The telecommunications service industry is considered the third largest in Africa following the agricultural and banking & finance industry. In Nigeria, it accounts for 12.31% of the country’s nominal GDP and 18.44% of the real GDP.⁹ Similarly, the information and communication sector, which includes the telecommunications industry, is one of the fastest-growing non-oil sectors in the economy, with a year-on-year growth rate of 10.53% in the third quarter of 2022. The banking sector has also witnessed growth with the bulk of its success stemming from the rebound in the country’s economic activity, increased consumer confidence, and gains from digital-centric strategies. 

In light of recent trends, Nigeria’s banking sector stands to benefit significantly in 2023 if it invests adequately in the telecom industry, as this could push it up the ranks to the first position among the African countries with the best banking systems. South Africa currently maintains the top position with Egypt and Morocco lagging behind it. In the global space, Singapore is one of the countries with the safest financial systems in the world, maintaining its position of having the best banks in Asia despite significant macroeconomic issues. This is a result of the country’s highly developed telecoms industry, which broke records in 2017 as the world’s highest mobile penetration rate at 1.5 mobile phones per person and reached 92% internet penetration in its households at the beginning of 2022. 

Telecommunications in 2023 

Telecommunication is growing in the global economy with its value expected to double in the next decade.¹⁰ The Economist Intelligence Unit has also forecasted an increase in telecom growth. This year we would be able to see significant progress in the use of telecoms due to the increasing presence of 5G, secured and reliable services, artificial intelligence, and the internet of things (IoT). 

Currently, the 5G network is present in only 13 out of 53 African countries. This number is expected to grow as Airtel joins MTN in being legally allowed to sell this product. The network comes with a lot of benefits too such as higher data speeds, increased internet availability, and improved telecom services which would trickle down into the country. This will spur the demand for telecoms which reached a peak of 222.57 million subscribers as of December 2022.¹¹ Also, the increased presence of IoT and secured and reliable services such as facial and retinal recognition of smart devices will encourage the expansion of telecommunications in the country. These factors will help telecoms to reach their expected annual average growth of mobile connections of 2.7% in 2022-26 as well as a penetration rate of 93.4% by the end of 2026 in Nigeria.

However, the growth in the telecoms industry will not be smooth sailing as rising COVID cases in China, the top manufacturer of smartphones in the world, will reduce its supply in the near term. Furthermore, the telecom industry is plagued with high levels of insecurity and inadequate funding which, coupled with the high cost of using the 5G network, could discourage demand and hinder growth in this industry. 

Banking and Telecommunications 

There have been various studies conducted to examine the relationship between telecommunications and economic growth in Nigeria. However, most of them fail to recognize the impact this industry has on other sectors of the economy, such as banking. With the current push towards a cashless economy by the CBN, telecommunications’ importance in the Nigerian economy is bound to grow. Nigeria's financial services sector is increasingly liberalizing, moving away from reliance solely on banks and toward firms with diverse business models and distribution channels. 

There have also been two major stances on the importance of telecommunications in the banking sector due to the licensing of the Payment Service Banks in the country. Payment service bank is a new banking category that operates on a smaller scale and does not involve credit risk or foreign exchange transactions. PSBs can offer payments and remittance services, issue debit and prepaid cards, deploy ATMs, and other technology-enabled banking services in addition to managing and creating accounts (current and savings). Some are of the opinion that telecommunications have a negative impact on the banking sector as they reduce banks’ consumer base and have a competitive role rather than a complementary one. 

On the other hand, there are those who believe that telecoms do indeed aid growth in the banking sector as they help in accounting for 36% of the unbanked population and promoting unstructured supplementary service data transactions which increase bank revenues. The Global System for Mobile Communications supports this stance saying that the payment service bands will aid growth in the banking sector as these network providers have a wide customer base and are capable of delivering cost-effective services in rural areas.

The position of a competitive stance is slightly eliminated with the restriction of these network operators from providing and processing credit cards and giving out forex to its consumers. In this regard, only commercial banks are provided with the legal backing to perform these functions. In the long run, mobile network operators would complement Nigerian banks and aid growth in the banking sector as well as financial technology in the economy. Therefore, with the expected growth in the telecommunications industry, we can expect a corresponding growth in the banking sector of the country. 

How can Nigeria be more digitalized? 

Nigeria has a long way to go in terms of being fully digitalized. According to the World Bank, Nigeria is only tapping a small portion of its digital economic potential and will need to make smart investments to establish a dynamic, transformative digital economy.¹⁴ Some analysts also believe that the digitalization of public sector operations and services, as well as the development of digital enterprises and jobs, helps promote socioeconomic development.

The government must collaborate with a variety of institutions, fintech businesses, telecom companies, and other strategic partners to deliver digital solutions that promote the cashless economy, have the best potential to overcome infrastructural bottlenecks to expand financial inclusion, and spur economic growth in a variety of sectors. To this cause, the federal government has begun seeking the collaboration of the World Bank, Google, and Space Exploration Technologies Corporation (Space X) to aid in the implementation of its National Digital Economy Policy and Strategy (NDEPS). This could aid the government in achieving a smooth transition to a cashless economy as well as provide faster and more efficient banking services to consumers. 

The problems of inadequate funding and the destruction of telecom infrastructure could be curbed by these collaborations with other organizations which in turn would promote the development of the telecommunications industry and the overall growth of the information, communications and technology sector. Telecommunications plays a huge role in the future of the county and more specifically the banking sector. The increased presence of the 5G network as well as the internet of things would improve banking services rendered to consumers, increase bank revenue and widen their customer base.