Stakeholders and industry players say the debt capital market is crucial in bridging the infrastructure deficit undermining economic growth, as Nigeria plans to issue a $2.50 billion Euro bond by mid-November.
Speaking at the FMDQ OTC Securities Exchange 2017 Nigerian Debt Capital Market Conference and Awards, held yesterday at the Latana/Orchid Hall of the Eko Hotel and Suites, Lagos Nigeria, the stakeholders called for enabling market reforms that will position the debt capital market to perform its role of capital formation and thus attract long-term funds for infrastructure projects.
Nigeria’s infrastructure deficit is huge, as Bolaji Balogun, chief executive officer of Lagos-based investment firm, Chapel Hill Advisory Partners Limited said that the country needs close to N200 trillion to bridge the deficit in the housing sector alone.
“Infrastructure deficit is a big barrier to economic growth”, Kemi Adeosun, Nigeria’s minister of finance said, in a recorded address to participants. “The government has a lot of investment that need financing.”
Adeosun, said that government is working with the private sector to deepen the country’s debt capital market, as evidenced by the success of the SUKUK bond.
Furthermore, Balogun said if properly nurtured, Nigeria’s capital market can be the ‘strategic weapon’ the country will use to join the league of the top seven global economies by 2050, given that it is set to be the third most populous country in the world by then.
“It means Nigeria has to address the issue of infrastructure, such as the construction of roads, hospitals, schools and bridges,” he said. “The only solution to these challenges is to raise debt capital in order to fund these projects. The capital market will enable us to create jobs and alleviate poverty.”
Chiedu Ndubisi, technical adviser to the director general and member of the executive management team of ICRC said that 48 per cent of the $3.1 trillion needed to fund Nigeria’s transport infrastructure is expected to be provided by the private sector.
Analysts say over the years, the amount set aside for capital projects is always a drop of water in an ocean, as a larger chunk of the money is usually earmarked for recurrent expenditure.
According to Balogun, the capital market provides 81 per cent financing for capital projects in the US, but the opposite is the case in Nigeria, where the capital market provides 30 per cent of infrastructure funds.
“Out of the 30 per cent raised, government spends most on recurrent expenditure,” Balogun said.
Nigeria plans to raise $2.5 billion in October, to help fund the 2017 N7.4 trillion ($20.8 billion) budget, according to Patience Oniha, director-general of the country’s debt management office. It will sell the remaining $3 billion before the end of the year, to replace naira-denominated debt, she said.
“One of the areas of focus is to channel new borrowing into capital expenditure than consumption,” she added.
The DMO office said that Nigeria issued a N100 billion SUKUK bond that was oversubscribed.
Yield on Nigeria’s $500 million Eurobond due July 2023 rose four basis points by 1:26 p.m. in London, extending Wednesday’s 15 basis-point climb, to 5.49 percent, the highest since August 21. Similarly, yields on the country’s dollar securities due in 2032 increased six basis points to 6.91 percent, the highest since July 18.
Nigeria has a debt to GDP ratio of 17 per cent, but this could increase to 24.10 per cent by 2018, according to the IMF.
Johnson Chukwu, managing director and CEO of Lagos-based Cowry Assets Management, told BusinessDay that government has exceeded its borrowing capacity and that the only way to bridge the infrastructure deficit is through Public Private Partnership (PPP).
“For instance, in the 2017 budget, the amount earmarked for capital expenditure is N2.24 trillion, while total borrowing is N2.35 trillion, which means that every kobo that will be spent on capital expenditure will be borrowed,” Chukwu said.
The Nigerian government has concessioned two narrow gauge rail lines in the country to General Electric, as the concessionaire plans to spend $2.2 billion in the upgrade of the infrastructure.
Mary Uduk, who represented the director-general of Nigeria’s SEC, told participants at the FMDQ conference that the Federal Government’s attempt to fund infrastructure is unsustainable and her position resonated with other speakers at the event.
“Many projects are better managed by the private sector,” Yemi Osinbajo, Nigeria’s vice president, said through Pat Oniha, his representative at the event.
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