Outcome of $500m Domestic Bond: An Assessment

George Imafidon

The reported success of the recent $500 million Federal Government of Nigeria Bond is a demonstration of the willingness of the Bola Tinubu administration to explore new territories. It may be safe to say, after one year in office, that this government is ready to chart a new course in the effort to find solutions to the myriad of problems the country has to contend with at the moment.

Information has it that the bond, which ran for less than two weeks, was subscribed about two times over. This is not surprising, considering the reported enthusiasm with which investors welcomed it. It is possible the bond would have fetched more dollars for the government if the amount was higher and the period longer than just eight days.

There was no reason for the bond offer not to be attractive to investors. With 9.75 per cent return, it is an investment worth the attention of any discerning investor. Apart from its high yield, it came with low risk, with guarantee of safety and security, considering it would be listed on the FMDQ and the Nigerian Exchange Limited. It has a tenor of five years with a minimum of $10,000, to allow for more participation.

It is true that the amount of foreign exchange from the bond offer may be a drop in the bucket when compared with what the country earns from oil. It may not even be anywhere close to what Diaspora remittances yield, perhaps on a monthly basis. But suffice it to say that it may be enough to contribute to boosting the country’s foreign reserve, and also help in stabilizing the exchange rate – its two cardinal objectives.

The dollar-denominated bond became an imperative against the background of fluctuating fortunes from oil caused by, among others, the high incidence of theft in the Niger Delta. There is also a 6.2 per cent drop in non-oil revenue, from $4.8 billion in 2022 to $4.5 billion in 2023, according to figures released by the Nigerian Export Promotion Council. The recent bond was therefore issued to provide an additional avenue for raising foreign exchange.

We must give kudos to Wale Edun, Minister for Finance and Coordinating Minister for the Economy, the brain behind the bond and driver of the process. The outcome of the offer is reflective of his pedigree as an international investment and finance expert – an experience he garnered over many years of involvement in the economy within and outside Nigeria, dating back to his days as commissioner for finance in Lagos State when Bola Tinubu was governor. His handling of the economy has given hope that, indeed, as President Tinubu is wont to say, there is light at the end of the tunnel.

At a roadshow in Lagos to announce the bond offer about three days to its commencement on Monday, August 19, 2024, Edun exuded a high degree of confidence and optimism on what it is going to achieve, and why it is desirable at this time. It is the same mien he exhibits whenever he talks about the government’s economic policies so convincingly you cannot but believe him. This has defined his performance as minister in the most critical office in the administration, second only to that of Tinubu – in a manner only an expert of his standing can do.

Hear him: “More foreign exchange leads to higher reserves and a stronger exchange rate, which can reduce inflation and, consequently, interest rates. This creates opportunities for borrowing, investing, increasing productivity, creating jobs, and reducing poverty.” 

He said the flow of foreign exchange into the economy has improved significantly through both the portfolio and foreign direct investors, in addition to funding from multilateral organizations. This, he believes, is an indication of the faith foreign investors have in the government’s macroeconomic policies.

The achievement of the objective of boosting the country’s external reserve may reflect in an increase from the $36.62 billion that was reported by the Central Bank of Nigeria as being the figure, as at August 12, 2024. We can also expect that with the $553 million Diaspora remittances recorded in July – a 150 per cent surge and highest monthly figure ever recorded – there would have a positive impact on the exchange rate.

When realized, the objective of stabilization of the exchange rate would positively affect prices of locally manufactured products with foreign inputs, as well as imported products. The expected benefits of the dollar-denominated bond is that it would bring down interest rate, make more money available for lending for production, especially in critical sectors like manufacturing, agriculture, transportation and SMEs. With the expected increase in production, it would be possible to reduce the army of the unemployed in the country through job creation. All these are expected to lead to improvement in the standard of living of Nigerians in the foreseeable future.

With the plethora of infrastructural projects the Tinubu administration has lined up for execution, proceeds from the bond offer will certainly come in handy in terms of funding, to reduce the need for foreign debt.

The success of the bond speaks to President Tinubu’s vision of where he wants to take the country, which must be preceded by a clear understanding of the problems and how to tackle them, as he has demonstrated since assuming office.

Imafidon wrote from Lagos