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Diaspora Bonds as Mark of Confidence in the Economy

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  • Diaspora Bonds as Mark of Confidence in the Economy

In this season of national despondency over economic recession, there is something to make the heart glow. The world is passing a verdict of optimism on the Nigerian economy and its managers. On June 19, Nigeria successfully issued its first diaspora bonds in the International Capital Market to raise the sum of USD300 million at the rate of 5.625% for a tenor of five years.

This feat made Nigeria the first African country to issue a bond targeted at retail investors in the United States, a market highly regulated by the United States Securities and Exchange Commission (U.S. SEC). The only previous U.S. SEC registration for an African country was targeted at institutional investors.

As impressive as this is, it is not the only good news. The bigger gain is that Nigeria received the approval of the US SEC, an achievement that is not possible unless a country has attained the highest level of transparency and accountability in its economic process. It is good news for Nigeria, and this should positively impact the country’s credit rating, transparency rating and financial market development index rating.

Also the issuance of bonds registered by the US SEC provides an opportunity to access a wide range of investors. In addition, Nigeria can now routinely access funds from private banks and wealth managers in the US and European markets. This opportunity is not available to other developing countries that have only issued Eurobonds. The diaspora bonds are the first bonds issued by an African sovereign registered with both the US SEC and the United Kingdom Listing Authority (UKLA), and targeted at retail investors.

The Debt Management Office, DMO, with Dr. Abraham Nwankwo as Director General, must be satisfied with the successful issuance of the bonds.

It followed series of road shows in the US, the UK and Switzerland organised by the DMO. Meetings were also held with investors in these countries to determine pricing. The bonds will be direct general obligations of Nigeria and are denominated in the U.S. dollars. The international Joint Lead Managers are Bank of America Merrill Lynch and The Standard Bank of South Africa Limited, while the Nigerian Joint Lead Managers are First Bank of Nigeria Limited and United Bank for Africa Plc.

Diaspora bonds are issued by a country to its own citizens abroad to tap into their wealth in the adopted developed countries. They are essentially a form of government debts that target members of the national community abroad. The sale of the bonds can be restricted solely to members of a particular nationality or opened to all buyers, with nationals receiving a preferential rate.

Nigeria has suffered from deficits in the national budget in recent years. Nearly N2.36 trillion is expected as deficit in the 2017 budget passed two weeks ago by the National Assembly and signed into law by acting President Yemi Osinbajo. The budget deficit is to be financed mainly by borrowings which have been projected at N2.32 trillion. Out of this amount, N1.07 trillion (46% of this borrowing) is intended to be sourced externally while N1.25 trillion will be sourced domestically.

The DMO has issued Eurobonds in the international market and had recently launched the first-ever Federal Government Savings Bond targeting retail investors in the country. Both have been quite successful, indicating investors’ confidence in the Nigeria economy.

The Diaspora Bonds are an addition to the menu, and one of the most innovative products from the staple of the DMO. Only two countries have successfully issued Diaspora Bonds – Israel and India – and Nigeria has now joined that list. Diaspora Bonds are tangible and effective financing options for countries that have substantial diaspora populations.

Nigeria is among the countries with significant diaspora populations and huge remittances from abroad. There are over 17 million Nigerians living abroad, and most of them reside in the US and the UK. According to the World Bank’s Migration and Remittances Fact book 2016, remittances from Nigerians living abroad hit $20.77 billion in 2015, making Nigeria the sixth largest recipient of remittances in the world.

The report says remittances to Nigeria rose every year over the last decade, from $16.93 billion in 2006 to $20.83 billion in 2014. And in 2016, remittances by Nigerians abroad were over $35 billion. This was the highest in Africa and the third largest in the world. The top two sources for Nigeria’s diaspora remittances in 2015 are the United States ($5.7 billion) and the United Kingdom ($3.7 billion).

The Diaspora Bonds have opened a new source of financing for the Federal Government of Nigeria for funding projects for the development of the country. President Muhammadu Buhari’s administration is currently working on delivering several capital projects. Out of a total expenditure outlay of N7.44 trillion in the 2017 budget, N2.36 trillion is for capital projects.

The budget has been designed to focus on five key execution priorities. These are stabilising the macroeconomic environment; achieving agricultural and food security; ensuring energy sufficiency in power and petroleum products; improving transport infrastructure, and driving industrialisation with a strong focus on small and medium scale enterprises.

This new window of diaspora bonds further enhances the funding liquidity and flexibility of the Nigerian economy, which are necessary characteristics as the country gathers momentum towards the attainment of advanced economy status.

The Diaspora Bonds were targeted principally at the Nigerian Diaspora to provide them with an opportunity to contribute to the national development. The Bonds were structured as a retail instrument to appeal to a wide base of investors, and it was offered through private banks and wealth managers, rather than the institutional investors that normally deal in large volume transactions. There was a considerable interest from investors from all over the world, with the issuance attracting initial orders of about 190% of the offered amount. Final subscriptions were about 130% of offer at the final price for the transaction.

With the successful issuance of the debut Diaspora Bonds, Nigeria will establish a programme for raising funds from Nigerians in the Diaspora to provide an avenue for continuous participation in the development of the economy by Nigerians in the Diaspora and other friends of Nigeria.

This is good news for Diaspora Nigerians and for Nigerian people as a whole.

– Chukwu wrote in from Abuja

Is the CEO and Founder of Investors King Limited. He is a seasoned foreign exchange research analyst and a published author on Yahoo Finance, Business Insider, Nasdaq, Entrepreneur.com, Investorplace, and other prominent platforms. With over two decades of experience in global financial markets, Olukoya is well-recognized in the industry.

Finance

President Tinubu Orders Release of Minors Prosecuted for #BadGovernance Protests

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Following a recent viral video on the X app regarding the prosecution of minors who protested during the #BadGovernance movement, President Bola Ahmed Tinubu has ordered the immediate release of all prosecuted minors.

This was announced by the Minister of Information and National Orientation, Mohammed Idris, in a statement to the State House Correspondents in Abuja.

In a show of concern over the detention of minors, President Tinubu directed the Ministry of Humanitarian Affairs and Poverty Reduction to investigate and ensure that the law is fully applied to law enforcement agents involved in the unlawful act.

It was noted that the arrests violated human rights and the Child Rights Act, as the 32 detainees are under 18 years old.

Activist organizations, including the Arewa Consultative Forum (ACF), National Human Rights Commission (NHRC), Civil Society Legislative Advocacy Centre (CISLAC), Resource Centre for Human Rights and Civic Education (CHRICED), and Concerned Parents and Educators (CPE), condemned the actions and denounced the treason charges filed against the detained minors.

In a call to action, the Socio-Economic Rights and Accountability Project (SERAP) urged the president to instruct the Attorney General of the Federation and Minister of Justice, Lateef Fagbemi, SAN, to immediately and unconditionally release all protesters arrested during the #EndBadGovernance movement.

SERAP stated, “The immediate and unconditional release of all #EndBadGovernance protesters, including 32 hungry and malnourished children, is necessary.”

According to SERAP, for the peaceful exercise of fundamental human rights, including freedom of expression, assembly, and association without fear of persecution or undue restriction, all detained protesters should be released.

In response to the president’s directive, the Attorney General of the Federation (AGF), Lateef Fagbemi, commented that his office “will need to review the matter to enable me to make an informed decision.”

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Banking Sector

FBN Holdings To Invest N103.1bn In Corporate, Retail Businesses

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FBN Holdings

As part of means of actualizing its expectation of raising N150 billion from its existing shareholders by way of rights issue, the management of FBN Holdings said it has budgeted an estimated N103.1 billion for its corporate business and retail business lending segments of the market.

The Holdings recently held the signing ceremony to begin the rights issue offering of 5,982,548,799 ordinary shares of 50 kobo each at N25.00 per share to its existing shareholder on the basis of one new ordinary share for every six ordinary shares held as of October 18, 2024.

Extracts from the offer raising prospectus of the financial institution revealed that lending to the corporate business segment gets N77.34 billion, while lending to the retail business segment gets a budget of N25.78 billion.

This covers 68.95 per cent of the N150 billion proposed rights issue the management seeks to raise from existing shareholders.

Out of the N150 billion, a total of N29.46 billion was budgeted to support international business expansion and N14.73 billion for investment in automation and digital banking.

According to the financial institution, seamless and convenient banking experience for its customers would be guaranteed through its significant investment in automation and digital banking.

Through its mobile banking app, FirstMobile, and its internet banking platform, FirstOnline, the management of FBN Holdings said it has effectively acquired a broad cross-section of the target demography, with a clear proposition of owning bank accounts and utilising various financial services from the comfort of their locations.

It added that the bank plans to upgrade the FirstMobile and FirstOnline apps with additional features while driving customer adoption of the platforms, noting that the development is in line with First Bank’s commitment to providing customers with the best-in-class electronic banking experience.

The offer, however, is part of the company’s plan to recapitalise its commercial banking subsidiary, First Bank of Nigeria Limited,  with a view to increasing the bank’s capacity for business development and growth.

Chairman, FBN Holdings, Olufemi Otedola in a statement from the document urged shareholders to support the Rights issue by accepting their rights, stating that the company will be well positioned to achieve its strategic objectives and to deliver improved returns to all stakeholders.

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Finance

Currency Outside Banks Increases By 66.2% As Nigerians Shun Formal Banking Channels

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New Naira notes

A recent data has revealed that currency outside banks increased by 66.2 percent in September 2024.

To this end, money outside traditional banking channels rose to N4.02 trillion compared to N2.42 trillion reported in September 2023.

This represents an increase of N1.60 trillion in just one year.

This was revealed in the Money and Credit Statistics data of the Central Bank of Nigeria.

According to the data, on a month-on-month basis, currency outside banks grew by 3.8 percent in September 2024 from August’s figure of N3.87 trillion, translating to an increase of N147.9 billion.

The trend suggests a growing inclination among the public to retain cash outside formal banking channels, a shift that could impact banks’ liquidity and shape monetary policy dynamics.

The CBN data further shows that a considerable proportion of Nigeria’s currency is held outside the banking system.

In September 2024, approximately 93.1 percent of currency in circulation was outside banks, a rise from 87.5 percent recorded in September 2023.

This shift may reflect limited trust in banking services, inflationary pressures, or a structural dependence on cash in Nigeria’s largely informal economy.

Such a high percentage of currency outside banks poses potential challenges for channelling funds into productive investments, potentially hindering economic growth.

The CBN report also highlights a parallel rise in overall currency in circulation, which encompasses both bank-held and outside cash.

In September 2024, currency in circulation rose beyond 56.1 percent year-on-year to reach N4.31trn, up from N2.76trn in September 2023, reflecting an increase of N1.55trn.

This indicates that the volume of currency retained outside the banking sector outpaced the total released for circulation within the past year.

Compared to August 2024, currency in circulation rose by 4.0 percent month-on-month, adding N166.2bn from the previous figure of N4.14trn.

Earlier in September, the CBN announced plans to sanction banks that fail to dispense cash through their automated teller machines, as part of efforts to improve cash availability in circulation.

The CBN also revealed plans to release an additional N1.4 trillion into circulation over the next three months to ease cash flow within the banking system.

This strategy aims to ensure that ATMs and bank branches have sufficient cash, addressing ongoing challenges faced by customers over cash shortages.

In related developments, it was observed that Nigeria’s money supply grew significantly by 62.8 percent year-on-year in September 2024, despite the Monetary Policy Committee’s tightening stance intended to manage excess liquidity to control inflation.

According to CBN data, M3 reached N108.95 trillion in September 2024, up from N66.94 trillion in the same period last year.

On a month-on-month basis, money supply rose by 1.6 percent, increasing from N107.19trn in August 2024.

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