Addressing Africa’s Infrastructure Funding gaps


Nigeria Returns to the Market with N100 billion Sukuk Offer

By: Mohammed Abu

Abdul Aziz Adewuyi Abdul Rahman of the Universiti Utra of Malaysia,in his abstract of his paper titled,” Sub-Sahara’s Infrastructure Funding Gap: Potentials from Sukuk Financing” notes that,Sub-Sahara African (SSA) region as a large part of the African continent suffers huge infrastructure deficit mainly as a result of the vast funding gap.

The negative impact of the infrastructure deficiency continues to constrain socioeconomic development and the general well-being of the people of the region.

Heavy reliance on the traditional sources of funding by many of the countries in the region, he intimates, has failed to meet ever-growing demands for infrastructural development of the region. Potentials presented by Islamic finance are yet to be exploited by a large number of countries in the region.

The  study evaluates the depth of utilization of Islamic capital market using Sukuk instruments as another source of funding to fill the observed funding gap for infrastructure development.

The study finds that the use of Sukuk as a long-term financing instrument is still at its infancy stage in the region. The paper, therefore, suggests that the SSA countries can undertake rapid and massive infrastructure developments in the region through the use of Sukuk instruments, thereby eliminating increasing sovereign debt overhang from the conventional debt market.

The study also recommends that policy makers in the region put in place required laws and regulations that will provide enabling environments for effective utilization of Sukuk instruments for infrastructural development.

Similarly, strong political will on the part of the region’s political leaders is essential in nurturing strong institutions that can engender policy continuity to ensure effective and efficient management of infrastructure projects funded by Sukuk instruments.

It is therefore against this background that, the recent return of the Federal Government of Nigeria to the sukuk market to raise more funds for financing infrastructure could be best appreciated

The Nigerian Federal government’s Debt Management Office (DMO) recently formally announced the opening of an offering for a 10-year N100 billion(USD225.62m) Forward Ijarah (Lease) Sukuk instrument at a rental rate of 15.64 percent per annum, payable half-yearly.

The offer which opened on November 21 was due for closure on November 29, while the settlement date is also due on December 2, 2022..

The offer at N1,000 per unit, an official statement said, is subject to a minimum subscription of N10,000 and in multiples of N1,000 thereafter.
The Sukuk is a strategic initiative that supports infrastructure development, promotes financial inclusion and deepens the domestic securities market.

According to the statement, the instrument was issued by FG Roads Sukuk Companies 1 Plc on behalf of the federal government.

The DMO said that the proceeds from the offer would be used solely for the construction and rehabilitation of key road projects across the six geopolitical zones.

The offer  which opened on November 21 was due for closure on November 29, with the settlement date due December 2, 2022.

“It qualifies as securities in which trustees can invest under the Trustee Investment Act,” the statement reads.

“It also qualifies as Government securities within the meaning of Company Income Tax Act (CITA) and Personal Income Tax Act (PITA) for Tax Exemption for Pension Funds, among other investors.”

According to DMO, the Sukuk instrument is to be listed on the Nigerian Exchange Limited and FMDQ Securities Exchange Limited.

“Classified as Liquid Asset by the Central Bank of Nigeria, and certified by the Financial Regulatory Advisory Council of Experts (FRACE) of the Central Bank of Nigeria,” DMO said
Since the establishment of the initiative in September 2017, Nigeria has issued four Sovereign Sukuk — 2017 (N100 billion), 2018 (N100 billion), 2020 (N162.557 billion) and 2021 (N250 billion).

Islamic Capital Markets sources say, the Ijarah Sukuk, which was first issued in Nigeria in 2017, is a domestic component of government borrowings and has given the Federal Government NGN 612,557 billion (USD 1388) to fund 71 roads and six bridges totaling 1,881 kilometres across the country.

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