Abuja: With Nigeria’s rapid population growth and the resulting demand for development, it has become essential for the government to construct infrastructure at the lowest possible cost. Stakeholders argue that poor infrastructure is one of the country’s most significant impediments to seamless corporate operations and capital inflows. The current method of financing infrastructure is often hindered by the high cost of servicing the debt used to address Nigeria’s infrastructure deficit.
According to News Agency of Nigeria, experts suggest that Sukuk financing is an effective alternative and strategy for fostering growth and development through capital project financing. Recently, the Debt Management Office (DMO) held an investor meeting in Abuja for the N300 billion series seven Sovereign Sukuk issuance. Previously, an all-parties meeting was conducted on March 26 in Lagos to prepare for the Sukuk issuance.
The Director-General of the DMO, Patience Oniha, highlighted that since 2017, the Federal Government has raised a total of N1.09 trillion through Sovereign Sukuk to support infrastructure development. The DMO has completed six Sukuk issuances since 2017, raising N1.092 trillion to fund road and bridge projects. Oniha recalled that the first Sukuk was issued in September 2017 and was initially offered at N100 billion with a seven-year tenor, receiving a total subscription of N105.878 billion.
Oniha noted the achievements from September 2017 to December 2023 when the last Sukuk was issued, stating that a total of N1.09 trillion had been raised, leading to the construction or rehabilitation of over 4,100 kilometers of roads and nine bridges across Nigeria’s six geopolitical zones and the Federal Capital Territory. These projects have brought substantial benefits, such as reduced travel time, improved road safety, job creation, enhanced access to markets for remote farmers, and increased access to public services like education and healthcare.
Additional reasons for the sustained Sukuk issuance include its project-tied nature, promotion of financial inclusion, and contribution to the development of the domestic financial market. Sukuk has been well accepted, as demonstrated by past subscription levels, offering investors fulfillment in contributing to infrastructure development while receiving returns in income paid every six months.
Experts advocate for pursuing alternative sources with minimal costs, such as Sukuk, to fund large-scale infrastructure investments in Nigeria. They urge the Federal Government to enhance non-Muslim awareness of Sukuk, improve capital market intermediation, and stimulate more Sukuk issuances as a reliable funding source. Sovereign Sukuk has contributed to financial inclusion and economic growth by providing Shariah-compliant investment opportunities and attracting diverse investors, including Islamic finance institutions.
For investors, Sukuk offers a sense of project ownership and ensures that economic activities are based on tangible assets, providing a secure foundation for investments. For the government, Sukuk is an effective financing instrument for infrastructure development and economic growth. Experts suggest establishing a comprehensive approach to assist technical ministries in project preparation, development, and service delivery to achieve Sukuk project success.
Investors in Nigeria view Sukuk as an attractive option for diversifying portfolios and supporting infrastructure development. Industry analysts believe that Sukuk needs to attract young retail investors to address Nigeria’s infrastructural deficit. Uche Uwaleke, a Professor of Capital Market at Nasarawa State University, commended the DMO’s issuance of N300 billion Sukuk, noting its improvement over the initial N100 billion Sukuk issued in 2017.
Uwaleke emphasized that Sukuk proceeds must be tied to infrastructure, making it a critical instrument for Nigeria’s economic development. Despite its potential, the Sukuk market size in Nigeria remains small. Uwaleke urged both federal and sub-national governments to utilize more Sukuk when raising funds from the domestic capital market to address the country’s significant infrastructural gap effectively.
Attahiru Machido, a stockbroker, stressed that the roads constructed with Sukuk proceeds must meet required standards and remain usable throughout the Sukuk’s lifespan. Olalade Agboola, a bank executive, highlighted that Sukuk, like other government securities, is backed by the full faith and credit of the federal government and qualifies for tax exemptions and pension funds under various investment acts.
As the Federal Government continues exploring funding options to bridge the vast infrastructure gap, experts maintain that cost-effective, project-tied credit options like the Sovereign Sukuk are viable choices for sustainable development in Nigeria.