OLORUNDARE ENIMOLA, Lagos
In a press statement issued last week, the Securities and Exchange Commission, SEC, announced that the Federal Government has issued six sovereign sukuk bonds totaling N1.1 trillion ($657.6 million) to fund 124 road projects covering 5,820 kilometers across Nigeria’s six geopolitical zones.
Emomotimi Agama, the SEC’s Director-General, DG, made this disclosure during the 2nd International Islamic Capital Market, ICM, Conference held in Pakistan.
Agama highlighted the initiative as a testament to the Islamic Capital Market’s potential as a resilient and innovative tool for resource mobilization.
He noted that since the Sukuk bond issuances began in 2017, they have been a key driver of growth in Nigeria’s Capital Market, consistently attracting strong investor interest, with subscription rates reaching as high as 441 percent.
With the latest addition of N1.1tn to the Sukuk funding of road construction in the Country, it comes to over N1.8tn that has been dispensed in the last 7 years to fund critical road constructions and other related projects.
According to Investopadia; Sukuk is an Islamic financial certificate, similar to a bond in Western finance, that complies with Islamic religious law commonly known as Sharia.
Since the traditional Western interest-paying bond structure is not permissible, the issuer of a sukuk essentially sells an investor group a certificate, and then uses the proceeds to purchase an asset that the investor group has direct partial ownership interest in. The issuer must also make a contractual promise to buy back the bond at a future date at par value.1
The Debt Management Office commenced the issuance of Sukuk in September 2017 as a strategic initiative to support the development of infrastructure, promote financial inclusion and deepen the domestic securities market.
The Federal Government in 2017, through the DMO raised a total of N100 billion to finance the rehabilitation and construction of 25 road projects across the six geopolitical zones, it issued another Sukuk for N100 billion in 2018 and another for N162.557 billion in 2020.
The proceeds of these two Sukuk issuances were also deployed to 28 and 44 road projects, also in the six geopolitical zones respectively.
In a statement titled ‘Towards Financing Infrastructure', Henry Baiyere of the then DMO noted that in summary, a total of N362.577 billion Sovereign Sukuk was issued between September 2017 and June 2021.
As at 2022 a total of N612.557 billion has been raised from the five series of Sukuk bonds issued with first one issued in 2017 when N100bn was issued, in 2018, N100bn was issued, in 2020, N162.577bn was issued, in 2021, N130bn was issued and N250bn issued in 2022.
The Federal Government at that time said, the N612.557 billion raised through Sovereign Sukuk issued between 2017 and February 2021 was used for the construction and rehabilitation of key economic road projects in the six geo-political zones and the Federal Capital Territory (FCT).
Adding that the money was used to construct and rehabilitate sections of 71 road projects covering 2,808.06 km and four bridges by the Federal Ministry of Works and Housing and sections of six road projects covering 99km and 19 bridges by the Federal Capital Territory Administration.
By the end of year 2022, the federal government has raised N742.56 billion sovereign sukuk bond from 2017 to 2022 for the execution of road projects across the country.
In October of 2023, the Federal Government issued another N150bn Sukuk bond to fund some 53 road projects across the country, saying the 53 roads cover more than 3,000km.
Both government agencies (SEC and DMO) agreed on the need to mobilise capital in order to address the nation’s investment needs especially road infrastructure.
Dr. Abraham Nwakwo, former Director General of the DMO, said that sukuk is part of the DMO’s 2013-2017 Strategic Plan which mentions the goal of using “non-interest debt financing instruments (such as sukuk) for investment in critical national development priorities and sectors.”
He added that the issue was part of the plan to fast track the development of infrastructure and engage in project-tied capital raising, adding that Nigeria has challenges with road, railway and power infrastructure.
Apart from the huge funding made available through the instrumentality of sukuk, for a country that spends a fortune on debt servicing, sukuk provides a refreshingly different alternative.
In his own view Dr. Benedict Nwafor of the University of Lagos, said the sukuk is an opportunity for raising funds without raising the nation’s debt profile, it is nothing other than a financial instrument for mobilizing funds.
In an effort by the government to gain the confidence of the public on the gains achieved in the utilisation of the first tranche of the sukuk disbursement, the Director-General of the DMO, Ms. Patience Oniha, in April 2018 conducted on-the-site inspection of the road projects that are being funded with the N100 billion
The contractors expressed their appreciation for the Sukuk, which assured them of prompt payment for work done. Ms. Oniha therefore urged Investors, and indeed the general public, to visit the project sites to see the evidence of the work being done with the funds raised.
Oniha also said the Sukuk fund has incentivised the contractors to accelerate work on the selected roads because of the confidence that the government had dedicated funds already in place to pay them upon completion of milestones.
She said of particular significance is the fact that the funds from the Sukuk has made it possible to construct the Okene Bypass, a new road which would ensure a safer and more convenient journey for travellers and residents by moving traffic away from the township and reducing congestion on the roads within the town.
In the days of the introduction of the Sukuk funding option, there were agitations and doubts trailing the sincerity of government to evenly spread the development of road infrastructures.
The government responded then by pointing to completed and ongoing road projects which include; the dualisation of Suleja-Minna Road in Niger state Phase II, dualization of Abuja – Abaji – Lokoja Road: section I (international airport link road junction-sheda village junction) in FCT, dualization of Lokoja-Benin Road:
Obajana Junction-Benin Section I Phase I: Obajana – Okene in Kogi State, dualisation of Ibadan – Ilorin Rd (route 2) section II: Oyo-Ogbomosho Road, in Oyo state, rehabilitation Of Enugu-Port Harcourt Road Section IV: Aba-Port Harcourt in Rivers State and dualisation of Ibadan – Ilorin Rd (route 2) Section II: Oyo-Ogbomosho Road, in Oyo, among others.
I therefore, call on the government to ensure the effective utilisation of the sukuk funding for the execution of the designated projects, while ensuring that no region of the country is sub-changed in the process.
Since funding is not the challenge of the Sukuk projects, it will be rather appalling to have any form of complaints arising from the various projects earmarked to be carried out.
The sincerity of the government should never be in doubt in the mind of the ordinary citizenry who are already overwhelmed by the untenable excuses often given by those in authority.
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