The International Telecommunications Union says Nigeria has the fastest telecoms growth in Africa . Since its liberalization a couple of years ago, the Nigerian telecoms sector has witnessed an unprecedented growth. Private investment in the sector has soared to $4.5 billion from meager of $500 million. Hitherto the sector could only give less than a million lines before year 2000. In less than five years there are over six million lines. Thank goodness telephone is no longer for the rich.
If the Nigerian telecom industry is to sustain the enviable level of growth, operators must not be subjected to unnecessary regulatory intrusion. But is this possible, given the fact that politicians love to exercise power? Spurred by the urge to achieve local production, imported scratch cards are being forced out the Nigerian telecoms market place. In May, President Obasanjo issued a directive that importation of scratch cards must stop by January, 2005.
Let us accept that there is no problem in pursuing the objective of local production. But the question is if import restriction is a wise path to achieving it? At the root of the obsession is the high level of joblessness in the country. Policy makers must come to the realization that the country needs massive investment to tackle the monster of unemployment. But if investment policies are not in place and the transaction costs are high, investors will vote with their feet.
Now the concern of this write-up. If recharge cards must be produced locally, should manufacturers be licensed? Implementing the presidential directive, the Nigeria Communication Commission has licensed fourteen out of the 200 that indicated interest to engage in the production of recharge cards. Applicants are required to collect application forms; provide detailed information about their business plans, experience, financial capability and other “relevant information”.
Justifying the licensing policy, Ernest Ndukwe, Vice Chairman of Nigerian Communication Commission, says “government wanted the business to be done properly…and to maintain quality”. Wrongly envisaging problem from leaving the business open, Ernest declares that “when you over liberalize, you can have problems.”
One would be tempted to say Mr. Ndukwe is far from the truth in view of recent happenings in the sector. The need for quality control is not in doubt, but does NCC have the required expertise to evaluate the competence of scratch card producers? Telecom operators are of the opinion that no requisite expertise exists in either the NCC or indeed any other agencies to evaluate the competence of manufacturers of recharge cards. They also argue that it cannot act in any regulatory capacity.
Even if NCC has the expertise, the best way to achieve the objective of quality control, is leaving the business open. The telecoms operators who will patronize the card manufacturers cannot afford to compromise on quality. They surely know the implications of poor quality of recharge cards on profitability and market shares. If they want to stay in business they must insist on quality. Also card producers who want to stay in business must not be short on quality. This should not be the duty of NCC but that of the market.
Another plank on which NCC boss based the entry restriction is the need to “position” the approved companies for an “adequate bank funding”. The commission reasons that should the business of recharge card manufacturing is open, funding will be a problem. The thinking is that companies without the require expertise will be “clamouring” for bank funding if open system is opted for. And it is wrongly expected that this situation will prevent “serious” companies from having “adequate funding to meet the demand of the market.”
It is unacceptable that in an open system credible companies will not get adequate funding. In fact financial houses would be falling on one another to extend credit facilities. Besides, it is the duty of banks to determine which companies deserve their funds. Obviously this is not the function of NCC. Another thing is the parameters for NCC to determine which companies are serious or not. Owners of banks are not stupid and they will not want to give their money to companies they know will default.
Despite the fact that the reasons offered for the licensing of recharge card manufacturers are not sound, the policy is an unnecessary another intrusion into the telecoms sector. It takes away the freedom of the operators in the telecoms industry to choose their card suppliers. They will now have to choose from the list of suppliers imposed on them. The implications of this are legion. It will make impossible what Israel Kirzner calls entrepreneurial discovery and innovation.
Taking into account the unbridled love of politicians and bureaucrats to exercise more power, licensing of recharge card producers may be a precedent that could extend to the supply of infrastructures and software. And if a disruption occurs in the operations of the imposed suppliers, or their production capacity is lower than demand, telecoms operators may find it difficult to serve their subscribers and this may affect profitability.
The gain already recorded in the through the liberalization of telecoms sector may be weakened if recharge card producers must be licensed. There may be a tendency for them, licensed ones, to form a cartel and creating unnecessary scarcity. Market is the judge that rewards entrepreneurs. If any card producer has bad reputation for producing low quality and fake cards, its reputation will spread fast. That means loss of market share. Should the trend continue, the card producer would be out of business.
- Oyewamide is with Institute of Public Policy Analysis in Lagos, Nigeria