Escalating Expenses Imperil Data Centers and Telcos in Nigeria

InfoStride News has reported that companies in the ICT sector, including data center operators and telecommunications firms, are facing significant operational cost increases in Nigeria. This challenge is due to factors such as general inflation, high energy costs, currency devaluation, and more.

In a recent meeting between the Association of Licensed Telecommunications Operators of Nigeria (ALTON) and the Minister of Communications, Innovation, and Digital Economy, Engr. Gbenga Adebayo, Chairman of ALTON, highlighted the rising cost of doing business in Nigeria. This includes inflation, currency devaluation, difficulties in accessing foreign exchange at favorable rates, increased energy costs, and growing expenses related to securing telecommunications facilities and field personnel due to worsening insecurity.

Nigeria’s inflation rate was reported to be 25.8% in August 2023, reflecting an increase from the previous month. The devaluation of the Naira has also driven up the exchange rate against the dollar, leading to economic challenges. Telecom operators and data center companies are grappling with the rising costs of energy, particularly diesel and petrol, which are essential for powering backup generators. Diesel prices have fluctuated significantly, while petrol prices have increased due to the removal of subsidies.

In addition to these macroeconomic factors, the ICT sector faces the issue of multiple taxation and right-of-way (RoW) charges. ALTON members currently contend with approximately 49 different taxes and levies. Additionally, they are burdened by taxes and levies imposed by sub-national entities without a legal basis, which threatens investment, sustainability, and industry growth.

ALTON’s Chairman pointed out that several Legislative Bills are under consideration at the National and State Houses of Assemblies, seeking to impose new taxes and levies on private organizations. The challenges related to policy and regulation in the data center sector, specifically the implementation of policies on local hosting, also affect operations negatively.

The poor implementation of local hosting policies has led to many Nigerians hosting their content abroad instead of utilizing local data center service providers. This hinders the growth of the data center industry. As a result, the sustainability of businesses in the ICT sector is at risk, and Nigeria’s digital economy agenda faces uncertainties.

The high operational costs are affecting the ability of telecom operators to expand infrastructure to underserved areas, which is crucial for the government’s digital agenda. Balancing profitability with soaring costs will be a major challenge for data center service providers and other businesses in the ICT sector.

As the year comes to a close, these companies will need to make difficult decisions to navigate the challenges they face in the coming months. Finding ways to ensure profitability while managing increased operational expenses will be a top priority for businesses in the ICT sector.