Issues/Policies: The Sukuk Funds, Projects And Critics

 

By Inwalomhe Donald

One of the landmark initiatives of Ogbeni Rauf Aregbesola as (former) governor of the State of Osun and President Muhammadu Buhari is the introduction of Osun Sukuk fund and Sovereign Sukuk in the domestic financial markets in 2013 and 2017 to raise N11 billion and N100 billion to finance 11 Model Schools and 25 road projects across the six geo-political zones in Nigeria respectively. Based on the success of the debut of Osun Sukuk in 2013, Sovereign Sukuk in 2017, another Sukuk of N100 billion was issued in December 2018 for the same purpose; but this time for twenty-eight road projects also across the six geo-political zones in June 2020. The deployment of the proceeds of Osun Sukuk fund, the first and second sovereign Sukuk in the sum of N200 billion to visible and verifiable road projects across the six geo-political zones of the country is symbolic and remarkable.

The Federal Government of Nigeria has launched a seven-year N100 billion ijara (lease) Sukuk due 2025 at an annual rental rate of 15.743%. The proceeds of the Sukuk will be used for the construction and rehabilitation of key economic roads across the 6 geo-political zones of the country. Since the fall in price of crude oil, the revenue of the Federal Government has been affected significantly, given that oil was a major source of government funds. As a result of the decline in revenue, the government has been contending with the challenge of financing its budget deficit. And the onus for the efficient management of government’s debt and sourcing for funds to finance budget deficits rests on the Debt Management Office (DMO).

Recently, Mr. Babatunde Fashola, Minister of Works and Housing, received a sovereign Sukuk Symbolic Cheque of N162.557bn for the construction of roads across the country. Mr. Fashola was presented the cheque on Monday in Abuja by the Minister of Finance, Budget and National Planning, Zainab Ahmed. She said one of the key pillars of the Economic Recovery and Growth Plan was the development of critical infrastructure projects with a view to removing the impediments to growth and development in the economy. As a result, Mr. President has prioritised capital expenditure on the development of roads, rails, power and agriculture projects.

The Debt Management Office (DMO) has raised the sum of N162.557 billion from investors in June 2020. This is strictly dedicated to the financing of road projects in the Revised 2020 Appropriation Act. It also means that with the release of N162.557 billion to the Federal Ministry of Works and Housing, the amount appropriated for Road Projects in 2020 Budget has been fully released.  She said with the deployment of Sukuk funds coupled with other capital releases and various interventions by government, the economy would soon be on the path to economic development.

Mr. Fashola, in his presentation, said the people who put money in the Sukuk were fund managers and the owners of the funds, adding that it was a matter of trust which they had for the administration that made them release their hard-earned money. He said: “I assure you that we value that trust from the evidence of what has happened in Sukuk One, and Sukuk Two, your trust is not misplaced and it will not be misplaced in the 44 road projects that will benefit from this Sukuk. For the benefit of the members of the public, the 44 roads that will benefit from this Sukuk has every geo-political zone taken care of. For the North-Central eight roads, North-East eight roads, North-West seven roads, South-East five roads, South-South 10 roads, and South-West six roads.”

According to Patience Oniha, Director-General, Debt Management Office (DMO), this is the third Sukuk issued by the office on behalf of the Federal Government in June 2020.

“The first sovereign Sukuk for N100 bn was issued in September 2017 and was followed by another in December 2018, also for N100 bn. With the issuance of the third Sukuk, the federal government has raised a total of N362, 577,000,000 bn, all of which are for the rehabilitation and reconstruction of road projects across the six geo-political zones of Nigeria. Therefore, the DMO plans to continue to use Sukuk and Green Bonds to support the development of infrastructure and other capital products; depending on how much is allocated to projects in the annual budgets”, Oniha stated.

It is on record that the first set of Sukuk projects emerged from the State of Osun, hence, the Sukuk projects in Nigeria will ever remain the bequeathed legacy of former governor, Rauf Aregbesola, who was the first Nigerian to introduce it. In Osun Sukuk funds were used to finance construction of education projects, among other development initiatives with which Aregbesola laid a solid foundation for the future of the state which helped to convince the President. President Buhari described the newly completed Sukuk steel structure of Osogbo Government High School as an educational legacy that should be emulated by other states of the federation, thanking Aregbesola for exposing Nigeria to the Sukuk market which has drawn increasing interest from sovereigns, multilateral institutions, multinational and national corporations both from developed and emerging economies to finance investments in a wide range of economic activities and development projects.

When former Governor Aregbesola took Sukuk bond, a section of the media said that Aregbesola wanted to Islamize the State of Osun. Now that Sukuk projects are being commissioned all over Nigeria the media is silent. The overall direction and potential of the market are certainly well recognized, particularly in its role in contributing towards greater economic development of Osun. There is significant potential for the Sukuk, with this calibre of governments following suit to obtain Sukuk, it is now crystal clear that Aregbesola is not just a leader, but a leader that sets positive pace globally.

History will remember Aregbesola for four major developments in Nigeria, school feeding programme, Sukuk bond for national development, first governor to embrace 4th industrial revolution and Nigerian chocolate. Aregbesola has encouraged the issuance of Sukuk in Nigeria because we needed to diversify the instrument in the bond market. Aregbesola worked hard to introduce Sukuk fund for education in Nigeria. Osun took the initiative and helped in introducing it to Nigeria. The greatest lesson is that when Aregbesola adopted Sukuk, an Islamic bond to help the state execute educational projects, his critics were calling for his head. Many said it was part of his ploy to islamize Osun.