An Overlooked Obstacle to Digital Finance in Nigeria: How Persistent Right of Wa...

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Mar 2020
Nigeria, March, 24 2020 - Mobile finance will likely continue to struggle in Nigeria unless the country deals with an even more fundamental factor behind digital inclusion: providing the rails on which these services will run all the way to the consumer.

One of the major revelations in the 2017 Global Findex report was the role digital financial services (DFS) – particularly mobile financial services – have played in moving the financial inclusion needle in sub-Saharan Africa. Between 2014 and 2017, financial access through mobile grew from 54% to 63% – and this rapid growth has continued in the years since then. Indeed, the evidence points to DFS delivered through mobile as a critical factor driving financial inclusion in the region.

But the region’s largest economy, Nigeria, has consistently failed to keep pace with its peers in terms of mobile financial access. Many analysts have attributed this to the country’s regulatory caution, as the central bank maintained a longstanding refusal to issue mobile money licenses to telecom operators. However, in 2018 regulators addressed this issue, allowing telecom providers to deliver digital financial services via the Payment Service Bank license. But mobile finance will likely continue to struggle in Nigeria unless the country deals with an even more fundamental factor behind digital inclusion: providing the rails on which these services will run all the way to the consumer.

Nigeria needs to prioritise the roll-out of digital connectivity infrastructure across the country in earnest. And that’s why Right of Way (RoW) pricing matters.

A HIDDEN KEY TO FINANCIAL INCLUSION IN NIGERIA

Right of Way is an easement granted by a property owner that gives others the right to travel over the land and to make reasonable use of the property, as long as it is not inconsistent with the use and enjoyment of the land by the owner. The government is in charge of granting RoW (for a fee) to telecom companies seeking to deploy underground fibre optic cables.

Like water and electricity, telecommunications is also a public good, and RoW is critical to the delivery of these key services at the last mile – including internet access and mobile network connectivity, to name a few. This connectivity is pivotal to the delivery of DFS – especially in rural and remote locations where banks and other financial services providers are nearly non-existent. In order for financial access to grow in Nigeria, the telecoms operators need to extend their services across the country in an affordable and sustainable manner, as their infrastructure provides the rails on which mobile financial inclusion can thrive.

The national government recognizes this, and it has demonstrated a renewed emphasis on transitioning the nation into the digital economy. In 2019, the Federal Ministry of Communications was re-designated as the Federal Ministry of Communications and Digital Economy, as part of President Buhari’s national digital economy strategy. The strategy, among other things, focuses on leveraging DFS to further drive financial inclusion, and highlights the need to strengthen network infrastructure to achieve this.

WHAT’S DRIVING HIGH RIGHT OF WAY PRICING?

But the country’s ability to actualise this federal digital transformation agenda depends largely on the speed and efficiency with which it rolls out a digital communication infrastructure that covers as much of the nation as possible. And that’s where conflicts over Right of Way pricing may stand in the way.

According to the Nigerian Communications Commission (NCC), Nigeria needs about 120,000 km of fibre cables to achieve its goal of pervasive broadband penetration. However, only about 38,000 km have been laid. Along with a bevy of other factors, this huge deficit is responsible for the high cost of data and fluctuating service quality Nigerians often experience.

Often, the process of delivering internet access to a region requires telecom companies to deploy fibre optic cables traversing multiple roads. These roads are under the administration of their respective tiers of government (local, state and federal) and each of these tiers gets to charge their own RoW fees.

There’s been a perpetual dispute between the NCC, telco operators and the state government on just how much to charge for RoW, as RoW pricing varies at both the federal and state levels. States pricing in particular has fluctuated wildly, going as high as N6,000 (US $16.15) per linear meter (compared to the federal government’s N145 or $0.40 per linear meter). Indeed, in the first week of 2020, 14 Nigerian states hiked their RoW charges again.

In 2012, in an attempt to provide clarity, the federal government approved Right of Way to telecoms for access to federal highways. The following year, the National Economic Council recommended that state governments adopt and implement the federal guidelines granting RoW to communication service providers. These guidelines stipulated a RoW fee of N145 (US $0.40) per linear meter for every new build, a N20 (US $0.06) per meter annual fee for existing ducts, and a price review process every five years.

However, in spite of this recommendation, states continued to charge wildly diverse rates. They also continued to insist on a right to demand and receive fees for federal highways as well as state roads – which in essence means multiple taxation for telecom operators. This combination of high cost and uncertainty has contributed to the slow pace of telecoms infrastructure development and penetration in the country – and by extension, to the slow pace of mobile financial inclusion.

PROGRESS ON THE HORIZON?

Fortunately, this challenge may finally be coming to an end. On Jan. 22 of this year, at a Governors’ Forum (a non-partisan platform created to enhance collaboration among the country’s executive governors), all 36 state governors agreed to adopt the National Economic Council’s RoW fee recommendations. This resolution could be the final chapter in the RoW pricing saga, but time will tell.

Though it’s driven by private companies, expanding the country’s telecoms infrastructure is ultimately a public good, and the companies should not bear inhibitive installation costs. Fair pricing on RoW across the board is a good move for Nigeria on multiple levels. But while ending the issues surrounding RoW once and for all promises to help catalyse network connectivity across the country, it’s no silver bullet for mobile financial inclusion. Success will also require synergy between the public and private sectors, which must collaboratively work towards the national agenda of an inclusive ecosystem where all communities matter and nobody is left behind.

Fingers crossed that 2020 is the year that vision finally starts to become a reality.



Source : Next Billion
 

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