The Legacy Of Osun And FG Sukuk Projects

By Inwalomhe Donald

It is on record that the first set of Sukuk projects emerged from Osun State, hence, the Sukuk projects in Nigeria will ever remain the bequeathed legacy of Governor Rauf Aregbesola who was the first Nigerian to introduce it. He has always maintained that Sukuk projects are purely for business purposes and that the global issuance of it is “expanding with remarkable international reach and driven, in particular, by strong economic growth”, saying it resembles “public-private partnership financing whereby investors finance the assets and then own them which leads to real securitisation (a process of pooling/repackaging the non-marketable assets into tradable certificates of investment) after which they transfer them at maturity to the government”.

President Muhammadu Buhari last year described the newly completed Sukuk steel structure Osogbo Government High school as an educational legacy that should be emulated by other states of the federation, thanking the governor 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.

In Osun, Sukuk funds were used to finance construction of education projects, among other development initiatives with which Governor Aregbesola laid a solid foundation for the future of the state which has helped to convince the President. There are eleven High Schools with a total of 72 classrooms, some of which had been completed and others at various stages of completion across the state, all financed with Sukuk bond.

There is clear indication of the growing relevance and importance of the Sukuk market in Osun State which spread to other parts of Nigeria with the growing interest from both emerging and developed jurisdictions and the strategic approaches taken to diversify the funding sources through the market.

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, in particular to fund infrastructure projects. This would contribute towards building deeper and more liquid, efficient and effective global Sukuk market. The dynamism of the market also contributes towards strengthening financial stability and in facilitating the expansion of inter-regional investment flows. As we move towards increasing this internationalisation of Islamic finance, and thus towards greater global financial integration, it will contribute towards a global growth process and financial stability that will be mutually reinforcing. 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 set positive pace globally.

The Federal Government has released the proceeds of the N100 billion Sukuk bond to 25 key economic road projects of the Federal Ministry of Power, Works and Housing. Finance Minister Mrs. Kemi Adeosun, handed over the cheque to Minister of Power, Works and Housing, Babatunde Fashola. The offer was oversubscribed at N105.87 billion.

To Mrs Adeosun, “the milestone was a sign of confidence in the Nigerian economy and the administration of President Buhari”, adding that the Sukuk proceeds would unlock Nigeria’s potential.

“This is the first Sukuk bond issuance for the Federal Government and second Sukuk bond in Nigeria because Osun State was the first to issue Sukuk bond in 2013. It is about financial inclusion and deepening of our financial markets. The proceeds will be used to further support government capital spending for 2017 – the construction and rehabilitation of 25 key economic roads across the six geo-political zones of the country.”

The question now is: are there implications of Islamic financing of these roads and their subsequent ownership by the Sukuk holders?  Christians Association of Nigeria fears that the Islamic financial institutions will own the 25 major roads after construction. The answer to that fear is no and Nigerians are eulogizing Aregbesola for introducing Sukuk to Nigeria. ­

There is no doubt about the potentials for using Sukuk as a tool for capital raising and infrastructural development in Nigeria. The Sukuk issuance attracted international acclaim by winning the IFN Africa Deal of the Year Award 2013. The Government of Osun through a wholly owned Special Purpose Company, Osun Sukuk Company Plc issued on the 8th of October, 2013 the first Sukuk in Sub-Saharan Africa worth N11.4 billion to fund the development of 11 High Schools in the  State.

The issuance of the first state Sukuk by Osun Sukuk Company Plc attests to the huge potentials for Islamic Finance in Nigeria, while its subsequent international acclaim creates integrity within the market which has the propensity to promote foreign direct investments. With the right team of professional advisers, it is clear that focusing on substance over form can contribute significantly to the rapid development of the Nigerian economy through the issuance of Islamic Finance products.  Nigeria should not miss out on this opportunity.

• Inwalomhe Donald writes from Benin City inwalomhe.donald@yahoo.com