A look at the bright spot in the faltering economy

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The impact of the restrictive measures on economic activities coupled with the downturn in the oil sector was apparent in the recent Q2 GDP data, as the nation’s GDP declined by 6.1%. However, there were a few brights spots, particularly the telecommunications sector which posted a growth of 18.1% in Q2 2020 from 9.7% in Q1 2020, outperforming the services sector which contracted by 6.78% during the second quarter compared with the
growth of 1.57% in Q1 2020.

We believe the robust growth in the sector is reflective of the sturdy improvement in the sector’s fundamentals, as active mobile subscribers rose to 196.4m at the end of Q2 2020 from 182.3m in Q1 2020 while active internet subscriptions grew by 6% to 143.7mn in Q2 2020 from 136.m in Q1 2020. Similarly, broadband penetration grew to 41.3% in Q2 2020 from 39.9% in Q1 2020. We believe the growth in the telecommunications sector was further bolstered by advent of the global pandemic which led to the increased use of digital channels for daily routine activities ranging from telecommuting, entertainment and social engagements. This was evident in the performance of two of the listed players in the sector, MTN and Airtel, as they recorded data revenue growth of 49% y/y and 39% y/y respectively.

The telecommunications sector remains one of the fastest-growing sectors in Nigeria’s ailing economy and we believe the sector is critical in the nation’s quest to operate a well functioning digital economy. In our view, the medium to long term growth prospects of the sector will be supported by increasing smartphone penetration, favourable country demographics, a fledgling social media culture and rapid investment by the industry players to enhance the quality of network infrastructure. With internet penetration still below 50% (41.3% as at June 2020), we think significant potential exists for telecom and internet service providers in Nigeria to unlock its transformative potentials.

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CSL Stockbrokers Limited, Lagos (CSLS) is a wholly owned subsidiary of FCMB Group Plc and is regulated by the Securities and Exchange Commission, Nigeria. CSLS is a member of the Nigerian Stock Exchange.