Executive Summary:
Whether comparing Nigeria to its geographic neighbours or to other countries with similar dynamics, mobile penetration is relatively low and subscriber growth – while healthy given the large population base – will continue to slow. However, due to various other positive factors including a high access rate of well over 50% (those who use a mobile despite not owning one), increasing mobile data consumption, a rise in digital entrepreneurship, and a large youthful population Nigeria presents a growing opportunity for investment and innovation. Specific factors related to regulation and the role of large international donors and the impact investment community have the potential to support positive growth and demonstrate long term commercial viability in valuable mobile products and services that improve livelihoods.
1.The biggest country in Africa but underpenetrated in mobile. Young, but still low internet penetration. A fast growing economy but with persistent income inequality, with the majority of the population often lacking basic service access. Nigeria paints a picture of contrasts – mobile, however, is in many ways a common denominator to driving socio-economic improvement.
As the most populous country in Africa, Nigeria is home to around 170 million people. After the recent rebasing of its GDP, it also overtook South Africa to become Africa’s largest economy. At first glance, mobile penetration is high, at over 70%. However, penetration on a unique subscriber basis (a better proxy for individual ownership) is much lower at around 30% (see Figure 1 below). There is significant variation within the country, with a strong urban-rural divide (urban ownership is around 1.4 times higher), as well as differences between northern and southern Nigeria (the southern states including Lagos and those clustered around the oil-rich Niger Delta, which generally have much higher access than in the north). Relatively low unique subscriber penetration has not stopped or hindered an emerging shift towards mobile data, and indeed there are several interesting trends underlying this growth. Smartphone penetration is still nascent (around 10-15%), and while we believe the mobile internet is not (yet) that much further along, it is currently occupied mostly by feature phones (3G penetration is around 15%). Operators are increasingly designing tariffs for prepaid internet use (2G and higher speed mobile broadband) to align with the socio-economic realities of a predominantly low-income customer base. However, with incomes projected to rise and handset and data service prices declining, the barriers to entry for data services will continue to fall and it is expected that a significant section of Nigeria’s population will come online in the next three to four years. This will enable much of the Nigerian population and government to enjoy the numerous socio-economic benefits of improved mobile and mobile broadband access – the challenge is in ensuring the story is not a tale of two halves.
2.Low life expectancy, poor health and sanitation, lack of access to banking services, and illiteracy are all examples of the many socio-economic issues that Nigeria faces. As a market with rising mobile penetration and a negligible fixed broadband infrastructure, Nigeria has the opportunity to leverage mobile technology to generate improved social and economic outcomes. The participation of mobile operators and the wider mobile ecosystem will be key to realising such successes. Of course, this can take time. There is therefore a crucial role for intervention support from large international donors with scaled presence and the impact investment community in the short to medium term in supporting high potential services that are not yet market-led.
Nigeria is a fast growing market, with economic growth humming along at around 7% (double that of Europe and the US). As the largest market in Africa, Nigeria’s population also continues to rise at around 3% per year. Despite this growth, large sections of the population continue to lack access to basic services such as in health and banking and the country scores low on the United Nations Human Development Index. By contrast, while mobile penetration on a unique subscriber basis is low (under a third nationally, with this lower in rural areas), it is actually around 70% when considering those who have access to a mobile without actually owning one. Why does this matter?
There is a clear opportunity for mobile to play a role in enabling access to these basic services and in driving wider socio-economic development through innovative applications and the use of mobile broadband. Those individuals on lower rungs of the income ladder that lack many basic services are also those that make up a significant portion of expected new mobile subscribers over the next 3–5 years. However, while mobile operators are active in offering a range of value added services (VAS) targeting entertainment and social media platforms, they are largely absent from providing commercial VAS that fill gaps in core needs (such as financial services, health, utility access and employment). The need for such services could potentially justify a small expenditure by subscribers and may also serve to drive customer loyalty.
We believe the reasons for this lack of participation are complex, ranging from operators focusing on core competition in the marketplace, a lack of credible business models, a lack of understanding consumer needs, high costs associated with expanded network roll-out, and regulatory challenges. There are also more nuanced factors at play, such as Nigeria’s diverse religious landscape, with around 250 tribes and 280 languages existing throughout the country.
The implications of these challenges quickly become evident as operators expand such services at scale to a diverse customer base. It is, however, an opportunity waiting to be harnessed. Beyond operators, participation and involvement of players in the wider ecosystem is needed in forming partnerships to harness comparative advantage. Recent examples have often focused on opportunities the internet presents, with the presence of local entrepreneurial talent in ICT start-ups serving as a key commonality amongst Nigeria’s success stories.
Of course, all of this takes time. As such, we believe there is a key role for large international donors in providing funding and operational support for solutions that improve livelihoods and have commercial potential but that are not yet market-led – particularly those in the agriculture and education sectors. This makes sense because these organisations are scaled, can harness economies of scope and are increasingly shifting towards a returns-based investment mindset despite their non-profit status to ensure proper and robust business planning among entrepreneurs. The impact investing community is smaller in size, but can also play a complementary role in this space to provide seed funding, operational and mentoring support to early and mid-stage ventures.
3. Bureaucracy and regulatory complexity throughout Nigeria continue to act as barriers to realising the socio-economic opportunities that mobile services enable, underpinning the need for a transparent, consultative and pro-investment regulatory environment.
Affordability and coverage are key barriers in driving increased mobile penetration and the socio-economic benefits that follow from improved access to mobile services. The cost of running a mobile is around 5% of personal income in Nigeria, well above the threshold of 2-3% below which penetration starts to rise steeply. On coverage, the country is well provisioned in urban areas but there remains a lack of infrastructure in many rural regions. This is understandable given the combination of challenging terrain and vast distances, a lack of electricity and road access, and persistent security threats. It does, however, underline the reality that coverage is largely a product of investment, which can only occur in a clear, constructive and proactive regulatory environment favouring innovative roll-out models (such as network sharing). Affordability requires this environment as well, but also has the strength of market forces to help.
While regulations on coverage expansion (as a condition for spectrum ownership) and expectations for Quality of Service (QoS) are important in ensuring high quality services for consumers, a balance is important to avoid delays in the implementation of an operator’s expansion and upgrade plans. This is also important for Mobile for Development (M4D) services, where the regulatory environment can play a role in an operator’s decision to roll out such value-added services. Major growth of mobile money services has thus far been largely outside West Africa in general, although there are many positive success stories to draw on from other countries in this sector (e.g. Kenya, Tanzania, Democratic Republic of Congo) where operators have used extensive distribution networks and brand to grow scale and catalyse development of other M4D sectors through payments, transfers and insurance. From this, we think there is a strong case for permitting operators to operate mobile money services in Nigeria. More widely, a facilitating regulatory environment can help unlock successful services in other M4D sectors closely aligned with economic growth and social improvement (Sri Lanka is a good example), for which Nigeria is a prime candidate.
This document was originally produced as part of the former Mobile for Development Impact programme.