Tayo Agunbiade
25 June 2009
opinion
Lagos — At every opportunity we get, we never fail to hail the level of infrastructural development that has been achieved in many of the advanced nations. Railways, roads, housing projects etc have been constructed to magnificent proportions.
Many of us tend to praise and admire to no end the public utilities, social amenities and other physical infrastructure in these far away lands. Everything works smoothly and failure to function effectively is a no-no. Public transport in most of these countries is simply a delight. In the United Kingdom for instance the famous Double-decker and bendy buses are favoured forms of getting around the City of London. Good roads and bridges which are all part of an excellent road network that works makes coach journeys enjoyable. London to Edinburgh (Scotland) is several hours but not an unbearable journey. Lagos to Benin is the exact opposite!
It is very much the same in the US. Roads and highways are in excellent condition for long distance journeys. The British railway and underground systems also make life easy to move both within the and outside the City. Beyond the transport and road systems, the functioning energy sector ensures power supply round the clock. In these countries black outs are the rare exception rather than the norm. Power cuts during bad weather always make headline news. Few months back there was a power cut in New Zealand and it made the headlines. In these countries everything works and infrastructural development is very visible and well-appreciated. The same can be said of many other cities in Europe, America and Asia. It is not for nothing that the phrase "see Paris and die" was coined many years ago by some of the early travellers from the shores of Nigeria to overseas countries. But have we ever wondered how the Governments of these places have funded these infrastructural wonders in many of the cities we love to visit for our business trips and family vacations?
These are some of the success stories of putting government/municipal bonds into good and verifiable use as sources of long term funding needs for the development of physical infrastructure. Infact we are told that no major city in the world was built with available funds but instead with long-term financing instruments such as the bonds.
Nigeria has had an extensive relationship with this financing instrument. According to the Nigeria Stock Exchange (NSE) there is a long history of our association with bond market dating back to 1946. Information from NSE states that the Nigerian Government started issuing bonds in 1946 under colonial rule and the proceeds were dedicated to the financing of some construction projects; Shortly after, the Government suspended issuing debt instruments until 1961 after The Exchange had opened its shop to the public; Between 1961 and 1976 the Federal Government issued bonds, in form of Development Stocks, on a yearly basis, generally for on-lending to the States for development projects; Following the recommendation of the financial system review committee in 1976, the FGN allowed States to raise long term capital on their own and subject themselves to market discipline; 5 States (defunct Bendel, Ogun, old Oyo, Lagos and old Kaduna) and one Local Government (Lagos Island) between them floated bonds totaling N330 million for various projects between 1978 and 1992. furthermore NSE also lists the post -1999 bond history 8 States successfully issue bonds the following: 1999 - Edo: N1b for housing; 2000 - Delta: N3.5b for various projects; 2001 - Yobe: N2.5b for various projects; 2002 - Ekiti: N4b (in 2 tranches of N2.5b in 2002 and N1.5b in 2004) for various projects; 2002 - Lagos: N15b for various projects; 2003 - Cross Rivers: N4b for Tourism (Obudu Ranch); 2004 - Akwa Ibom: N6b for various projects; 2006 - Kebbi: State University and an Irrigation Project.
In 2009, several States have been sought an alternative method for the financing needs their mega-projects for the benefit of the citizenry and to foster accelerated economic growth and sustainable urban development in general. Notable amongst these is Lagos State which recently concluded a very successful N50 billion bond issue. Already, the State Government is said to be anticipating for an early return while Governor Babatunde Fashola reportedly said the next bond issuance by the State will be much bigger than the initial one by the administration.
In February, the Imo State Government, announced plans to access the capital market for funds that would be tied to developing critical infrastructure such as a road network in the State. The State became the second in the current dispensation to approach the capital market for long-term funds. Imo State is not unfamilar to the capital market. Concord Hotel Owerri was built by former Governor late Chief Sam Mbakwe. It is also worth mentioning here also that the prestigious University of Nigeria, Nsukka was built through bond issuance by late Dr Nnamdi Azikiwe. These two edifices still stand today as part of the legacies of past leadership.
Similarly the Niger State Government has concluded plans to float a N6 billion five-year infrastructure development bond. The move to access fresh funds from the capital market is for the state's infrastructural programme as a tool to enable the Aliyu Babangida-led Government fight poverty. At the Federal level, the Federal Government of Nigeria (FGN) routinely taps into the domestic bond market. Recent FGN bond issuances were in 2005 and 2006. It has also adopted a similar strategy towards the achievement of its 7-point Agenda.
All the above show that Nigeria has a verifiable experience with the bond markets at both the Federal and State levels of Government.
When he announced the intention of his Administration to approach the bond market, Governor of Imo State Ikedi Ohakim of Imo State stated that: "Oil money has killed us in this country. Every state relies on allocation from Abuja. No state can attain full development by relying on allocation from the Federal purse". This statement in actual fact hits the nail on the head! State allocation could be diverted to frontline services such as health and education, while long-term financing needs can be sourced from the bonds market.
One of the nagging headaches among some quarters in society about bond issuance is the idea that states would become massively indebted. Lack of knowledge about the true workings of a bond issuance programme can be unhealthy for growth and development. Hence it is key that government agencies create awareness through sustained sensitization programmes on the benefits of this funding option.
Indeed this is one of the daggers being thrown at the Ogun State Government when it announced its intention to approach the bond market. Ignorance, mean-spiritedness and bad faith even among the so-called enlightened folks on how a bond and its repayments actually works may cost a people their future. The State which has made substantial economic leaps is known for its 'business unusual' mantra has on the recommendation of its financial advisers concluded that "the issuance of bonds represents the best and most viable means of financing the development projects in a most economical manner". Just as its sister States Lagos, Ekiti and Kwara have successfully raised funds from capital market; Ogun wants to accelerate her economic growth through the raising long term finance facilities for long term, revenue-generating projects such as the Gateway International Airport with associated rail systems and a Deep Sea Port amongst others.
Campaigners against poverty opine that progress in the State would grind to a screeching halt if the Administration does nothing but instead awaits its monthly statutory allocation from the Federal Government. Governor Ohakim's view is not dissimilar to this. He notes that "development cannot come to the people using statutory funds and that contrary to the belief by many that have continued to criticize accessing the capital market for funds, it is not in anyway plunging the future administrations and generations into debt, since the repayment mode is spelt out at the beginning, aside from this the proceeds will be expended in verifiable projects for the benefit of the populace".
Bond markets are windows of opportunities for growth and provide a major shift away from overdependence on the statutory allocations. By the way, the fall in oil prices has seen a dwindling in these allocations. What this means for the overall state of development if timely advantage is not taken of the available funding option is anyone's guess!
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