These are challenging times for Nigeria, as a country. The challenges are quite enormous, as the government itself has admitted, though they are not insurmountable. The country is confronted by, notably, challenges of insecurity and economy. But perhaps, no other area tasks the government as the economy which impacts directly on the lives of Nigerians in terms of availability of goods, especially food, purchasing power and general standard of living. This explains why the various measures of the current administration of President Bola Tinubu are aimed at quickly addressing the economic challenges the country is facing.
Part of the government’s efforts to address the country’s economic challenges is the $500 million Domestic Bond it launched on Monday, August 19, for the double-barreled objective of stabilising the exchange rate and boosting the country’s foreign reserves. It is a move considered by many as a step in the right direction.
The need to stabilise the exchange rate stems from the effect which fluctuating oil prices are having on Nigeria’s mono-product economy, coupled with the fact that the government’s exchange rate floating policy appears to have taken longer than expected to make the desired impact on the economy.
The Minister of Finance and Coordinating Minister for the Economy, Mr. Wale Edun, is quite optimistic the dollar-denominated bond would make the required impact, especially from the perspectives of exchange rate stabilisation and boosting of foreign reserves. This is in line with the general optimism often expressed by the government, especially President Tinubu, who has repeatedly assured Nigerians there is light at the end of the tunnel. The roadshow to unveil the bond a few days before its commencement provided yet another opportunity for Edun to reiterate his belief that the economy is on the path to recovery.
With specific reference to the “willing seller, willing buyer” model adopted by the Central Bank of Nigeria (CBN), Edun said it has not only proven efficient but has also contributed to the influx of dollars into the economy. “Specifically, the flow of dollars into the economy has improved through portfolio investors, foreign direct investors and multilateral organizations that have supported the president’s macroeconomic policies,” he said.
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It is in the effort to improve the exchange rate figures that the domestic bond has become an imperative. It seems fortuitous that the offer of the dollar bond coincides with the announcement by the CBN of a 150 percent surge in Diaspora remittances to $553 million for the month of July 2024 – the highest monthly remittance ever recorded – and a significant increase from the same period in 2023. It is an increase the nation’s apex bank attributes to its strategic policy measures that are designed to improve liquidity in the foreign exchange market.
It may not yet be a sign of Uhuru, but the domestic bond and the highly positive development of Diaspora remittances give optimism and offer hope for a substantial injection of foreign exchange into the system. The two sources are coming at a time when Nigeria is in dire need of alternative sources of foreign exchange, beyond what comes in from the non-oil sector of the economy.
Hopefully, we are going to see a remarkable improvement in the macroeconomic figures through the reduction of the inflation rate, further down from the marginal figure of 33.4 per cent recorded in July (from 34.19 percent in June). This should impact positively interest rates. If this happens and the trend continues, the objective of encouraging borrowing in order to increase productivity in the key sectors of the economy, create jobs to deplete the rising population of the unemployed, reduce poverty and raise the living standard of Nigerians would be achieved.
The domestic bond is going to provide the government with an alternative source of funding for developmental projects, including projects like the Lagos-Calabar Coastal Highway and the Badagry-Sokoto Super Highway. Besides, with more dollars coming into the economy, the government would have greater flexibility in terms of management of its foreign debts. This should boost investor confidence in the Nigerian economy, especially foreign investors.
The long-term benefit of the domestic bond to Nigerians is that it presents an investment opportunity for those with domiciliary accounts in the country, foreigners resident in Nigeria, as well as Nigerians in the Diaspora with foreign savings. With a 9.75 percent return on the bond that has a tenor of five years with $10,000 as a minimum, there couldn’t be a more attractive option for investors.
With the manner in which the current dollar-denominated bond has been received by investors, it would not be a surprise if the need arises for United Capital Plc, the lead issuing house and coordinator of the offer, extend the deadline for subscription. The enthusiasm shown by investors to the offer suggests something along this line
Adediran contributed the piece from Lagos.
