth of employment and income of Nigerians.

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