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A PROJECT PROPOSAL ON FINANCING OF CAPITAL

INVESTMENT PROJECT: IT’S EFFECTIVENESS ON


COMMUNICATION

INTRODUCTION
The Communications industry has been identified as one with a generic
effect on almost all other sectors of any economy which places the sector on a
strategic level which can drive other sectors of the economy. As a result of this,
constant and viable investments must be financed so as to ensure that the
communication industry grows. As the economy broadens and becomes
critically dependent on vastly expanded flows of information, communications
acquires strategic importance for economic growth and development. Rapid
innovations in information and communications technology are lowering costs,
creating new services and changing the cost structure of many industries.
Driven by unrelenting technological and market forces, communications sector
has become one of the world’s most dynamic sectors (Wellenius and Stern,
1994; Saunders et al., 1994) Motivated by the result from developed economies
and the quest for economic growth, many developing countries began to reform
their communication sector in the late 80s and early 90s. Emphasis is placed on
the need for the deregulation of telecommunication sector and investment in
communication infrastructure in order to realize the expected economic and
social growth rate of the country. The realization by Nigerian government that
investment in telecom infrastructure is a necessary foundation for economic
growth has further spurred the need for deregulation and privatization of the
sector. Such government policy was expected to enhance efficiency and lead to
more infrastructure investment in the sector and improve productivity in other
sectors of the economy.
Financing communication development requires substantial amounts of
initial capital, it is estimated that as much as 60% of this investment has to be
provided in foreign currency which is costly due to unfavourable terms of
trade, falling commodity prices, and increasing debt burdens in the country.
Different sources of finance exist but each has its own financial, social and
economic implications for the borrower. Generally, five alternative sources can
be identified including bilateral government aids, loans from domestic financial
institutions, multi-lateral financial arrangements, suppliers’ credit and even
self- financing. In Nigeria, public financing has grown though slowly,
allocation to communication was about 5.0% in the previous years out of which
4.4% and 0.5% was allocated to posts and telecommunications and radio and
television respectively. The total planned allocation to the communication
sector during the pre-deregulation era points up an encouraging desire to
stimulate investment in the sector. Today in Nigeria, there have been large
infrastructure investments resulting from deregulation between 1992-2007,
which have enabled million of people to communicate and transact better.
Deregulation attracted new operators from within and outside the country. The
new operators have injected competition and provided a new employment
opportunity and many indigenous companies such as Global Com, Odua
Communication etc have emerged. This growth is expected to have equally
profound impact on the job and employment market, enhance efficiency in
other productive sectors and increase national output.
This study therefore examined the effects of investment in communication
infrastructure on economic performance measured by GDP using a
comprehensive national level data set from Nigeria. It presents empirical
testing based on the data collected and for the purpose of investigating if there
is a significant link between communication investment and economic growth.
In the industry today, recent policy document which in a way will
require financing elaborates on the following major “policy recommendations”
The Federal Government of Nigeria shall ensure the establishment of a
Telecommunications Development Fund (TDF) which shall operate as an
Industrial Development Bank (IBD) to provide funds to finance
telecommunications projects in the country.
The Federal Government of Nigeria shall ensure that the communications
development follow world-wide trend in the establishment of digital or any
other technology while gradually phasing out the existing analogue systems.
Appropriate and affordable technology shall be adopted to ensure a uniform
growth rate and penetration of rural communications and information services.
Effort shall be made to promote indigenous design and production capability
and local manufacture of a substantial amount of the components as well as
sub-systems used in the communications services.
A National Institute of Telecommunications (NIT) shall be established to
provide the necessary high-level manpower and to serve as a research and
information and communications development centre.
The Federal Government of Nigeria shall promote Research and Development
(R&D), both basic and applied research, relating to the information and
communications industry, by extending the educational policy of government
to cover R&D in science, electronics, telecommunications, computer and
information technology. Telecommunications operating and regulating bodies
shall be encouraged to set up R&D centres.
The Federal Government of Nigeria will continue to support effective use of
satellite systems for national coverage and international connections. It shall
collaborate with other African countries to establish and manage the African
Regional Satellite Communication (RASCOM) system or any other satellite
system for national and international traffic. The acquisition of a national
satellite communication technology and system shall be a long-term goal.
While some of these are still in process very many capital investment have also
been put in place to ensure growth of the sector and a bid to meet
communication development demands.
Measuring the effectiveness of financing of investment in the
Communications sector can be assessed through its increased profitability,
bettered quality of service, contribution to the economy (industrial sector,
education, transportation, health, commerce, government services etc.) at large.
Profitability
Against the background of resource-limited conditions of the 1980s and 1990s,
and an environment undergoing rapid and dramatic political and socioeconomic
changes and upheaval worsened by external pressures, for instance, NITEL
accomplished a most impressive and extraordinary performance after the
deregulation of communications services in Nigeria.
The communications industry can to a large extent account for its investment
funds since the deregulation of the sector and in recent years. The fiscal
implication has also been positive as a result of reduction in the need for
operating subsidies and investment capital. In fact, telecommunications has
become an important contributor to the national treasury through annual tax
flows. Apart from the high level of revenue generated, other financial
indicators also recorded tremendous growth. For example, total fixed assets
increased from N5.525billion in 1992 to N9.235 billion in 1993, while earnings
per share rose from 1.236k to 5.468k during the same period. Abdulkadir
(1996) attributed this favorable development to improved connectivity and call
completion rates contributed by the telecoms sector, which gave rise to
increased revenue generation and collection.
Quality of service
Expansion and modernization have been accompanied by an appreciable
improvement in the quality of service. Remarkable increases in the number of
lines and trunks, and the application of digital and fibre optic technologies
resulted in overall improvement in service quality as which presents the major
service indicators between 1991 and 1995.
Despite these claims, available evidence, although fragmentary, indicates that
the quality of communications services must still improve considerably. In a
survey conducted by the Foundation for Economic Education (1996) to
determine the effectiveness of and pricing in private and public utilities in
Nigeria, one-quarter of respondents rated telecommunications services as
“poor”, less than half as “fair”, and one-fifth as “good”. Most subscribers
complained of congestion and slow dialing tone, which is symptomatic of low
telephone density, also is the high cost of erecting masts for internet facilities.
The contradiction arising from the remarkable achievements in network
expansion and modernization vis-à-vis the persistence of low call completion
rates, poor dial tone reception and other indicators of poor quality service have
been attributed to severe shortages of lines (Nwafor, 1997). The problem of
inadequate network facilities for the provision of services is a major weakness
of communications. This makes it impossible for the company to satisfy
customer demands, thus resulting in the existence of large numbers waiting for
services.

Conclusions
Thus, empirical result of this study has implication for how current
investment in the communications sector has been significant to the GDP and if
the Nigerian economy can increase its penetration with increase in
communication investment, and if it does how much it can expect its national
output to grow.
Initial attempts to reform the telecommunications sector in Nigeria have
brought encouraging results. The reforms yielded increased profitability, and
greater productivity. Network expansion and modernization was reflected in the
expansion of the telecommunications system, establishment of ICT centre and
availability of new services. Financing of communication structures in Nigeria
has increased compared to the average contribution of 7.4% o f actual
expenditure in the 1980s. Efforts to generate more investment for the sector
have heightened and the trend in recent years has considerably paid off on the
Nigerian social, global and economic stance.
In spite of the results of modernization and expansion in the wake of
commercialization, it is becoming increasingly clear that the industry is still not
capable of meeting the needs of all users. There is growing consensus that only
competition and private participation will ensure lasting improvements. The
industry is still characterized by under-investment and large unmet demand, not
only for basic services but also for specialized services needed by modern
businesses to compete more effectively. This situation reveals the vast
potentials in the industry and calls for greater private sector participation in the
delivery of telecommunications services in Nigeria.
The structure of the paper is organized as follows, chapter one contains
introduction of the study, definition of relative terms, objectives and scope of
the study. Chapter 2 provides a brief summary of empirical issues on
relationships between investment in telecommunication infrastructure and
financing measured via its effect on the economy. Chapter 3 gives the
methodology adopted in the work. Chapter 4 provides the discussion of results.
The last section contains the concluding remarks.
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