Eurobond and Nigeria’s Economic Resilience

Ummie Kabir

According to the Debt Management Office (DMO), this is a “landmark success that demonstrate global investor confidence in Nigeria’s fiscal discipline and long term growth trajectory.”

Despite the geo-political tension around the genocide claim in Nigeria, the reform story stands out for the country.

The economic reforms which the Central Bank of Nigeria (CBN) through its orthodox economic policies served as the arrowhead have no doubt paid off as regards the current level of confidence among global economic players.

A bond, with whatever nomenclature, whether Eurobond, Panda bond Yankee Band or Samurai band functions as a loan in which an investor gives a borrowing entity like corporate or government an amount of money for a specific period of timein exchange for periodic interest payments.

The resilience of Nigerian economy was again put to test in the month of November when the it shrugged off the threat from no other than America’s President Donald Trump of military action against the country and went ahead to sell and even over-subscribed $2.35 billion worth of Eurobond.

In the immediate terms, this particular offer reflected the level of investors’ confidence on the economy despite the threat orchestrated by Mr Trump few days before the Eurobond bid. This signifies a major milestone in the global capital market.

The DMO noted that this was a “landmark success that demonstrate global investors’ confidence in Nigeria’s fiscal discipline and long term growth trajectory.”  

Despite the geo-political tension around the genocide claim in Nigeria, the reform story stands out for the country. The economic reforms which the Central Bank of Nigeria (CBN) through its orthodox economic policies served as the arrowhead have no doubt paid off as regards the current level of confidence among global economic players.

Nigeria successfully priced $2.35 billion in Eurobonds maturing in 2036 and 2046, marking the largest-ever achieved by the country and underscoring strong investor confidence in its macroeconomic policies and fiscal management.

The 10-year tenor $1.25 billion bond, maturing in 2036, was priced at a coupon of 8.6 percent, while the 20-year tenor 1.10 billion note due in 2046, carried a coupon of 9.2 percent.

The transaction, according to Debt Management Office (DMO), concluded penultimate week attracted bids exceeding $13 billion, reflecting broad-based demand from investors across multiple jurisdictions, including the United Kingdom, North America, Europe, Asia, and the Middle East.

Interestingly, Nigerian investors also participated in the Eurobond offer, signaling domestic endorsement of the government’s reform agenda. Which is quite important as sign post for foreign investors’ confidence on the economy.

 President Bola Ahmed Tinubu could not hide his enthusiasm over this development when he proclaimed that “we are delighted by the strong investor confidence demonstrated in our country and our reform agenda. This development reaffirms Nigeria’s position as a recognised and credible participant in the global capital market.”

 On his part, the Finance Minister and Coordinating Minister for the Economy, Olawale Edun, noted that “this successful market access demonstrates the international community’s continued confidence in Nigeria’s reform trajectory and our commitment to sustainable, inclusive growth.”

 No doubt, the successful pricing of long-tenor instruments at such competitive yields compared to what was obtainable in recent past, reflects strong investor appetite for Nigerian sovereign debt, bolstered by the government’s ongoing policy reforms and prudent fiscal management.

At the heart of these economic reforms which has taken the country to the turning point, is the Central Bank of Nigeria’s adoption of orthodox monetary policies which heralded moderation in inflation spikes, accretion to external and exchange rate stability.

 The country’s debt profile now stands at $97.24 billion and N149.39 trillion for foreign and domestic debts respectively. The sustainability or otherwise of the huge debt stock has been a subject of debate in the public space. However, the general consensus has been that the purpose or mode of utilization of debts, whether domestic or foreign is what matters.

At the juncture, as we celebrate the acceptance and over subscription of $2.35 billion Eurobond to the tune of $13 billion, Nigeria should exercise caution as that might have indicated an over priced interest rate

Of particular interest, the recent oversubscription of Nigeria’s Eurobond issuance which was widely interpreted as a sign of investor confidence in the country’s economic prospects. Yes, that could be true, in terms of our current palpable situation amidst Mr. Trump’s threat.

However, a critical dive into the operations international financial players, incentives and macroeconomic environments which Nigeria provides play important roles in investment decisions. More so, there seemed to be much liquidity in the global market thereby making the offers attractive to investors.

Considering the developments in the international financial markets, the offer at 8.6 percent and 9.1 percent for the 10 years and 20 years respectively are quite high.  The concern is that the Nigeria may burdened excessively in servicing facility and eventual repayment at maturity.

It’s now time for Nigeria’s economic planners divert attention to addressing structural deficiencies which made Bonds of whatever nomenclature as save haven for financial bailouts but rather, attract foreign direct investment (FDI) which is more enduring and rewarding now and In future.

As one analyst posited, “FDI inflows, conversely, strengthen the capital account without worsening the debt profile. Countries like Vietnam and Indonesia have shown how sustained FDI inflows can stabilize currencies and promote export diversification.”

The FDI delivers higher GDP, generate employment, transfer of technology technological, diversify of revenue base and general improvements in standard of living for the citizens.

However, attracting FDI is never a ‘tea party’ of sort. There are basic but very important necessary conditions investment considerations. The country is severely deficient in those basics, especially the infrastructure gaps.

According to the World Bank, “Nigeria faces a massive infrastructure deficit, with its total infrastructure stock at just 30 percent of its GDP, significantly below the 70 percent benchmark.”

The World Bank further states that, “This shortfall negatively impacts economic growth and poverty reduction, leading to high costs for businesses.”

And under the current circumstance in Nigeria, security is of the utmost importance. This is closely followed by power, motor-able road networks among others. We do hope that a good chunk of the proceeds of the bond would be channeled towards the provision of these critical infrastructure which the World Bank project at about $3 billion annually over a 30-year period to cover the huge deficit.