Economic Impacts of Submarine Fiber Optic Cables and Broadband Connectivity in Nigeria Working Paper 0214363.202.4 November 2020 Prepared by Alan C. O’Connor Benjamin Anderson Sara E. Lawrence Fola Odufuwa Alice Olive Brower Sponsored by RTI International 3040 E. Cornwallis Road EconomicResearch Impacts Triangle of Submarine Park, NC, Fiber USA Optic Cables and Broadband Connectivity in Nigeria | Page 1 Economic Impacts of Submarine Fiber Optic Cables and Broadband Connectivity in Nigeria HOW DO SUBSEA CABLES GENERATE ECONOMIC IMPACT? Subsea cables are the global backbone of the Internet, connecting people, businesses, and economies around the world. They connect us to the cloud, deliver streaming video, and increase efficiency and productivity for business. Subsea cables’ importance is all the more apparent during the Covid19 pandemic when many of us have switched to working from home, remote learning, and online gaming and entertainment. We studied the economic impacts from subsea cables that arrived in Nigeria (e.g., WACS) to understand how they changed the economy. Improved connectivity led to increases in internet usage and decreases in costs, but infrastructure and affordability challenges meant that impacts were limited to select urban areas. Our results signal the promise connectivity improvements could have in other parts of the country. Subsea Consumers Economic Impacts cables arrive Internet speed increases Existing consumers enjoy better speeds, increasing their consumption of $ Price per data digital content, products, unit decreases and services. New firms and $ startups emerge to 7.8% serve consumers Subsea cables led to a 7.8% and businesses increase in employment in Some consumers decide fiber-connected areas by to subscribe to services 2014 for the first time Business $ 1,100% 1,100% increase in financial services exports per capita by Increased internet speed, 2017. quality and reliability makes doing business Growth in The financial services sector, among the easier productivity, most ICT-intensive industries, is more active efficiency, and and productive because of subsea cables’ revenue for firms connectivity. $ New business opportunities Increased For every 1 million people living in fiber- Network is data traffic More businesses use the connected areas, an additional 78,000 become cloud and e-commerce employed, relative to unconnected areas. built out competition for the first time Unfortunately, we didn’t detect any impacts on employment or GDP beyond fiber-connected areas. Nigeria suffers from a fragmented network infrastructure (and underdeveloped infrastructure overall). Subsea cables land in Lagos, and band width begins to fall off quickly thereafter. Experts interviewed for this work note that network oper ators face a high-cost, high-risk environment that presents strong disincentives to network expansion. The new national broadband strategy has good ideas for addressing the country’s challenges, but the plan from 2015 went unim plemented and there are concerns that the same fate could befall the one from 2020. Download the full report at rti.org/subsea-cables-africa Alan C. O’Connor, Senior Director, Center for Applied Economics & Strategy | [email protected], +1.919.541.8841 Recommended Citation: O’Connor, A. C., B. Anderson, S. E. Lawrence, F. Odufuwa, and A. Brower. 2020, November. Economic Impacts of Submarine Fiber Optic Cables and EconomicBroadband Connectivity Impacts of in Submarine Nigeria. Working Fiber Paper Optic 0214363.202.4. Cables and Research Broadband Triangle Park,Connectivity NC, USA: RTI in International. Nigeria © RTI International, | Page 2020 2 Table of Contents SECTION PAGE 1. OVERVIEW 3 2. NIGERIA COUNTRY PROFILE 4 3. ANALYSIS APPROACH 6 3.1 Econometric Analyses 6 3.1.1 Difference-in-Differences 6 3.1.2 Synthetic Control 7 3.2 Thematic Analysis of Interviews with Key Stakeholders 8 4. ECONOMIC IMPACTS OF SUBSEA CABLE LANDINGS 9 4.1 Impacts to Date 9 4.2 Forward-Looking Implications of Econometric Analyses 10 5. STAKEHOLDER PERSPECTIVES ON CONNECTIVITY 11 5.1 Telecommunications Market Structure and Competition 11 5.2 Network Expansion 12 5.2.1 Network Expansion Costs 12 5.2.2 Rewards and Risks 13 5.2.3 Limited Cooperation and Political Will 14 5.3 Uptake Proposition: Affordability, Quality of Service, and Content 14 5.4 Public Policy Priorities 15 5.5 Economic Development and Social Empowerment 15 6. CONCLUDING REMARKS 16 Recommended Citation: O’Connor, A. C., B. Anderson, S. E. Lawrence, F. Odufuwa, and A. Brower. 2020, November. Economic Impacts of Submarine Fiber Optic Cables and Broadband Connectivity in Nigeria. Working Paper 0214363.202.4. Research Triangle Park, NC, USA: RTI International. Economic Impacts of Submarine Fiber Optic Cables and Broadband Connectivity in Nigeria | Page 3 1. Overview This study explores the economic impact of the international characteristics, industries, and other important factors. data connectivity delivered by submarine fiber optic cables We also found signals that firms in connected areas are expe- (“subsea cables”) on Nigeria. Subsea cables are the global riencing positive outcomes by leveraging the internet for backbone of the internet, connecting people, businesses, and business. For example, the financial services sector, generally economies around the world (Figure 1).1,2 one of the most ICT-intensive sectors, saw its exports increase The importance of connectivity to economic growth is 1,100% by 2017. Thus, the economic development reward for well-established—and further underscored by our collective solving the connectivity challenges is significant. experience during the COVID-19 pandemic—but rigorous Unfortunately, we didn’t detect any impacts on employment studies have not been conducted for many countries.3,4,5 or GDP beyond fiber-connected areas. Nigeria suffers from This study is one in a series our team prepared about how a fragmented network infrastructure (and underdeveloped improvements in international data connectivity have infrastructure overall). Subsea cables land in Lagos, and band- generated economic growth for countries in Africa.6 We focus width begins to fall off quickly thereafter.7 in particular on recent cable landings, such as Africa Coast to Europe and West African Cable System. Experts interviewed for this work note that network oper- ators face a high-cost, high-risk environment that presents In brief, we found that subsea cables have increased the strong disincentives to network expansion. The new national likelihood of being employed by 7.8% in areas connected broadband strategy has good ideas for addressing the to Nigeria’s terrestrial fiber infrastructure (Table 1). This country’s challenges, but the plan from 2015 went unim- means that for each 1 million people living in these areas, plemented and there are concerns that the same fate could 78,000 additional people tend to become employed, after befall the one from 2020. controlling for such things as technology trends, population Table 1. Key Takeaways: The Economic Impact of Subsea Cables on Nigeria INDICATOR TIME PERIOD OUTCOME 7.8 increase in likelihood of being employed in fiber-connected areas Employment 2008—2013 For every 1 million people living in connected areas, an additional 78,000 become employed, relative to unconnected areas 1,100% increase in financial services exports per capita Economic growth 2010—2017 The financial services sector, among the most ICT-intensive industries, is more active and productive because of subsea cables’ connectivity. The impact is equivalent to a 1,100% increase in exports Source: Authors’ estimates. 1 Clark, K. 2019. Submarine Telecoms Industry Report, 7th Edition. Submarine Telecoms Forum. 2 Brake, D. 2019. Submarine Cables: Critical Infrastructure for Global Communications. Information and Technology Foundation. 3 Hjort, J, Poulsen, J. 2019. The Arrival of Fast Internet and Employment in Africa. American Economic Review, 109(3): 1032-1079. 4 Minges, M. 2015. Exploring the Relationship between Broadband and Economic Growth. WDR 2016 Background Paper; World Bank, Washington, DC. 5 Khalil, M., Dongier, P., & Zhen-Wei Qiang, C. 2009. Information and Communications for Development: Extending Reach and Increasing Impact. World Bank. 6 Other countries included in this series are the Democratic Republic of Congo, Kenya, Mozambique, South Africa, and Tanzania. 7 In the country’s absence of a National Backbone Network private operators have built transmission infrastructure, microwave radio, terrestrial fiber and satellite links with which they carry (primarily) their own traffic. Theoretically this infrastructure could comprise a national backbone. In reality however, the vast, competing and disorganized collection of operators, service providers and contractors do not provide a viable means to use this infrastructure effectively. Economic Impacts of Submarine Fiber Optic Cables and Broadband Connectivity in Nigeria | Page 4 Figure 1. Role of Subsea Cables in Internet Connectivity ROLE OF SUBSEA CABLES IN CONNECTIVITY Infrastructure investments and policy decisions affect the extent to which countries are able to benefit from Once international bandwidth lands connectivity. from the sea, data moves through terrestrial networks and points of Subsea cables are part of a presence to reach a firm or household. Mobile network complex internet delivery system. Fixed line to the firm or household Points of presence Landing station International bandwidth via submarine cable Terrestrial Fiber 2. Nigeria Country