Bridging the Infrastructure Gap with Sovereign Sukuks

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From Uche Usim, Abuja

For a nation that desires a healthy economy and aims for global competitiveness, addressing infrastructure challenges is a major step towards realizing these lofty goals.

But Nigeria remains a nation struggling with low production in a context of institutionalized debauchery, which makes the resources available for infrastructure renewal largely insufficient.

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This was the quagmire the Buhari administration found itself in in 2017 when Ms Patience Oniha was appointed Director General of the Debt Management Office (DMO).

The cash crunch was understandable as the nation was still suffering the pains of a wobbly exit from the 2016 recession.

Wasting no time, Oniha, a capital market czar, and her management team quickly crafted a cocktail of the best borrowing options in line with the government’s policy of borrowing out of recession.

She championed what later became the best strategic private sector fundraising efforts in an open, transparent and accountable manner.

One of them was the Sukuk, an interest-free debt instrument introduced by DMO in its effort to make investments in public debt instruments irresistible to all facets of society.

Sovereign Sukuk is an ethical investment in which the rent is based on the semi-annual investment and the principal sum paid at the end of the seven-year term.

Although met with initial scorn and disdain as many believed it to be a masked product of Islamization, the DMO relentlessly raised awareness and separated Sukuk from all Islamic rhetoric.

Nonetheless, it has been applauded in many quarters because, apart from expanding financial inclusion, the Sukuk has created a platform for hitherto sluggish Muslim investors to invest in interest-bearing instruments and actively participate. the process of raising private funds for the development of infrastructure projects in the country. .

Preceding the official launch of the Sukuk was a roadshow organized by the DMO and upon release, potential investors loved it as it is linked to projects that have great economic impacts.

At an investor forum in Kaduna in 2017, the Central Bank of Nigeria urged Nigerians to take advantage of sovereign Sukuk offered by the federal government to support the country’s infrastructure development, while earning money.

The CBN’s Deputy Director, Financial Markets Department, Mr. Demenongu Yanfa, assured the participants of the apex bank’s commitment to the smooth functioning of the Islamic bond.

According to Yanfa, the Sukuk will not only enable Nigerians to own the roads with semi-annual rental income, but will also accelerate the construction of road infrastructure in the country.

He said: “The world is looking for new areas of investment. To date, South Africa, Malaysia and some other countries around the world have adopted the sukuk; it is about financing the construction and rehabilitation of key sectors of their economies.

For the boss of the DMO, Patience Oniha, the Sukuk remains a unique instrument due to its characteristics, in particular the transparency in the use of the funds raised thanks to it. Funds raised from each Sukuk should be applied to specific projects that can be identified and assessed by government, investors and the public.

With all charges sorted, the DMO commenced Sukuk issuance in September 2017 with a three-pronged goal of pooling funds to tackle the infrastructure deficit, boost financial inclusion and deepen the domestic market for securities.

In the first Sovereign Sukuk in 2017, N100 billion was raised to finance the rehabilitation and construction of 25 road projects across the six geopolitical zones. This first Sukuk was largely oversubscribed.

The 25 projects funded by the first Sukuk included the dualization of the Lokoja-Benin road, the Abuja-Abaji-Lokoja road section one, three and section four and the construction of the Oju-Loko-Oweto bridge over the Benue River, and the dualization of Suleja-Minna Road in Niger State, phase two, in the center-north.

The North East had four projects namely: dualization of Kano to Maiduguri road section two, three, four and five.

Similarly, the North West region had four projects, namely the first phase of dualization of the Kano-Katsina road, the construction of the western bypass of Kano and the construction of the eastern bypass of Kaduna.

Four projects that have benefited from the funds in the South East are; rehabilitation of the second section of the Enugu-Port Harcourt dual carriageway, Onitsha Highway in Enugu, section one and third of the Enugu dual carriageway in Port Harcourt.

For the South-South, five projects were funded. They are; dualization of Yenagowa-Kolo; Otuoke-Bayelsa Palm Road.

Other projects in the area were the rehabilitation of section four of the Enugu Road in Port Harcourt.

Three projects were funded in the South West region namely; reconstruction and asphalt paving from Benin to Ofosu to Ore to Ajebandele to Shagamu two-lane phase three and four.

The dualisation of the second section of the Ibadan-Ilorin road has been completed thanks to the funds raised.

With the huge success of the first Sukuk, the DMO was encouraged to issue another instrument for N100 billion in 2018 and N162.557 billion in 2019.

Proceeds from these two Sukuk issues were also allocated to 28 and 44 road projects, across the country, respectively.

Last year’s 250 billion naira was the fourth in the series which started in 2017, with the total amount raised through Sukuk amounting to 612 naira. 557 billion and has been successfully channeled into various federally determined projects.

Applauding the Sukuk instrument, the Minister of Works and Housing, Mr. Babatunde Fashola, said it was strange to see how some Nigerians attacked the initiative.

“I think some calm came when we explained that the first 100 billion naira was going to be applied equally to the six zones of Nigeria, which meant that each zone was going to receive around 16.6 billion naira and that any area that felt this was an attempt to Islamize Nigeria should indicate that they do not want funds and that was the start of our journey,” he explained.

Fashola added that his ministry has been able to undertake bold projects that have been stalled since 2015 when the Buhari administration came on board.

The Minister said that from the initial Sukuk funds of N100 billion, released in 2017, 25 roads, covering a length of 482 kilometers have been delivered; the second Sukuk of 2018 had delivered 28 roads covering 643 kilometers in length, while the third Sukuk fund of N162 billion covered 44 highway and bridge projects with a total length of 757 covered kilometers across the country.

Fashola noted that Sukuk funding has improved the completion of some priority road and bridge projects across the country, including: completion of 296 km of Sokoto-Tambuwal-Jega-Yawuri in Sokoto and Kebbi States , completion of 142 km of Kano Section II (Shuwarin-Azare) – Maiduguri Road, completion of 106 km (Azare-Potiskum) Section III of Kano-Maiduguri Road and completion of 1.2 Ikom Bridge kilometer / 360 m long.

The Minister also explained that the impact of debt and borrowing on people‘s economic life is significant; pointing out that the proper use of infrastructure debt in Nigeria had helped galvanize the economy.

In her remarks at a recent presentation of Sukuk checks, DMO CEO Oniha explained that the Sukuk has been widely and widely accepted among investors from the public who also praised the organization and the federal government for the initiative.

“Since the launch of the Sovereign Sukuk in September 2017, the benefits of which in terms of improving road infrastructure in and out of Nigeria’s cities are clearly visible, the Sukuk has been hailed as a viable financing instrument. infrastructures.

“The use of Sukuk has enabled the timely completion of designated projects while producing the multiplier effects associated with the construction of capital projects such as roads.”

The level of disclosure and transparency of Sukuk funding, which requires the issuer to present full details of how the funds will be used, gives investors information that guides their investment decisions while giving them the opportunity to monitor the use of Sukuk proceeds after investment, to confirm that funds have been applied as intended.

To provide additional comfort to investors, the FGN has appointed trust companies registered with the Securities and Exchange Commission, which on behalf of investors in the Sukuk monitor the use of proceeds and the quality of work.

In 2021, the DMO raised 250 billion naira, which was split between the Federal Ministries of Works and Housing, Niger Delta Affairs and the Federal Capital Territory.

Of the current N250 billion, Works and Housing received N210.56 billion; FCT, N29 billion; while the Niger Delta got 10.43 billion naira.

During the ceremony to hand over the checks to the ministers, Oniha said, “The introduction of Sukuk as a source of fundraising for the government has improved the road infrastructure in the six geopolitical zones. As you travel each time, it is impossible to travel up to 200 km or 300 km and not see a road in Sukuk and even in some towns as well.

“The acceptance of Sukuk by investors and verifiable evidence as a means of financing roads has encouraged some state governments to issue Sukuk as well, at the sub-national level.”

According to her, the symbolic presentation of the check was an indication that the federal government was ready to carry out the projects to be funded with the proceeds, because the money was ready to be used.

She added, “The Sukuk is linked to the development of road infrastructure which is very closely aligned with the strategic objectives of the administration of President Muhammadu Buhari. It goes without saying that improving infrastructure, because of its multiplier effects, is considered one of the best ways to create jobs, support and attract new businesses and promote growth and development in general.

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