TELECOMMUNICATIONS SECTOR UPDATE. Investments in Nigeria s Telecom Sector Hit $68 billion. Capital Importation in the Telecom Sector ( )

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1 December 30, 2016 Vol.11 No.52 Editorial Team Marcel Okeke Editor Eunice Sampson Deputy Editor Joy Patrick-Akpan Kazeem Aremu Sunday Enebeli-Uzor Ugochi Chibuzor Nweke Chinemerem Okoro Research Economists Rotimi Arowobusoye Sylvester Ukut Layout/Design Nigeria is the preferred destination for telecommunications operators in Africa as investments in the sector hit $68 billion as at end July 2016, according to the country s official report presented at the just concluded International Telecommunications Union s Conference in Bangkok, Thailand... pg. 1 Mobile penetration in Sub- Saharan Africa (SSA) is projected to reach 105 percent by 2022, surpassing the 100 percent milestone projected for 2021, according to a recent report by Ericsson, a renowned communications technology service provider... pg. 3 Nigeria s sovereign national debt position has deteriorated and slipped from a Low-risk of debt distress to a Medium-risk of debt distress, according to the 2016 Debt Sustainability Analysis (DSA) of the Debt Management Office (DMO)... pg. 4 Lagos state has million active voice subscribers and million internet subscribers, making it the state with the highest teledensity in Nigeria. This was revealed by the National Bureau of Statistics in their recently released report on the Nigerian Telecommunications Sector... pg. 6 TELECOMMUNICATIONS SECTOR UPDATE Investments in Nigeria s Telecom Sector Hit $68 billion Nigeria is the preferred destination for telecommunications operators in Africa as investments in the sector hit $68 billion as at end July 2016, according to the country s official report presented at the just concluded International Telecommunications Union s Conference in Million (U$) Bangkok, Thailand. A breakdown of the figure showed nearly $35 billion in Foreign Direct Investments (FDIs), while the remaining $32 billion emanated from private sectors participation. Nigeria s Telecom sector remains one of the fastest growing globally, despite the current economic headwinds facing the country. This is supported by the country s large population size, political stability and a robust regulatory environment. The federal government is targeting 30 percent national broadband penetration by 2018, in line with the country s National Broadband Plan. According to the Ministry of Communications, Nigeria s broadband penetration is currently estimated at nearly 21 percent and could reach 30 percent mark, given sustained private sector investments. Following the liberalization of the Capital Importation in the Telecom Sector ( ) Jun-16 Million (U$) Source: National Bureau of Statistics & Research and Economic Intelligence Group Year Telecoms sector in 2001, Nigeria Communications Commission auctioned four (4) GSM licenses for $285 million to MTN, Econet (now Airtel), the comatose M-Tel and Globacom, among others. This led to a revolutionary period of growth in telephone subscribers, from a paltry 400,000 connected lines in 2001 to over 153 million active lines; and a teledensity of about 109 percent as at end- October In real terms, the telecommunications sector contributed N1, 580 billion to GDP in the second quarter of 2016, or 9.8%, which represents an increase of 1.0 percent relative to the previous quarter. The share of telecommunications in total real GDP had de-

2 Investments in Nigeria s Telecom Sector Hit $68 billion clined throughout 2010 to This trend has been reversed, however, with positive growth trajectory in recent quarters. Globally, the number of mobile broadband subscriptions may hit 3.6 billion users in Q4 2016, from 3.2 billion users recorded in 2015, year on year; and could further accelerate to 3.9 billion subscribers by 2020, according to latest data from the ITU. Also, the majority of the 2.5 billion internet users are living in developing countries with 1.5 billion subscriptions, while the developed Opportunity to invest in the country s broadband infrastructure Would jumpstart Nigeria s economic recovery, boosting real GDP growth. Major Challenges Poor quality of services to subscribers resulting in high rate of drop calls Vandalisation of Telecoms infrastructure especially fibre-optic cables GSM Subscribers per month (Jun 2015-Jun 2016) Source: National Bureau of Statistics economies have 1 billion users. Nonetheless, internet penetration is 81 percent in developed countries, 40 percent in developing countries and 15 percent in the Least Developed Countries. Opportunities FDIs into the Telecom sector may triple in the coming years Could boost foreign investors confidence in the economy Serves as a veritable reference point to develop other sectors of the economy Unsolicited SMS by Telecoms operators leading to high credit depletion Outlook As part of efforts to broaden broadband penetration in the country, MainOne Cable, a local ICT firm, is currently constructing over 1,000km of fibre-optic cables in Lagos State. Indeed, Nigeria would need fresh investments to explore further 3G and 4G technology to take services to the hinterlands. Given continued investments, the country will likely experience astronomical growth in the Telecommunications sector in the coming years. 2

3 MOBILE PENETRATION UPDATE Mobile penetration in SSA to reach 105 percent by 2022 Mobile penetration in Sub-Saharan Africa (SSA) is projected to reach 105 percent by 2022, surpassing the 100 percent milestone projected for 2021, according to a recent report by Ericsson, a renowned communications technology service provider. Sub-Saharan Africa remains the region with the highest growth rate in mobile subscriptions globally. The penetration level in 2010 was nearly 50 percent, and recent forecasts indicate that more than 100 percent penetration will be achieved in Specifically, between 2016 and 2022, mobile subscriptions in the region is expected to grow at a compound annual growth rate (CAGR) of six percent to over 1 billion subscriptions, from about 720 million forecasted for 2016 leading to the projected penetration rate of 105 percent. The expected growth will be driven by increased investments by mobile operators and other stakeholders in the industry who are keying into the burgeoning opportunities created by the sustained economic and Mobile Subscription forecast for Sub-Saharan Africa of social media users gain access using smartphones. The rising mobile broadband uptake is driven by the accessibility of smartphones due to lower prices and access to purchase plans as well as declining data prices which is stimulating traffic. It is expected that there will be a greater proliferation of low-cost smart devices in the region, as hardware manufacturers looking to capitalise on the opportunity existing in the region. More so, the trend is expected to carry on as operators continue to invest in networks. Service providers across the region have begun to deploy Long-Term Evolution (LTE), which will support not only more traffic but also faster speeds, lower latency and lower energy use. Outlook Sub-Saharan Africa remains the region with the highest growth rate in mobile subscriptions globally. This trend is expected to continue in the foreseeable future creating investment opportunities within the region. However, while there is high mobile penetration in urban areas, there remains an underserved rural population that is perhaps the market that will drive further increase in a number of subscribers. Nevertheless, service providers will have to device appropriate strategies/ models various models, such as network and spectrum sharing to effectively reach the market. Source: Ericsson Mobility Report population growth, especially technology savvy youths in the region. Rising mobile broadband uptake Access to mobile broadband in Sub- Saharan Africa has been growing steadily, with a current penetration rate of around 35 percent. More subscribers now have access to the internet, particularly in Nigeria and South Africa, and majority access the service on mobile devices. For example, in Nigeria, the largest mobile market in the region, about 97 percent Source: Ericsson Mobility Report 3

4 DEBT MANAGEMENT UPDATE Nigeria Slides to Medium-Risk of Debt Distress nesses in the structure of the economy, as the ratio of Public Debt Service-to-Revenue of percent as at the end of December 2015, breached the Country-Specific threshold of 28 percent. This highlights a potential risk to the debt portfolio, which could be exacerbated by the developments in the international oil market, as a further decline in global oil prices would exert undue pressures on the already fragile economy, including the debt position in the medium to long-term. FGN s External Debt Sustainability Indicators in Percent ( ) Source: Debt Management Office (DMO) Nigeria s sovereign debt position has deteriorated and slipped from a Low-risk of debt distress to a Medium-risk of debt distress, according to the 2016 Debt Sustainability Analysis (DSA) of the Debt Management Office (DMO). Although the level of debt stock is still appreciably low relative to the country s Gross Domestic product (GDP), the debt portfolio remains mostly vulnerable to the various shocks associated with revenue, exports, and substantial currency devaluation. According to the DSA, while the GDP-related indicators appear normal, as they remained below their respective thresholds, the revenuebased indicators were mostly sensitive to the revenue shocks. The results of the 2016 DSA showed that for the first time since the exit from the Paris and London clubs of creditors in 2005 and 2006, Nigeria s debt position experienced some deterioration. According to the DMO, the ratio of Public Debt-to- GDP was percent as at the end of December 2015, which was still within the Country s Specific limit of percent in the medium-term (up to 2017), and far below the Country Policy and Institutional Assessment (CPIA) threshold of percent for countries in Nigeria s peergroup. However, the liquidity ratio revealed gross weak- Output Indicator (Debt/GDP) According to the DSA 2016 report, the estimated average real GDP growth rate of 4.49 percent over the projected period outweighs the expected rate of debt accumulation of 1.64 percent, indicating that under the fiscal sustainability of the FGN-only (External1 & Domestic Debt), the FGN debt portfolio is at a low risk of debt distress. The Present Value (PV) of Total Debt-to-GDP ratio is projected at 13.5 and 15.5 percent in 2016 and 2017, respectively. This is expected to peak at 16.1 percent in 2019, before trending downwards from 15.0 percent in 2020 to 3.6 percent by the end of the projection 4

5 Nigeria Slides to Medium-Risk of Debt Distress period, 2036.These compare favorably with the peer group threshold of 56 percent. Also, the fiscal sustainability of the Federation (FGN, States, and FCT) mirrored the performance of FGN-only. The result showed that the PV of Total Debt-to-GDP ratio at 15.9 percent in 2016 is still within the standard peer group threshold of 56 percent and the country-specific threshold of percent, up to The ratio is expected to peak at 19.0 percent in 2019, before trending downwards from 2020 throughout the projection period to reach 4.3 percent in 2036.The decline in the PV of Total Debt-to-GDP ratio would be due to lower rate of public debt accumulation at an average of 1.59 percent over the projection period against the relatively higher average real GDP growth rate of 4.49 percent. Recommendations From the results of the 2016 DSA, the DMO made the following key policy recommendations among others: The end-period NPV of Total Public Debt-to-GDP ratio for 2016 for FGN is projected at 13.5 percent. Given the Country-Specific threshold of percent for NPV of Total Public Debt-to-GDP ratio (up to 2017), the borrowing space available is 5.89 percent of the estimated GDP of US$ billion for To this end, the maximum amount that could be borrowed (domestic and external) by the FGN in 2017 without violating the country-specific threshold will be US$22.08 billion (i.e percent of US$ billion). The Debt Management Strategy, , provides for the rebalancing of the debt portfolio from its composition of 84:16 as at end-december, 2015, to an optimal composition of 60:40 by end-december, 2019 for domestic to external debts, respectively. The shift of emphasis to external borrowing would help to reduce debt service burden in short to medium-term and further create more borrowing space for the private sector in the domestic market. Accordingly, for the fiscal year 2017, the maximum amount that could be borrowed is US$22.08 billion, and it is proposed to be obtained from both the domestic and external sources as follows: New Domestic Borrowing US$5.52 billion (equivalent of about N1, billion); and, New External Borrowing: US$16.56 billion (the equivalent of about N4, billion). FGN s Fiscal Sustainability Indicators in Percent ( ) Source: Debt Management Office (DMO) 5

6 TELEDENSITY UPDATE Lagos State Leads in Active Voice and Internet Subscription in Q Lagos state has million active voice subscribers and million internet subscribers, making it the state with the highest teledensity in Nigeria. This was revealed by the National Bureau of Statistics in their recently released report on the Nigerian Telecommunications Sector. The report also showed that Lagos state accounted for percent of total active voice subscription and percent of total internet subscription in the quarter. The report also showed that the number of actice voice subscribers grew by 2.32% from m in Q to 153.3m in Q Similarly, internet subscribers increased by 1.46 percent from million in Q to million in Q Active Voice Subscriptions Q The number of active voice subscriptions stood at million at the end of Q with MTN accounting for the largest share of million (or 39.5 percent of total). This was followed by GLO with million subscribers (or percent of total), Airtel with million (21.34 percent) and EMTS (Etisalat) with million (14.7 percent of total). Lagos State accounted for the largest share of active voice subscribers with million or percent of the total, followed by Ogun State with almost 8.87 million subscribers or 5.78 percent, Kano State with 8.2 million or 5.35 percent, Oyo State with 7.83 million subscribers or 5.11 percent of the total. 6

7 Lagos State Leads in Active Voice and Internet Subscription in Q Source: Nigeria Bureau of Statistics Other states with relatively high active subscribers include FCT and Rivers State with 6.56 million (4.28 percent) and 6.17 million (4.02 percent) respectively. On the other hand, Yobe (1.47 million), Ekiti (1.45 million), Ebonyi (1.44 million) and Bayelsa (1.1 million) had the smallest number of active subscriber in the quarter. Lagos has thus remained the biggest market for all voice telecom companies in the country. Active Internet Subscriptions Q The number of active internet subscriptions stood at million at the end of Q As with active voice subscriptions Lagos State accounted for the largest share of active internet subscribers. Lagos led with million subscribers or percent of the total, followed by Ogun State with 5.64 million subscribers or 6.01 percent, Oyo State with 4.95 million subscribers or 5.28 percent of the total. Kano and Kaduna States also had high numbers of active internet subscribers with both states recording 4.46 million (4.75 percent) and 4.26 million (4.54 percent) internet subscribers respectively. On the other hand, Yobe (0.73 million), Bayelsa (0.69 million) and Ebonyi (0.77 million) had the smallest number of active internet subscriber as of Q Lagos retained its position as the dominant market for all of the active internet telecom companies in the Nigeria. 7

8 CAPITAL MARKET UPDATE Market Highlight The Nigerian equities market rebounded to end the last trading week of the year 2016 on a positive note. It was a three-day trading week as the Federal Government of Nigeria declared Monday 26 th and Tuesday 27 th December 2016 as Public holidays to mark the Christmas Day and Boxing Day celebration. The market performance gauge, the All-Share Index (ASI), appreciated by 1.47 percent or to close at 26,876.62, from 26, recorded in the preceding week. Market Capitalization also rose by 1.47 per cent or N134 billion, climbing to N9.247 trillion from the N9.113 trillion recorded the previous week. At the close of the week s trading activities, a turnover of million shares worth N3.734 billion were traded by investors in 6,363 deals, in contrast to a total of billion shares valued at N billion that exchanged hands in the previous week in 14,861 deals. Outlook The Nigerian equities market ended the last trading week of the year in the green, rebounding from last week s negative performance. The market performance was supported by renewed bargain hunting activities in lowly priced stocks with good fundamentals. However, despite the week s positive performance, the local bourse recorded a third consecutive yearly decline in In trading sessions going into 2017, the market performance/direction will be determined by a number of local and global economic policies and events. These will include policies and measures put in place to exit the current recession, effort of the regulatory authorities at restoring investor confidence in the local bourse, Donald Trump s economic policies in the U.S. etc. NSE ALL SHARE INDEX 27, , , , , , , /11/ DEC DEC DEC DEC DEC DEC DEC DEC DEC DEC DEC DEC DEC DEC DEC DEC DEC DEC DEC-16 Source: Nigeria Stock Exchange (NSE) Volume Traded 180,000, ,000, ,796, ,000, ,000, ,000, ,741, ,401,333 80,000,000 60,000,000 40,000,000 20,000,000 - Source: Nigeria Stock Exchange (NSE) 28/12/ /12/ /12/2016 8

9 Crude Oil Market Update Oil Market Review (December 27th 30th, 2016) During the intraday trading on Friday, December 23rd, oil prices are on track for their biggest annual rebound in 7 years on the back of a deal reached between OPEC and Non-OPEC members to cut output. The West Texas intermediate (WTI) crude futures edged up 23 cents to $54.00 per barrel, while the Brent crude futures for March delivery rose 31 cents to $57.16 a barrel. On Tuesday, December 27th, after the Christmas holiday, crude oil prices rose slightly due to traders expectations of a tighter supply in Brent futures for February delivery gained 93 cents to settle up at $56.09 a barrel, while U.S. crude for February nudged higher 88 cents, to close at $53.90 a barrel. Crude oil prices continued its positive trajectory on Wednesday, December 27th, even as investors anticipate high output compliance from major oil producers. WTI futures tacked on 16 cents or 0.3 percent, to settle up at $54.06 per barrel. Brent crude, the global oil benchmark, also nudged higher 13 cents, to close at $56.22 a barrel. The rally in oil prices retreated on Thursday after the American Petroleum Institute (API) s report showed an increase of 4.2 million barrels in U.S. crude inventories. Brent futures for March delivery slid 11 cents to settle at $56.85 per barrel. The U.S. benchmark West Texas Intermediate crude dip 29 cents, or 0.5 percent, to close at $53.77 per barrel. Oil & Gas Price Movement (U$) : December 27th 30th, 2016 Date Public Holiday 27/12/ /12/ /12/ /12/2016 (Intraday) WTI Crude ($) NA Brent Crude ($) NA Natural Gas ($) NA Source: Reuters and New York Mercantile Exchange. indicates an increase in price. indicates a price reduction indicates no change This publication is strictly for information purposes only. Zenith Bank Plc and its employees make no representation as to the accuracy and completeness of the information contained in this publication. Therefore we accept no liability for any loss that may arise from the use of such information. 9