TECHNOLOGY ACQUISITION AND ECONOMIC GROWTH IN NIGERIA: A CASE OF TELECOMMUNICATION

TECHNOLOGY ACQUISITION AND ECONOMIC GROWTH IN NIGERIA: A CASE OF TELECOMMUNICATION

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CHAPTER ONE

INTRODUCTION

1.1        BACKGROUND OF THE STUDY

Information and communications technology (ICT) has become a potent instrument/force of developing countries for transforming social, economic, and political life of the people and for instituting sustainable participatory development frameworks. Information has always played a very important part in human life, however, in the mid-20th century, the role of information increased immeasurably as a result of social progress and the vigorous development in science and technology. The industrial revolutions in Europe and America, generally and specifically, have been premised on technological breakthrough. During the late 1990s, information and communications technology (ICT) was the largest contributor to growth within capital and services of both Canada and U.S.A (Harchani, 2002). Similar trend has been observed with the economic development of China, Korea, Taiwan, India, South Africa and other emerging economic powers (Mafe, 2000).

Information and communication technology can be viewed in different ways, the World Bank defines ICTs as “the set of activities which facilitate by electronic means the processing, transmission and display of information” (Rodriguez and Wilson, 2000). “ICTs can be described as a complex varied set of goods, applications and services used for producing, distributing, processing, transforming information ( for instance) telecoms, TV and Radio broadcasting, hardware and software, computer services and electronic media”(Marcelle, 2000).

Telecommunications is the transmission of signal over a distance for a purpose of communication. Chambers 20th century dictionary defines telecommunications as “a communication of information in verbal, written, coded pictorial for by telephone, telegraph, radio, television, news papers etc. The processes of telecommunications cannot be over emphasized. In earlier years it may have involved the use of smoking signal, drums, and sema phore” (Alabi,1996). In modern times, this process almost involved the sending of electromagnetic waves via electronic transmitters. Today, telecommunications is widespread and devices that assist the process such as television, radio and telephone are common in many parts of the world. There are also vast array of networks that connect


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these devices, including computer network, public telephone network, radio networks and television network. Computer communication across the internet such as e-mail and instant messaging is just one of many examples of telecommunications.

At early 2000, the federal government of Nigeria embarked on aggressive drive towards the provision of more efficient services in the nation through its privatization and deregulation policies. Nigeria’s National Policy for IT was produced by the Nigerian Information and Communication Technology Agency (NICTA). The policy approved by the Federal Executive Council in March 2001 and was officially launched on May 24, 2001.

The policy drive led to the establishment of National Telecommunications Policy in December 2001. The mission statement of the government was to use ICTs for Education, creation of wealth, poverty alleviation, Job creation, and global competitiveness. The policy objective was to develop globally competitive quality manpower in ICTs and related disciplines. Consequently, attractive career opportunities will emerge in addition to the development of “Made in Nigeria Software” and Computer components that can earn the nation some foreign exchange. The implementations of ICTs policy lead to the adoption of Global System for Mobile-Communications (GSM) and its related component in Nigeria.

Over the past decades, we have witnessed how the US economy has been revived in the late 1990s due to large investment in ICT, as referred to Stiroh (2002) of the Federal Reserve Bank of New York. Information and communication technology capital enhances economic growth: a higher level of ICT per capital stock allows a typical economy to achieve a higher growth rate for given levels of growth in labor and capital inputs (Vu, 2004). With respect to Khuong Vu’s view, it is also possible to say that sometimes it may not be how much you invest, but rather how well you invest it.

In Africa, provision of public infrastructure is grossly inadequate and poor. Necessary telecommunications services and public infrastructure needed for meaningful investment are lacking and seem costly if eventually found. Teledensity in Africa and Nigeria in particular, is very low. In the early 1990s, only one out of every 1000 people in Chad had a telephone and there was just ten percent chance of completing a local call (Easterly, 1996). The situation is worse in Nigeria (Soludo, 1998) with its teeming population. Prior to the introduction and adoption of GSM services in Nigeria, it cost about


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US$10 to Fax one page message to America or Europe, and about US$8 to perform similar task locally when the phones were functioning properly. This phenomenon was responsible for poor call completion rates, subscriber dissatisfaction, and hence loss in revenue. The introduction of GSM in Nigeria was aimed towards expanding the teledensity in the country and to make telephone services cheaper and accessible to the common person as it has been introduced in some African countries like South Africa, Ghana, and Benin Republic among others.

Till date, at least four competitive GSM service providers have been fully licensed in the country. There are: Mobile Telephone Networks Limited (MTN), V-Mobile Nigeria now called Airtel, Globacom Nigeria Limited (GLO), and Nigeria Mobile Telecommunications Network (formally called NITEL) have created significant effects on the gross domestic product (GDP) of Nigeria in terms of Job creation, communication linkages, connectivity, and security of lives and reduced transport cost among others.

In the industrialized economies, many studies have shown that more than 50 percent of long-term economic growth stems from technological changes that improve productivity and lead to new products, processes or industries. Technology progress is the key to international competitiveness and economic growth. Of four inputs to production—Capital equipment, raw materials, Labor and technology, it is only technology that is not physically limited.

The importance of technology is seen when considering a production function. This function omits raw material as an input and takes value added as an output, wealth is increased by technology. For instance ---

dY/Y = dT/T +a dk/k b dL/L

where: dT = Total factor productivity increase (technology progress)

dY = Output (value added) increase

dk = Capital increase

dL = Labor increase

ab = coefficients where a+b=1


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Also technology is important when we think of labor productivity as follows

dY/L = dT/T + a dK/K

where: Y = Y/L and K = K/L

Thus, labor productivity increase rate is determined by a technology progress rate and an increase rate of capital per labor ratio. As far as foreign direct investment (FDI) and others continue, labor productivity increases (Paul Krugman 1994).

Technology progress is rapid at the early stages of economic development. In Japan, a technology progress rate, or factor productivity growth rate, was high in the early 1960s when Japan was developing and became lower to one seventh of that in the late 1970s, and early 1980s as the economy mature (see figure 1). According to the Solow model (1956), technological progress will cause the value of many variables to rise together, and in the steady state, output per worker and capita stock per worker both grow at the rate of technological progress. The Solow models prediction about factor prices and the success of this prediction is especially when contrasted with Karl Marx’s theory of the development of capitalist economies. Marx predicted that the return to capital would decline over time and that this would lead to economic and political crises. Economic history has not supported Marx’s prediction, which partly explains why we now study Solow’s theory of growth rather than Marx.

In the neoclassical model of growth development by Solow (1956), follows the logic of the post Keynessian model, like the Harrod-Domer model, that assumes rigidity in production technology, the Solow-Swan model gives room for the possibility of factor substitutability (flexibility). The ultimate aim here is the search for the condition of stable equilibrium.

The endogenous growth model emanates from the work of Romer (1986) and Lucas (1988). This model questions the idea of exogenous technical progress. The proponents of the model in question are of the view that an increase in technological progress boosts the growth of per capita income and national savings. By enhancing technical progress, trade can cause long-run growth to be permanent. Technical progress can be accelerated through imports of intermediate goods, an increase in telecommunications, foreign direct investment (FDI) or more incentive to imitate and innovate. Romer (1986) referred to the


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