Nigeria 2017 ICT Sector Realities: Some Concerns and Opportunities - By Olufemi Adeagbo

Nigeria's economy is undergoing serious recession and currency value erosion. This implies that acquiring ICT infrastructure will become more onerous, considering the USD component of most of these solutions, especially the enterprise grade high-end solution sets.

For context, let us look at some facts. In 2014, only 3 countries relied on oil for over 90% of export income: Nigeria (92%), Angola (95%), Venezuela (93%). Saudi Arabia, Norway and UAE, earned 83%, 65% and 59% respectively from oil exports. The former trio also spent heavily on food. Venezuela $9.2b (25% of imports), Angola $4.6 b (18%) and Nigeria $7.7 billion (15%) comprised of, amongst others, $677m on non-fillet frozen fish, $ 209m on processed fish,$699m on sugar, $499m on palm oil, $ 709 on rice and $1.4 billion on wheat. We spent another $ 7.8b (15%) on refined petroleum products, $1.9b on cars ( it is unlikely that countries with twenty times our per capita feature households with three or four cars as is common with our so called elite class), $493m on rubber tyres, $304m on embroidery ( number one in the world), $203m on fake hair, $615m on telephones etc.

The chances of the Nairas SUSTAINED recovery especially as the Petroleum resources that bring in over 90% of FOREX has reduced significantly, both in value and quantum produced. Our view is that recovery will also not happen overnight. The LONG TERM Naira appreciation will be predicated on various things including reduced expenditure on imported vanities, increased domestic productivity and decimation of corruption.

A small cluster have basically taken what should have been used to create widespread prosperity, enlightenment and elevation and used those resources to fund 'rock star lifestyles that mask severe personal insecurities and lack of substance. Their actions over many years have depleted the psyche of a once productive people, as too many positioned around the oil funnel to 'lick' a few drops. It has largely been an unproductive existence based on extravagant lifestyles, negative competition, gaudy display of wealth ( often with dirty roots), and a young generation almost exclusively focussed on just making money. It is, in our view, still likely that there will be severe consequences further down the road, beyond the economic tightening we are currently seeing. These are simple laws of action and consequence in the affairs of men and economies alike.

It is instructive to note that we spent only $213m on tractors, and $306m on computers - productivity and knowledge enablers. Thailand, whom we bought some $500 m worth of rice from in the same period, spent $50 for every dollar they spent importing fake hair. We spent $1.09 on tractors for every $1 we spent on fake hair. Thailand spent $3.5b on food imports representing only 1.6%

Is it any surprise therefore that these three countries are suffering punishing inflation (with Venezuela breaking ceilings in many respects), and are amongst the worst performing currencies in the world? Venezuela  800% + inflation as of December 2016 with currency value loss over 80% in 2016. Angolas inflation rate is over 40% whilst Nigeria is somewhere close to 20%. Their currencies have also suffered serious losses.

The structure of our individual priorities will also need to change significantly to stand any chance of recovery. Pumping money into the economy will only provide the funnel with funds to keep pursing the vanities we are used to. Nigeria and Venezuela could not till their land to feed themselves despite their historical dependence on agriculture. Emerging economies simply cant spend the way we have and expect currency stability or economic growth. Attitudes need restructuring away from consumption towards productivity, learning and innovation. This shift, in my view, may be akin to weaning a cocaine addict off the drugs. However, huge opportunities lie in wait for the productive minded and long term investors.

ICT will be affected in a number of ways. Companies may reduce investments. On the other hand, Investment in ICT may actually increase in some narrow sub-sectors such as Governance, risk and compliance management solutions, cyber security and business intelligence and collaboration platforms and tools. This may be driven by the imperativeness for organizations to seek more efficiency and transparency to reduce overheads, increase efficiency, and block loopholes; measurably. However, we do not produce ICT infrastructure, and complex software just yet, so these items will still consume very scarce resources. Therefore, the balancing act will need to be delicately undertaken to achieve desired results.

DATABASE

At the foundational level of building the enterprise dataset lies the database market dominated by OEMs like Oracle and Microsoft. We believe that unless these organizations are able to deliver tailored emerging economies solution bundles that recognize the economic disparities between advanced markets and emerging economies, their market share and revenues will encounter serious erosion, especially in light of open source alternatives that are gaining in credibility, skills support and cutting edge functionality. Gartner already reports this trend even in advanced markets.

Not only will 70 per cent of all new in-house applications be developed on an open source database, 50 per cent of all existing commercial RDBMS (relational database management systems) will convert to an open source database (OSDBMS). Research firm Gartner predicts this uptake in its report. The State of Open-Source RDBMSs, 2015. The open source approach, Gartner writes, has entered a state of full market productivity.

Table 1 contains a pricing comparison of Oracle Database Enterprise Edition,3 MySQL Enterprise Edition4 and EnterpriseDB Postgres Plus Advanced Server,5 using a standard x86 server with two sockets, each with six cores. Assuming a 50% discount for the Oracle EE licenses (net $236,550), this would still represent a cost 15 times greater than MySQL and almost six times greater than EnterpriseDB, yielding three-year cost savings of $221,550 and $195,150, respectively.

Source: Gartner

Clearly, opportunities exist for serious local investors to back local companies that can produce enterprise grade database solutions that are built on open source platforms and that are expansive enough to address the needs of Nigerian enterprises. This will drive down recurrent expenditure incurred on licensing support, avoid punitive reinstatement fees applied if a client that has not been paying support wants a version upgrade or support and the relatively high fees associated with OEM implementations. We believe a local player will emerge in the medium term with a solution for the small to mid market enterprise segment

Many believe that a large portion of what OEMs sell here are excess to business requirements, yet bundled in and charged for the same way a US or UK company would avail themselves of the technologies. When we look at our GDP per capita of $2,548 US dollars in 2015, and that of countries like the US at $51,638 and the UK at $41,487, it is apparent that Nigeria needs to look for a new reality where these applications are concerned, though many will argue that Nigerian companies and business leaders do not show aversion to purchasing expensive luxuries such as exotic vehicles and other high end luxurious items, and therefore see no reason why software and computing infrastructure should attract price criticisms considering the productivity they enable.

However, the OEMs shoot themselves in the foot with these sort of arguments as the likely outcomes will be companies unable to acquire and deploy their technologies, unable to pay on-going support (which at times can be up to 28% of procurement costs), which will lead to stagnation and ultimately decline. It becomes a penny wise, pound foolish scenario where larger spread of revenue is sacrificed in favor of a very narrow audience that can afford these solutions and optimally benefit from them. One solution that OEMs and certainly institutions tasked with ICT policy and development should explore is special market prices or mid market editions that are attuned to the realities of the emerging economies. Concomitantly, our local development should be ramped up to enable home grown solutions that can replace some of these applications in the future, though these should evolve commercially rather than by government fiat, which tends to ensure that local products have no incentive to be best of breed.

CLOUD

Another opportunity many organizations are exploring are Cloud options. Cloud propositions are indeed interesting as they ultimately promise cost savings through aggregation of infrastructure at the Cloud provider, effectively replacing acquisition with rental models. They also provide the ability for organizations to deploy infrastructure and applications in off site environments that have always on connectivity and power resources, ensuring an organizations market facing services can always be accessed even if the organizations internal resources such as power are unreliable. They also take away a chunk of ICT management demands and allow organizations to focus on their core mandates leaving management of a huge chunk of infrastructure to cloud providers. When updates, security and other bells and whistles are factored in to the picture, the increase in cloud adoption is easy to understand.

However, the cloud has its opaque characteristics, which in some cases can be adverse. First is the data sovereignty issue. When data is in the cloud environment, control is somewhat ceded, even if only psychologically in some cases. This data can be mined, compromised and even exposed to hacking outside of the security influence of the client. Converged data offers a more attractive target to hackers though this risk is probably minimized by cutting edge security tools one expects Cloud providers to put in place. Furthermore, cloud propositions, especially from OEMs have a lifetime lock in flavor, and are not necessarily cash flow friendly with many OEM providers demanding multi year contracts, and in many cases, upfront payments.

Then there are the connectivity latency concerns especially when heavy-duty enterprise productivity applications are driven from the Cloud environment. If connectivity is down, an organization may find itself completely unable to undertake even basic word processing tasks, until connectivity is restored. Even advanced environments like Australia have had latency concerns leading to a raft of in country data centers being built to deliver cloud services to the local market.

Local cloud providers have a stake in the game here. And the recent announcement between Main One and Microsoft partners, Signal Alliance, is one of such interesting early moves, though it remains to be seen whether this arrangement delivers other benefits apart from the connectivity proximity advantage over out of countrycloud platforms. The currency pressure introduces huge opportunities to win the business of thousands of small medium sized enterprises that utilize various cloud services outside the country and expend dollars to pay their subscription fees.

Capitalizing on this opportunity will require clarity of propositions, significant trust and confidence building and continued service excellence. Rack Center, Main One and MTN are some of the Tier 1 data centers in Nigeria who are providing cloud-hosting platforms to global standards. Organizations need to inspect facilities to establish how well their individual priorities are catered for by the provider environment  for they are different in their own little ways. Another issue is that of insurance of assets hosted at a datacenter.

From the application perspective, decisions between lifetime subscriptions and capital purchases need to be subjected to very stringent ROI (Return On Investment) and TCO (Total Cost of Ownership) analysis, as well as proper risk evaluation to avoid nasty surprises down the line.

COLLABORATION, ENGAGEMENT AND BUSINESS INTELLIGENCE

We use collaboration and engagement platforms to describe contact centers, collaboration / workgroup tools and social media engagement platforms. Business intelligence tools delve deep into data, to locate trends that can become actionable intelligence that deliver business advantage. Engagement with potential and existing customers will create data that can be mined for business advantage. It will also create the need to collaborate and engage online, particularly through social channels. Contact-Centers that aggregate traffic from all channels including social channels and are capable of both inbound and outbound capabilities will become mandatory for those with retail/ market facing organizations.

Cost pressures will introduce cloud propositions even in respect of platforms like Contact Centers. Whilst these may be advantageous in certain environments, suitability or otherwise will depend on various factors such as the organizational strategy, connectivity reliability and latency tolerances, data sovereignty and other issues that ought to be considered when weighing cloud against non-cloud propositions.

GRC AND SECURITY

Security, inclusive of business continuity infrastructure will also come under pressure and to a large extent will be determined by the risk tolerance of the organization. It is a fact that cybercrime is becoming more organized, profitable for its perpetrators, and increasingly sophisticated. Nigerian Businesses of all sizes and across multiple sectors already lose billions to multi-dimensional cyber related fraud orchestrated from within and outside of its borders.

At the very least organizations should invest in best practice processes for ICT use within their organizations whist endeavoring to undertake enterprise grade proactive and defensive measures through the deployment of ICT security solutions that support organizational processes.

Governance, risk and compliance (GRC) solutions can also be formidable first line of defence in terms of securing the organization, not just against cyber attacks, but from threats presented by non compliance, risk identification, policy enforcement and live monitoring of assets. ICT solutions that enable effective crime prevention and detection will also be a growth area.

Security breaches can destroy a small or medium sized enterprise in one fell swoop. Security, in our view, should receive more emphasis and focus, even from a National level as Cybercrime is easier to perpetrate when there are weak points in a technologically integrated environment. Our financial services sector, which cuts across banking, microfinance, companies of all sizes, the Central Bank amongst others is one example of an ecosystem that could be faced with serious attacks.

ETHICS

Another major issue is corruption in the ICT space itself. Whilst a vast amount of credible professionals operate in the sector there are indeed bad eggs littered across the entire landscape. The activities of these few means that many organizations purchase the wrong solutions, pay inflated prices, and ultimately organizations of responsive and cost effective solutions. Personal interests when placed above organizational, or even National ones in critical sectors, can have devastating effect on the ability of that institution to deliver on its mandates.

At times, the problem is also found in the public and private sector environments as different agencies compete for supremacy and control, especially in the procurement loop. If the jostling were altruistic, then it would have been a different story. Often times, it is to feather the nests of personal or other interest and the roots often lie in cornering resources. Sadly, too many organizations pitching solutions are complicit and even when they are faced with these obstructions, choose to play along rather than stand up for their rights.

Again this ensures value erosion and waste as the emphasis is not on the technology working for the organization but the returns that will flow. This transactional mindset is one of the debilitating factors that have eroded value for money, and efficiency across both private and public sectors, and until curtailed will continue to create significant burden on the sector.

SECTOR DIRECTION

Clarity in terms of sector direction. Whilst it is undisputable that many initiatives are ongoing across various government agencies, there is a sense of distinct lack of coordinated outcomes that the sector can line up behind and be adjudged upon. The Ministry needs to take leadership in this respect and articulate just a few measurable objectives that speak to:

     Better governance of ICT;

     Local content drive in production;

     Affordable access to quality ICT tools and services;

     Ethical framework to avoid arming criminally minded persons with

     ICT skills and tools;

     Cyber-security; and

     Cost reduction on ICT acquisition through shared services, where appropriate, and negotiation of aggregated preferential procurement rates on software license acquisition and support.

Perhaps the Ministry of Communication Technology has not published parameters by which it ought to be measured, but there is an impression of sub par performance, even if the reasons underpinning that conclusion are also unclear. There is a need for more clarity on the direction and expected outcomes.

Perhaps a purpose based entity like the Digital Government initiative, or an expanded Digital Nigeria will probably provide a good convergence to pull all digital initiatives  some of which reside at often competing ministries and agencies  into one focused agenda of both leveraging ICT maximally in the governance of Nigeria's  affairs as well as becoming a major GDP enhancer. From utilization, production and human capacity perspectives  with clear measurement indicators.

Customers, in our view, will be in an even more enhanced negotiating position as competition for scarce business deepens. But this should be used very wisely, and within the boundaries of business fair play. Screwing providers to the ground can have counter productive effect  as they try to recover those loses during implementation and through other loopholes that many organizations overlook within the small print.

2017 promises to be a year of intense pressure for the industry, jobs, business volume and much more. Our productivity outcomes, even as we pursue diversification away from oil will be driven by ICT. Yet the sheer demand base lends itself to innovation, adaptability and more value oriented propositions for ICT solution providers to thrive.

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