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Thursday, December 29, 2011


          As sub Saharan African second largest economy and most populous country in Africa, the decision by Nigerian authorities to introduce Islamic finance into the country financial sector should be welcome by the global investment and Islamic banking and finance community. With the seventh largest population in the world, Nigerian market is large enough to attract any type of financial market players to participate in her increasingly sophisticated financial industry. The history of the introduction of ethical finance into the Nigerian economy can be traced back to the period of colonialism when an institution that did not engaged in any interest related dealing was established to cater for the need of Muslim pilgrimage for an ethical vehicle through which they can channel their saving toward the annual pilgrimage.  The agency popularly known as WAPA, though not a bank as the term is commonly understood, in some ways perform the bank job of deposit taking and also perform the functions of bureau de change. But the actual effort to established a fully pledge Islamic bank can be traced to the 1980s after the liberalization of the banking sector and establishment of what are today called new generation banks. The promulgation of Bank and other financial institution degree (BOFIA) of 1991 acted as watershed as it provided the legal and constitutional background for the establishment of Islamic banks in the country. Thereafter, the establishment of community banks everywhere across Nigeria paved way for some interested Muslims to apply for the establishment of zero-interest charging community banks. Habib Bank Nigeria limited (an affiliate of Habib bank Pakistan) was the first big conventional bank to open a window that cater for Islamic finance in 1996. Because of the absent of full support from the regulatory authorities no any other Nigerian bank followed the example of Habib bank for some years to come. After the return of democracy in 1999, a more concrete effort to establish a fully pledge Islamic bank was initiated. This time around, because of the initial positive posture of the authorities towards the scheme, shares of the proposed Islamic bank (called Jaiz) was opened for the general public to subscribe, which was later oversubscribed to signal to you how eager Nigerian public are for this system. But the decision of the then new central bank governor (Soludo) to increase the capital base of banks from N2.5 Billion (as at 2003) to N25 Billion did a lasting blow to this effort and delayed it for some nine years time.
Sanusi Lamido’s banking reforms
    Since becoming Nigeria’s central bank governor in May 2009 (after a short span as managing director of one of Nigeria’s largest bank) Sanusi Lamido has introduced far reaching reforms that led to the transformation of the Nigerian banking landscape. At the period Sanusi assumed duty as governor of the CBN, Nigerian banking sector was passing through the devastating impacts of the last global financial crisis that left Nigerian financial sector in a protracted coma. There was the wide spread fear that some major Nigerian banks were facing threat of total collapse with major repercussions for the Nigerian economy as whole. This left Sanusi with difficulties concerning alternatives to chose from, should he allowed these banks to collapse (about eight of them) or should he allowed the government to rescue them? He took the last alternative by providing government rescue money, but before that he made sure he sacked all the managing directors of these banks who most people blame for the situations in their banks. Sanusi later introduced far reaching corporate governance reforms that include limiting of bank’s MDs tenure to only two terms of five years, Central banks screening of who is going to be appointed as director in a bank, bringing an end to the cult of family own bank, banning of former CBN governors from holding strategic positions in banks until long time after, and new succession guidelines. Other reforms introduced by Sanusi includes, uniform financial year ending, replacing of universal banking model with differentiated banking model that allowed for the establishment of specialized banks including Islamic banks, establishment of asset management company of Nigeria to buy toxic assets from Nigeria’s banks, new rules on result publication, cashless economy road map, curtailing banks lending to capital market, establishment of credit bureaus among others. Today in Nigeria, CBN intervention of 2009 is hailed as the only banking intervention that ordinary depositors do not loose their money and one in which the confidence of the Nigerian public in the financial system was enhanced.
How the reforms affect Islamic finance industry?
    Before the coming of Sanusi there was only the intent to establish Islamic banks in the country as there was no any realistic time table on when the banking system is going to be introduced. Soludo (the CBN governor before Sanusi) has compiled some policy documents on Islamic banks but his other policies like the sudden introduction of higher capital ration for all categories of banks proved a stumbling block to the system. In addition, Soludo has refused to put the needed regulatory and legal requirements for the establishment of Islamic banks. Despite these, Soludo introduced Nigeria into Islamic Financial Service Board (IFSB) in January 2009. But, Sanusi is credited with using the BOFIA degree of 1991 to restructure his non interest specialized banks in 2010 to confirm with Islamic Banking requirements. With the dismantling of universal banking model, the capital requirement for the establishment of Islamic bank was reduced from 25 billion naira to 5 billion Naira for a regional bank, and 10 billion Naira for a national bank. The Nigerian Deposit Insurance Corporation (NDIC) also joined CBN by releasing draft framework for non interest (Islamic) deposit insurance scheme. Central bank under Sanusi also joined the International liquidity Management Corporation based in Malaysia in October 2010. Sanusi also introduced the office of adviser to the CBN governor on Islamic banking, in addition to sending the staff of the apex bank for training in and outside the country on various aspects of Islamic banking. All these led to drastic changes in the Islamic Banking environment, despite the opposition it experienced from some quarters.  Currently, Jaiz bank plc has been registered to operate as a full pledge Islamic bank, making it the first Islamic bank in the country. Stanbic IBTC Nigeria limited (a subsidiary of standard bank of South Africa) has been given the licenses to operate a window of Islamic banking. Many other existing conventional banks operating in Nigeria are also planning to enter the lucrative market. Lotus capital plc has been registered since 2008 to operate as Islamic fund management firm. There are also a lot of micro finance institutions that are operating some kind of windows of Islamic banking across the country. In the area of Islamic insurance (Takaful) there are some significant progress that has been recorded among which is the introduction of Takaful products by existing conventional insurance firms such Africa alliance, Niger insurance, and Royal insurance among others.
Opportunities and potentials for Islamic banking in Nigeria
  The opportunities for all categories of Islamic finance products is enormous in Nigeria, with a very big religious population (according to many cross country survey) Nigeria boost of large population of religiously conscious people. Like most developing countries, the number of the unbanked Nigerians is very substantial, according to the Economist magazine (the special report on international banking, May 14, 2011) about 67 million of the adult population are out of the formal banking system. It is believed by many analyst that the introduction of Islamic banking into the country financial system will lead to the deepening of the financial system, thereby, reducing the total number of the unbanked in the country. Islamic insurance and fund management in particular have already started making headway into the country formal financial sector. Nigeria hopes to become the hub of Africa financial transaction, a kind of Africa International financial centre (IFC), hence the lunching of financial system strategy (FSS) 20:2020 in 2005. It was realized (though reluctantly) that for Nigeria to be included among the 20 largest economies in the world by 2020 it must include some kind of Islamic (non interest) banking both for the attraction of foreign investment and to help increase financial deepening. The FSS 20:2020 has further help to spur the potentials of Islamic banking in the country. The existing conventional bank that originated from Nigeria are listed among the largest banks in Africa, some of them have operations across many African countries. There is no doubt that Lagos (Nigerian financial capital) is the biggest financial centre in the whole of west Africa; with the third biggest economy in the whole of Africa ( following after South Africa and Egypt, respectively) there is no doubt that the potential for Islamic banking in Nigeria is enormous. Nigeria also hopes to become Africa hub of international Islamic finance transactions.
Conclusion and Recommendations
   But there are still important things that Nigerian authorities need to do to help the opening up of the Nigerian financial market to Islamic finance. Most important among these is speedy introduction of new legislations that are favorable to Islamic banking and finance, because some of the existing legislations still act as barrier to some aspects of Islamic finance for example Sukuk issuance. Next is the creation of Islamic money market, as some of the instrument currently traded in the conventional money market cannot be bought by the Islamic bank, and not doing this will put Islamic financial institutions at greater disadvantage compared to their long established conventional competitors. On this issue Nigeria should borrow from Malaysia on how favorable environment was provided for Islamic banks to compete with their conventional rivals. The central bank of Nigeria should as a matter of necessity collaborate with the more established countries in the field around the world; such countries should include Malaysia, Bahrain and Pakistan. Investors in the Islamic finance industry (to some extent) are just like there conventional counterparts, before committing their money in any country they first calculate the risk and benefit of doing so, thus Nigerian authorities should include these facts as they Endeavour to establish Nigeria as centre of Islamic finance in Africa. Lastly, is greater enlightenment of the Nigerian public, as there are still many people that are ignorant of the workings of Islamic finance; hence, the recent opposition to it introduction from some quarters.

Abdullahi, S. A. (2011), “Islamic banking in Nigeria: the journey so far”, people daily Nigeria (, May 3, 2011
The Economist; May 14th 2011,
The Nation, Nigeria; June 7, 2011
Sanusi, S.L. (2011), “Islamic finance in Nigeria: issues and challenges”, Lecture delivered at Markfield institute of higher education, Leicester, UK

Tuesday, December 27, 2011


      Some few days back, President Goodluck Jonathan was at the joint National assembly special session, where he presented his 2012 budget. And, it is not surprising to any one that fuel subsidy removal has been given such a prominence in 2012 budget. Going by the actions and utterances of Jonathan top government officials any good guesser can guess that in order to make fuel subsidy removal a reality, this government will make 2012 budget so depended on it that it will go into crisis if it is not implemented. For an economic team that is filled to brink by neo liberal thinkers and pro capitalist technocrats any one who is hoping for continuation of subsidy of any kind is wasting his thinking moments. The word ‘subsidy’, any subsidy be it in the power sector, toll gates, fertilizer, education, etc., is out of this management team point of reference. That is why protesters such as ASUU and Lekki toll gate protesters will find it difficult to actualize their missions. When the economic management team is composed of people who shared the philosophy of the IMF and World Bank, I bait you my last Kobo, that severe economic restructuring has come to stay. In 1980s Nigerians vehemently opposed taking loan from the IMF together with it austerity measures, but when it was later on smuggle in as the so called home grown economic policy, the notorious structural adjustment program (SAP), Nigerians did not realized what hit them until years later. Today SAP is remembered as the beginning of Nigerians suffering and lost of focus. But it is not everything that is associated with SAP that is negative, in fact, the problem is not SAP (an economic policy as it was) but the Nigerian leadership, and as some may say the Nigerian mentality as at then. The same set of economic policy was adopted by our neighbour Ghana, today Ghana is better for it and it is being celebrated as one of Africa’s emerging economic success stories. 

     Put a little bit higher than 2011 budget, 2012 budget of N4.749 trillion is a budget that betrays government commitment to fiscal prudence. Allocating 72% of the budget (N2.472 trillion) to recurrent expenditure seems to me very outrageous, and a move away from government mantra of fiscal prudence. Though, as one analyst observes that it is not easy to cut recurrent expenditure in one full swoop, this government should have done better than this. The implication of this is that while trillions of Naira is being cut as fuel subsidy, the same amount is being move to finance government expenses such as transport and stationary allocation for president and vice president, legislative and ministerial expenses, etc.  There is little in the way of prudence in a budget in borrowing about 22.3% of the total budget to finance mostly recurrent expenses. I do not have problem with government borrowing, but the budget should have been budget of infrastructural consolidation. About N1.059 trillion of the total budget amount of N4.749 trillion is to come from borrowing from China, Japan, Indian and France, as well as domestic borrowings, this is about a quarter of the overall budget. In a global period characterized by an unrivaled global debt crisis it seem unwise to borrow money to finance expenses like salary, allowances, and over bloated ministerial budgets. At a time major countries around the world are drastically cutting their budgetary expenses we are increasing our own. While 2011 is an election year, therefore, some expenses will naturally comes, 2012 is not an election year and still we are not in a full war. 

    What are the other implications of this 2012 budget? The monetary implication of increase government borrowing for the economy is to increase the rate of interest charged by lenders, and also to reduce the amount of credit that will be available to the private sector in the year 2012.  For an expansionary budget such as that of 2012 a little bit of high inflation should be expected, despite government conservative forecast of 9.5%. This is more so with the expected removal of fuel subsidy from the economy and resultant devaluation in value of Naira, consistent with this government economic agenda. The $75 bench mark price for crude oil in the budget is predicted on the stability of the international price of crude oil, which may come under threat looking at the current turmoil in the global economy. In any way one look at it government should have intensify diversification of it revenue source not only by the current revert to borrowing, but also by looking for other sources of exporting Nigeria’s other natural resources. The expected increase in the recurrent expenditure will further increase our import bills, by putting pressure on the demand for imported goods and services. With little in the way of infrastructural development, increase interest and inflation rates, increase in the cost of energy, not much should be expected in the area of industrial growth and welfare. Despite the huge amount budgeted to tackle insecurity in the country, the major challenge to smooth implementation of 2012 budget will remain security, not only by the recent increase in threat from militant groups, but also from rising crimes, robbery, and ethno-religious crisis. Corruption far more than any other factor will continue to pose challenges to any development programme in Nigeria.

Tuesday, December 20, 2011


      In one of its special reports: The News Industry, July 9th 2011, The Economist of London look critically at the future of print media (newspaper). It observed that the internet, especially, the social media (Blogs, Twitter, Facebook, Google, etc.) has revolutionarised news as we knew it, and warns that more changes are in the offing. The survey observed that there is a gradual decline in the news paper business in the developed parts of the world, while emerging countries such as India, China, Brazil, and South Africa are experience growth in the sector. This, the special report observed, is partially because of the penetration of the internet and economic growth. While developed countries economies are passing through tumultuous period, those of the emerging countries are prospering. While the use of internet is high in the developed countries, it is lower in the emerging world.  The internet revolution has also had a propound effect on advertisement revenue, the most important source of funds for most papers, by reducing the amount of advert revenue that is going to print media; as more of advertising moves in the direction of internet advertisement. To quote the words of the Survey, “Clearly something dramatic has happened to the news business. That something is, of course, the internet, which has disrupted this industry just as it has disrupted so many others. By undermining advertising revenue, making news reports a commodity and blurring the boundaries between previously distinct news organizations, the internet has upended newspapers’ traditional business model.”

    Though Nigeria media industry falls under the emerging economies group, who are experiencing high economic growth, the industry will no doubt be affected by the internet revolution, in fact this is happening as we discuss. The increase in the number of online media such as Gamji, Sahara reporters, Nigerian village square, and others like Nigerians in America is a pointer to this trend, not to mention the hundreds of blogging sites that appear on the horizon. Recently, Nigeria was ranked among the top five countries with dominance in internet usage by means of mobile devises. This is another indication of the many threats internet can bring to the Nigerian newspaper industry. As the power supply improves and major telecommunication companies in Nigeria made the promised infrastructural investment to boost internet access, the percentage of Nigerians with access to the internet will jump making Nigeria to follow in the examples of China and India. With this scenario taking place, local internet giants will spring up in Nigeria, like is currently happening in China, India, and Russia; making the migration of advert to internet more prominent. TV, radio and out door advert have, for many years, been  the major competitor to the print media in term of advert generation, and looking at demography and socio-economic set up of Nigeria, they will continue to be in the foreseeable future.  The fact that about two third of Nigerian newspapers income is coming from advertising will continue to make soliciting for advert highly competitive and unethical practices in order to get advert the order of the day.

      But, one major stumbling bloc that continues to act as hindrance to the development of unbiased media in Nigeria is the ability of advertisers to use their power to influences editorial content in many of Nigeria’s newspapers. Because of the fear of reduction in advert revenue many papers allowed politicians and corporate bodies to influence their news reportage. This must stop if the Nigeria media industry is to maintain it good name, which put it above   other media industries across Africa, who are held hostage by their country’s governments. Despite the grim future for the print media world wide, as a result of competition from the internet, Nigeria’s print media is going to witness growth in advert revenue. This is for the simple fact that Nigerian economy is currently witnessing growth, and as the economy prosper the number of advertisement placed by corporate bodies and government will increase, putting the print media in better position to generate more revenue and jobs. Another major area for growth in revenues is circulation, as the economy moves forward as expected; the number of middle income earners will increase thereby boosting the number of people with pocket power to buy a daily newspaper. This scenario is currently taking place in India and China, where millions of people are being lifted out of poverty, giving them the power to buy luxury things such as a daily newspaper. Though, Nigerian newspapers relied on advert for most of their incomes, circulation is going to provide increasing revenue for those that made the critical investments necessary to tap it. For example, more than 70% of newspapers revenues in Japan comes from daily circulation not advert, but this did not come as a surprise, as one of Japan top daily papers has a daily circulation of up to 10 million copies.

      Like is currently been experimented elsewhere around the world, very soon we will start to see Nigerian papers charging for some aspect of their online news, despite the not so successful experimentation of the Punch Newspaper. But as we are witnessing now, competition for online advert will intensify concurrently with that of the print paper. As the industry grows and competition intensifies, one may not rule out the possibility of merger and acquisition in the print media, as investor pours money to benefit from the expected profits. The special report of the Economist concluded, thus: “The biggest shift is that journalism is no longer the exclusive preserve of journalist. Ordinary people are playing a more active role in the news system, along with a host of technology firms, news start-ups and not for profit groups. Social media are certainly not a fad, and their impact is only just beginning to be felt ,……, Successful media organizations will be the ones that accept this new reality. They need to reorient themselves towards serving readers rather than advertisers, embrace social features and collaboration, get off political and moral high horses and stop trying to erect barriers around journalism to protect their position. The digital future of news has much in common with its chaotic, ink-stained past.”

Thursday, December 15, 2011


      I vividly recall the devastating ASUU strikes of Obasanjo era the longest of which lasted for almost nine month, but despite the autocratic nature of Obasanjo he was brought to submission by those strikes especially towards 2003 election period. The education sector and from there the whole of the economy suffered because of Obasanjo insensitivity and ASUU greed. Perennial strike by ASUU has become part and parcel of Nigerian university education, hardly a full year pass without ASUU threatening to go on strike. And, hardly a month pass without government breaking her promises be it to labour unions such as ASUU or the Nigerian masses. Nigeria is unique indeed, unlike her giant continental rivals (South Africa and Egypt) her education sector is in serious comatose condition that it requires nothing less than revolutionary overhauling to make it to catch with those of these rivals. While Nigerian government has been busy talking of putting measures in place to make her economy surpass that of South Africa and become the biggest economy in the continent by 2015, her neglect of the education sector will make that difficult if not impossible to achieve. No economy in the world reach the level the South African economy attained without sound university education system.  While South Africa and Malaysia (another middle income giant) have a couple of universities in the world top 200 ranking Nigeria has none. While the federal government take most of the responsibility for the continue strike in Nigeria, ASUU too has it own share of the blame. Many analysts have become tied of some of these ASUU endless excuses for embarking on their strikes. For example, some of these lecturers themselves are not doing their job according to contract of their employment, as they engage in their personnel businesses and endless travels. These habits of the academicians have contributed in no small way in the present problems our university system is facing. In a country where her universities churn out half bake graduates, the economy suffers as a result. In developed countries around the world, nations are proud of their graduates (as they are up to any task) but the same cannot be said here in Nigeria. These scenarios left many employers with the task of spending millions of Naira in giving training to these graduates before putting them into a proper task. While some employers resort to employing secondary school leavers and given them the training needed, and at the end paying lower monthly payment to them than graduates.  Skill labour is the most important component of rapid economic growth and development at the heart of East Asian success stories, which was made possible by massive educational investments of these countries over the years. Thus, there is a direct connection between economic development and educational growth. The monetary cost of any lost working day lost to the current ASUU strike is huge as it runs into billions of Naira, both in term salaries and wages, as well as lost productivity. 

        Despite the poor research and innovation capability of our present set of universities, incessant strike will continue to jeopardize the little research they are undertaking. The kind of research and development activities that can put Nigeria in the league of developed nation cannot take place in a disruptive environment like the one we are currently witnessing in our universities. It is, therefore, clear that the current ASUU strike will have negative effect on our industries and from there our Gross Domestic Products (GDP). As Daily Trust argued in her editorial of Tuesday December 13, 2011, ‘the physical structure of many universities are substandard, books are either out of date or not available, the conduct of examinations does not meet minimum requirement, and the standard of learning, especially of English, is atrocious.’ No concrete learning and research can take place in atmosphere such as this, hence, the sympathy that ASUU continue to generate from the Nigerian public, and people condemnation of federal government's 'I don’t care attitude' towards the education sector. But, at the same time we have to acknowledge the fact that ASUU continue resort to strike is jeopardizing the very sympathy they have garnered so far from the public. What is the way out? First and far most federal government must realize that it vision of taking Nigeria into the league of 20 largest economies in the world cannot be realistic without the simultaneous empowering of our education sector and the power supply, two key raw materials for boosting economic growth in Nigeria. Like the federal government is giving it self a target of putting Nigeria in the league of 20 largest economies, it should also give itself the target of putting the best of Nigerian universities into the league of top 100 universities in the world. This however, will not be realistic without both ASUU and federal government coming to the understanding that they both have a stake in this endeavor. Federal government is in this case undermining it own economic agenda by neglecting to strike a compromise with ASUU, likewise the academic union cannot achieved what it set to achieve without bringing the federal government into buying its idea of reforming the education sector. It is a shame that despite the return to democracy in 1999, Nigerian government cannot move up it budgetary allocation into the education sector beyond the range of 2-4%, when our West African neighbours such as Ghana are allocating up to 20%. Ghanaian economy is today one of the most dynamic in Africa and is on the road to achieving emerging market status, depending on the angle from which you view the matter.

Wednesday, November 23, 2011


       Just last week, during the lunch of newly constructed CBN Port Harcourt branch, CBN governor (who also happen to be from Kano) was quoted to have compared the amount Rivers state got in 9 years from the federation account with that of Kano at the same span of time.  While Port Harcourt received a total of 1.5 trillion Naira, Kano with far more bigger population received about 285 billion Naira. Though I have my reservations concerning the amount he attributed to Kano, it goes to show how insignificant the Kano economic stride was during the period when compared with oil rich Port Harcourt. On one of my visits to Sharada industrial estate (one of about three big industrial estates in Kano) I found the place to be a shadow of it former position. Full of empty sites many of them have become home to rats and lizards, while others have been converted to ware houses. While Lagos industries, despite been unfortunate to find themselves in the same confusion called Nigerian economy, have managed to wake up from their slumber, Kano’s own are still in deep slumber. Aminu Kano international airport which is supposed to be the nerve center of Kano industrial and commercial growth, her link to the global economy (if not for the recent make over it received) have experienced a phenomenal slow down in almost all it activities. As one commentator observed, Kano groundnut pyramid has turn to pyramid of refuse. Kano used to be the nucleus of agricultural revolution not only in northern Nigeria but the whole of central Sudan, with its Dawanau grain market which happen to be the biggest grain market in Africa. Like most Northern states, Kano is still ravaged by problems of unemployment and redundancy that result in abundance of jobless youth who resort to violence and thievery at the slightest provocation. No wonder last year Kano was rated as the biggest haven of drug takers. 

      Therefore, the restoration of Kano to it former glory is going to be a daunting challenge for the government of Rabiu Musa Kwankwaso. As mention at the beginning of this piece the amount that is coming to the government coffers from the federation account is insubstantial when compared to the big challenges that are on the ground.  The revenue been generated by state tax collection institutions is still meager when compared with the potentials on the ground. While the many task on the ground are very substantial; there are many roads that need to be build, improvement in the current status of Kano own tertiary institutions, provision of affordable houses; the resources needed to execute them are not there. In an era when many states in the country are generating their own electric power, Kano is yet to have it own independent power plant. Despite the abundance of sources of generating power such as hydro dams, wind and sunlight. Despite the fact that Kano is ranked among the top states with huge irrigation potentials, irrigation in the state is still in decade long decline. A lot many dams that costs billions of Naira to construct have remained idle, in some cases were allowed to waste away. While many countries and states around the world have realized that there is power in numbers, Kano is yet to utilize its vast population of idle entrepreneurs. Despite producing the richest black man on earth, Kano’s per capita income remain one of the lowest in the country. Another interesting contrast is that despite having some of the largest population of small scale business in the country, Kano has few micro finance institutions. 

    What is the way out? First, Kano state government shall intensify it efforts at generating local revenue that can be later channel into the building of infrastructures. Today in Nigeria only Lagos state can boast of over four hundred billions Naira budget apart from the federal government, and most of this money comes from internally generated revenue. Then ideas, like running of companies state governors need to generate ideas that will move their state forward, in short they should think and behave as chief executive officers (CEOs) of their states.  Do not forget the saying that ideas run the world. To be an effective manager of Kano state, Kwankwaso need to have very hard working and committed middle managers to help him executed his good projects. Since its time is short (less than four years) and resources are inadequate, the present Kano state government needs to go for public private partnerships (PPP) with zeal. I do not object to taking debt, only that those that borrow the money shall be God fearing and put it into genuine uses, because of that I will advice borrowing money from Islamic development Bank to execute Kano state independent power projects. Why I emphasize on Islamic development bank is because unlike most other international financial institutions, IDB do not just hand you over their money and turn their back not caring what you do with it. In most cases they buy you the equipments you need to execute the projects or built the project and then hand it over to you. Kano state government shall devise tactics of luring headquarters of major Nigeria corporations into its state capital. This will boost the state capital attraction to other investors and generate more revenues. And people should not say this is impossible because it has been done in many countries around the world including the United States; not far from Kano, recently, one of the oil giants moves its headquarters from Lagos to Rivers state capital, Port Harcourt.

Monday, November 21, 2011


         So far the current global debt crisis has cost the leaders of Greece and Italy their jobs, who will be next only time will tell. The current debt crisis is one of the most devastating since third world debt crisis of the 1980s. So far it impacts has concentrated on the developed countries of Western Europe and North America. African countries like most other developing countries have had their own share of debt crisis in the past and many are yet to recover from that almighty blow to their nascent economic growth. But this time around the blow that they will be receiving is indirect, since the debt in effect is European sovereign debt. There are various channels through which the current global turmoil can affect African economies, one of which that has already affect the continent is through trade. The bulk of African export to European countries has already been affected by way of reduction in the over all export especially that of primary products. Countries such as Kenya, Mali, Uganda, and Senegal have already seen their primary export to Europe been affected by the crisis. As austerity measures put in place in countries such as Spain, Ireland, and Portugal bit harder so shall the volume of trade between these places and their African partners. Debt crisis of this magnitude should be expected to have an effect on corresponding debts hold by African countries. Already the cost of borrowing has increased making it more difficult for poor African countries to finance their deficits. Many countries across Africa are rethinking their earlier decision to issue bonds or borrow from multinational financial corporations. But one positive way the crisis is affecting Africa is by way of directing the attention of global financial players toward Africa. In order to satisfy the demand of portfolio diversification theory many global investors are directing their money toward African debt market which is young, dynamic and diverse. 

       China with foreign reserve running into trillions of dollars has been christened by analysts as the lender of last resort in this crisis. Already china government and business community has  bought billions of dollars of western European debts, at a time when Europeans themselves are running away from these junk debts. No African country can play the role China is currently playing in this crisis, the combine foreign reserve of China is more than African economies put together. As a matter of fact no one expect Africa to play any such role, if not for the way the crisis has affected the total number of aid money coming to the poor continent. Thus, here in Africa analysts are more concern with the way and manner the crisis is affecting the total amount of aid and development money that is coming to the continent and no the other way round. But one important sector that the European debt crisis hit the most, is emigration sector. Africans now find it difficult to migrate to Europe even when they possess the most needed education and talents. The big sign on the wall as far as Europe is concern is that investors capital and high net worth individual are welcome. While for the less endowed individuals and migrant without capital you are not welcome. This is not to talk of illegal migrant who will be maltreated when ever they show their faces. As for the millions of Euro remittance money that is coming from African migrants who are working in Europe Africa should expect less of it as the crisis bite harder. This is not to talk of the thousands of Europe based African who have lost their jobs since the start of the crisis, therefore, find their way back to Africa.

     According to a July 2010 issue of African Development Bank market brief, North and West Africa are the regions of Africa that are most connected in trade with Europe, therefore, more vulnerable to any contagion that come from Europe. Countries in these regions face increasing prospects of declining revenue and negative balance of payment position, the brief observed. Already, the weakening in the value of Euro has affected the portion of these countries foreign reserve that is invested in Euro. In African countries, especially in the CFA zone, the crisis may affect their banking system by affecting their liquidity positions as well as credit lines that are coming from the European banks. As European banks become more involve in Greece and other crisis countries debt problems they will find it more difficult to extend their credit line to their African partners. But one positive way that the crisis is affecting Africa is by making its people and government to look inward rather than in the past usual way of setting eyes on Europe and US. We all see how Nigerian authorities are fighting day and night to attract foreign investors with capital and skill to develop the local economy. Countries such as Ghana, Angola and Uganda are increasingly been seen as African success stories who have implemented hard economic prescriptions and have steered their economies toward the path of growth. But the impact of Arab uprising on debt laden European countries is to make their condition worst. We have already seen how Libya revolution is affecting the Italian economy. The decrease in the supply of crude oil, gas, and other raw materials from these North African countries to Europe has important implication on the economies of these European countries. The same thing with the declining line of capital that is coming from North Africa to Europe.

Monday, November 7, 2011


       The last three years has become one of the most tumultuous in the history of the world financial industry. The form and structures of the global financial order has been changed because of what occured between these times. A lot of important financial institutions that were known in the financial landscape for years have disappeared from the scene. Hundred of thousands finance industry workers have lost their jobs world wide, while some few others are languishing in prison cells. Currently, the global sovereign debt market is facing one of its most challenging period with countries across the world particularly in Western Europe facing multiple defaults. The current ‘occupy wall street’ protest is one of the repercussions of the global crisis that further bring to the fore the tensions that exist between the unemployed youth and the fat-cats called Wall Street bankers and other categories of wealthy individuals like them.  It is in this situation that Sanusi Lamido initiated his banking reforms which many see as the only option for any other CBN governor holding that office, and faced with banks in unhealthy state. Let go back to the early 90s, a period when Nigerian banking sector was speedily liberalized and many previous state own banks were sold to the private sector. The speed with which the sector was liberalized and the absence of required regulatory capacity to manage the phenomenon created as a result left the sector at the verge of collapse. Many banks were given license by virtue of applying for it not because they have the necessary capital, staff strength, managerial know how, and market spread to operate a commercial bank. Banks in those periods engaged most of their time in foreign exchange dealings instead of allocating their time and capital in most important areas like quality credit creation and shoring up of their capital base. The aftermath of that tumultuous period in Nigeria banking history was the increase in the number of failed banks and subsequent runs on banks by their customers, which later eroded Nigerians trust in the banking system. The failed bank tribunal of Abacha era was one of the unforgettable consequences of that period banking turmoil.

       The most controversial chapter in the Sanusi banking reform is his sacking of Managing Directors of five banks and their replacement with CBN appointed managers. Many people thought that was the end of Sanusi, because these were very rich and powerful people and nobody mess with them especially some body not well known like Sanusi at that period. Sanusi later followed that episode with the publication of the name of major bank debtors in the country who CBN claim owed those banks money. The list included the who’s who of the Nigerian wealthy and capitalist class. Some commentators still hold the opinion that the manner that Sanusi deal with the situation was too autocratic and it smell of communist era method of silencing those opposing a regime. The uniform year ending is one Sanusi reform that hit the nail on the head, before him Soludo had promised to unify banks financial year end to a single period. But up till the time he left office, he could not delivered on it. The uniform year end undertaking was credited with reducing the rate of dubious financial reporting by banks in the country whereby banks borrow deposit from each other to shore up their total deposit base on the final balance sheet. Banks unlike other private sector companies are very sensitive institutions that are critical to the health of any economy, because of that their activities are supposed to be monitored 100%. But when banks activities are shrouded in secrecy and the CBN itself who should know better aided in the process, people are bound to loss confidence in the system and develop cold feet at any sign of weakness from these institutions. Sanusi and his co travelers believed that CBN in the past two and a half years have been able to turn the tide against secrecy, and were able to increase the flood of information that is coming from both the CBN and banks it regulate.

     Ben Bernanke, the chairman of American Federal Reserve, is one Central Bank governor who is known world wide for his tactical manipulation of monetary information releases that many observers believe that our CBN got something to learn from. But despite there differences, Bernanke has things in common with Sanusi which is that they both happen to be crisis era governors. And, while Bernanke is tactical and gradual in his reforms approaches Sanusi is radical and revolutionary. Both were able to restore normalcy into their respective financial sectors, albeit using different approaches. Sanusi effort to improve corporate governance standards in the Nigerian banking sector is commendable, today the tenure of bank CEOs has been limited to two terms of five years. While heavy restriction has been placed on family ownership of banks and CBN power to monitor appointments into executive directorship positions of banks has been increased. Though banks did not totally abandon the earlier fatal competition for deposits that saw them undermining each other and sending their staffs on unethical quest for deposit, it has been contained a bit. Another area that Sanusi should be given a pass mark is his dogmatic insistence that no Nigeria bank will be allowed to fail or depositors to lost their money during the period of the crisis which we can all testify to that he has stick to that so far. But not so in the area of CBN overseeing of microfinance banks, many analysts still believe that CBN has done poorly in that respect. Microfinance sector that suppose to assist the poor and lower middle-class with their financial needs is being slowed by lack of quality and absence of deepness, and so far CBN is not doing anything concrete to help the situation. 

      The plan reversal away from universal banking model back to the less complex commercial banking model was viewed differently by the Nigerian public. Though this is a process that can be observed happening worldwide. Nigeria is not the only country that is reversing back to commercial banking model, others in both developed and emerging markets have also embarked on the same process. From what we have seen around the world during the global financial crisis where banks engaged in all sort of businesses with no time to concentrate on their core banking job, this reversal is a good policy. Under the universal banking arrangement, banks engaged in activities such as insurance, pension business, investment banking, foreign exchange dealings, mortgage business, hedge fund, and other capital market dealings. Money that is mean for safe keeping in the retail baking department of a bank will find it ways into the highly risky investment banking department where they are used to fund risky businesses. This is a risky activity that the new separation of commercial from investment banking has done away with. Despite numerous promises to bring down the cost of interest Nigerian interest rate is one of the highest in the world. Likewise other transaction costs such as charges for using ATM machine, withdrawal or transfer of cash. Sanusi also could not made much impact on his other interventions such as the Billions he allocated for lending to manufacturing and agriculture. Despite such huge allocations farmers and manufacturers still complain of lack of credit to support their businesses. The introduction of specialize banks like the non interest Islamic banking should be commended, because it has the potential to increase overall financial deepening in the economy by reducing the percentage of unbanked people. Despite the recent set backs, Sanusi has shown to the world that he is  an inflation fighter. But, the continuous weakening in the value of Naira will remain a big obstacle in the foreseeable future.

Monday, October 31, 2011


      Economics, the so-called dismal science, is full of situations of trade off (the choice between contrasting alternatives) where you are told you can have one but you cannot have the other or rather the two at the same time. Examples of these trades off abound in economics: inflation and unemployment, the price of bond and interest rate, higher price and lower demands and so on and so forth. But the most prominent trade off is the one between efficiency and inequality. Conventional Economists believed that you cannot start with a situation of efficiency and equality and try to maintain the two at the same time. This is to say that you can decide to have efficiency and forget about equality for that duration of time or the vice versa. Efficiency here means increase in productivity, output, profits and economic growth, while equality means reduction in the gap between the rich and poor, increase in total welfare and reduction in poverty. The current controversy about subsidy withdrawal is an example of these trades offs, where government wants to remove oil subsidy for efficiency reasons while the citizens are kicking against it for equity and welfare reasons. Let begin by looking at the government efficiency concern first. There is wider believed that the billions of Naira government is spending annually to subsidize the pump price of oil is just a wastage of money that is not going to the target group of people. There are evidences that the major beneficiaries of oil subsidy are oil importers, distributors, and filling stations across the country. Those who share this view believed that the subsidy is only helping to keep the cartel of oil importers and smugglers in the market. Smugglers from Nigeria and their associate from across the border in Niger, Cameroon and Togo have for years frustrated any effort Nigerian authorities made to supply cheap and abundant oil to its people by moving the cheaper stock to the neighboring countries where the price is higher. 

       The other point put forward by the advocates of no subsidy for the removal of subsidy is that, for Nigeria to have its own private refineries the price of oil must be increased just like it has been argued for the power sector. This it is argued is the only way that a private refining business can break even and therefore become sustainable. The staunch advocates of this line of thought believed that increasing the price of fuel in Nigeria is a phenomenon that is inevitable whether thus opposing it like it or not; because in order to attain efficient level of production of the stuff locally domestic price must converge towards international price. One other argument look at the issue from the direction of government fiscal position. Looking at the present precarious position of the government revenue and expenditure, it is argued that it is not wise to continue to pump over two trillion Naira annually to subsidizing oil consumption which can at best be removed. It has been argued that these trillions of Naira should have been spent to develop the most needed infrastructures in power, transport, health, and education sectors. It is argued that our Northern neighbor Niger that discovered oil of recent, are planning to increase the price of oil in order to make their soon to be open refinery (built by Chinese) sustainable. And, it is argued that their price increase will push the rate of smuggling of the black stuff from Nigeria, thereby helping to aid the scarcity of oil in the country. 

        All the above points notwithstanding, the one time lump-sum increase in the price of oil as advocated by those in the government contrary to more rational incremental increase that should be carried out over a period of time is unwise and will help to make things difficult for this administration. To increase the price of oil by over 100% at once will make life more difficult for the average citizens and will not help this government efforts to create more jobs and control internal security. Instead of higher increase, something like 10 to 15% increment should have been looked at, to be implemented at intervals of one year, until the time the price will be reasonable enough to allow for independent local refining facilities to take up, and at the same time not high enough to hurt welfare of the citizenry. We should not forget the fact that in a country like Nigeria oil subsidy removal alone will not help bring efficiency in the oil sector. Of more importance than subsidy removal is the fighting of corruption that has bedeviled the sector for some time, as well as removal of bureaucracy and red tape. The oil sector in Nigeria needs overhauling for efficiency to be entrenched, and normalcy to return to the sector. A situation whereby appointments to the oil sector are not done on merit but instead done using the yardsticks of nepotism and Godfatherism will continue to help the existing cartels that remain the main stumbling bloc to reforms in the sector.

Sunday, October 16, 2011


          A visit to the web portal created by the National committee on job creation of the National economic management team tells one that 12 million job opportunities are needed now. It then asked you to contribute ideas on how jobs can be created. It goes further to tell you that 'together we can draw up a roadmap for gainful employment'. But, at no place did it tells you about how much the committee is contributing and how many jobs it created since coming into being. The truth of the matter is that the committee did not create any job apart from the few that member companies’ (like Dangote) created. The history of Nigerian government noise making about creating jobs did not start with this administration and certainly will not finished with it. Since the returned to democracy in 1999, the government of Obasanjo (for example) has promised to create millions of jobs as well as pulled millions out of poverty. But at the end, it turned out that Obasanjo government has failed to deliver on it promise and instead created millions of poverty stricken families. The number of unemployed in Nigeria has been increasing since then, not showing sign of coming down despite the noise from the present administration and the one before it. Increases crime rate and incidences of kidnappings are proves of government failure to create jobs for the teaming youth roaming the streets, particularly the unemployed graduates with nothing to do other than revert to thievery. In an economy crippled by lack of electric power, bad roads, insecurity, high interest and exchange rates, and lack of foreign investment, it beat imagination to talk of creating jobs out of the blues. 

      Sometimes Nigeria is good at ‘copy-copy’. Because the current passion among the developed and emerging economies of the world (after the devastating global economic Tsunami of 2008) is job creation, Jonathan government too do not want to be left behind. Hence, the current job creation news stories, even though those behind it knew that no meaningful jobs will be created at the end. In a recent special report by the Economist magazine of London on unemployment around the world (The future of jobs, September 10, 2011), the author argued that due to the current nature of unemployment globally, the number of jobless people is going to remain high in rich countries and falls in poor countries. Indeed this is what is happening in places such as China, India and even Vietnam. The survey goes on to look at the job markets in the so-called BRIC economies as well as in Sub-Saharan Africa, Middle East and Latin America. On how government can help create jobs, the survey argues that it should set its policies right and help in creating entrepreneurs and start ups. In no place did it mention throwing money at such projects like National ID card (which at the end will not be produced in Nigeria) or creation of zombie ministries and parastatals that end up eating the government budget. Some of the high jobs creating sectors like manufacturing, agriculture and mineral resources that help countries like Brazil and China to create millions of jobs are dead in Nigeria. While the survey is of the view that unemployment is going to fall in poor countries, here in Nigeria we are stuck in a situation of rising jobless rate created by poor government policies. The information technology industry that is credited with creating millions of jobs in India and the US is nowhere nearing becoming a reality in Nigeria. Instead, we are left with an arm load of Yahoo-Yahoo boys who continue to batter the image of this country around the world. 

      While our next door neighbor (Ghana) has created million of jobs in the last few years as well as poaching Nigeria talents and companies, we were left with schedules of conferences and tea parties on how to create jobs. Of course, Ghana has put in place most of the things needed to create jobs, hence the successes in their job creation programs. For example, their democracy is working not like ours known for all kind of rigging, they have electric power in abundance, better roads, political stability as well as better macroeconomic fundamentals. Look at Kano, for instance, out of over one thousand industries established in the state only about hundred are working. But instead of coming to Kano’s Sharada, Bompai or Challawa industrial estates to see for himself our President was busy holding conferences in his Aso rock villa on how to create things that did not exist? Mr. Jonathan and his economic management team shall be informed that the jobs he promised since coming into power are nowhere to be filled.  To a jobless Nigerian on the street, all these talks about creating jobs are failed dreams. And if you were in doubt, ask jobless Nigerians in the labour market. But despite the grim statistics, there are hopes. If Jonathan will focus a bit more on generating power, building of good roads, provision of security, creation of genuine democratic space as well as put the enabling macroeconomic environment in place the sky is the limit for his job creation agenda.

Friday, September 23, 2011


Abstract: The paper looks at the feasibility and benefits of introduction of Sukuk into the Nigerian capital market. The paper argue that Nigeria will gain a lot of economic and financial advantages by using Sukuk as an alternative source of funding, that is to run concurrently with the conventional bond instruments. A brief overview of the global Sukuk market was provided as well as a look at the Nigerian debt market. 

    The recent trends around the world that led to increase in sophistication and diversification of global debt market in the face of global economic turmoil and political uncertainties especially the revert to revolution in Middle east, failed democracy and poverty in sub Saharan Africa, and moves toward democratic dictatorship elsewhere warrant the writing of this piece. In order to relate all these to the presence Nigerian predicaments. Debt market, especially sovereign debt market that Nigerian government debt falls into, is a market that always shows the full characterization of a global institution. For example, despite the not so distance cancellation of Nigeria’s foreign debts in 2005 by the Paris club, foreign debt still account for some 30 to 40 % of Nigeria’s total debt. Global financial centers such London, Luxemburg, New York, and Hong Kong have continued, unabated, to process trillion of Dollars of financial debt that help in oiling the wheels of world economic growth. The world capitalist financial set up come under it heaviest toll since the great depression of the 1930s in the last three to four years, this has left a far reaching foot print on the world debt market, attracting hundreds of down grading from rating agencies. Despite the last global financial crisis, the global debt market continues to grow in various directions and remains the most innovative segment of the world financial industry. 
     Unlike most oil rich countries, Nigeria has big population majority of which are poor and deprived. According to some estimates about 70% of Nigeria’s populations are poor, with high infant mortality rate, and high rural-urban migration rate. Nigeria has the lowest GDP per head among the member countries of Organization of Petroleum Exporting Countries (OPEC) of about $2,500, in 2010 estimate. About 70% of Nigeria labour force is employed in agriculture which is in decade long decline; couple with high rate of infrastructural decay. Total gross fixed investment as at 2010 stands at 11.6% of the GDP, constrained by big obstacles like fluctuating inflation and interest rates. In term of electricity supply Nigeria is ravaged by one of the worst electricity supply problems in the Sub Saharan Africa, with total supply fluctuating between 2,000 to 4,000 mega watts since the return to democracy in 1999. On it decade long return to democracy, Nigerian performance is no better than what is obtained in other Sub Saharan African countries. All the past three general elections were characterized by large scale election rigging and manipulation in order to maintain the superiority of one political party against those in the opposition. Thus, the political terrain is still highly risky and full of uncertainties. Nigeria is perceived among it neighbors as a big power, due to its large population and oil wealth. It is against these back grounds that this piece is going to explore the workability of Sukuk as an alternative source of debt for the Nigerian government. The article is divided into introduction, defining what is Sukuk, a look at Sukuk issuance around the world, the Nigeria bond market, why Nigeria should enter the Sukuk market, and conclusion.  

        Sukuk is an Arabic word that has it root from the word Sakk that means financial instrument or check (in fact the modern cheque originated from this Arabic term, for example see, the article ‘Muslim Scholars and the History of Economics: A Need for Consideration’ in American Journal of Islamic social sciences, vol 4; written by Abbas Mirakhor). In modern financial terminology, Sukuk is commonly refers to as Islamic Bond, meaning a financial certificate that comply with Islamic law. This means that unlike conventional bond, Sukuk does not give room for the charging of interest rate. One clear distinction on the structures of a Sukuk instrument is whether it is Asset based or Asset backed. Majority of the Sukuk issued to date are asset based. Conventional bond, in contrast to Sukuk, represents the issuer’s pure debt, while Sukuk represent ownership stake in an underlying asset (Cakir and Raei, 2007). 

Some common feature of Sukuk according to Professor Wilson include,
         • Transparency and clarity of rights and obligations;
         • That income from securities must be related to the purpose for which the
            funding is used, and not simply comprise interest; and
         • That securities should be backed by real underlying assets, rather than
            being simply paper derivatives.
   According Accounting and Audit Organisation for Islamic Financial Institutions (AAOIFI) there are 14 different types of Sukuk allowed by Shariah. Some important types of Sukuk include, Salam Sukuk, Ijara Sukuk, Istisna’a Sukuk, Hybrid Sukuk, as well as Mudarabah and Musharakah Sukuk. Ijara Sukuk still remains the most popular type of Sukuk issued so far, accounting for some 44% of the total issue. Next in importance to Ijara are Sukuk Musharakah and Mudarabah. The market for Sukuk is rapidly expanding making it one of the fastest segments of Islamic finance. Like it conventional counterpart Bond, Sukuk have both primary and secondary markets, though the secondary market is still in infancy stage. The first Sukuk issue was done by Pakistan under Mudaraba companies’ ordinance act of 1981(Wilson, 2009). 


The history of Sukuk issuance has remained very interesting from 1980s when government such as that of Pakistan (during the move toward the Islamization of the economy) and Malaysia (when the government moved to support the nascent Islamic finance industry) were searching for Shariah compliant alternatives to conventional bond market, to date when the Sukuk market is increasingly been recognized around the world as really revolutionary and innovative contribution coming from the Islamic world. This is not to leave aside the contributions of the Islamic Development Bank (IDB) base in Jeddah Saudi Arabia in all these. IDB is a pioneer in the development of Sukuk market globally, from the role of issuer to that of being an incubating ground from where most of the researches and ideas that give rise to the Islamic capital market originated.  For example, the IDB’s Islamic Investment Portfolio (IBP) and the Unit Investment Fund (UIF) have played an important role in providing Shariah compliant channels of investment to the Islamic finance industry during the late eighties and early nineties. The Sukuk certificates so far issued by IDB have remained the most rated Islamic bond in the market with AAA ratings and always oversubscribed when issued. The current ones issued by IDB trust services Ltd and IDB Tadamun services Berhad remained the darling of Islamic bond market investors.
There is no way you will talk about the evolution of Sukuk market without touching on the significant role Malaysia played in it development. The Malaysian case is unique in that of all the countries in the world that aspire to become a force to be reckoned with in the area, Malaysia then and now provided the nascent market with all the support it needed to develop. The first attempt to overcome the liquidity problem facing Islamic banks, argues Wilson (2005) was undertaken by Bank Negara Malaysia (the Central Bank) in July 1983, after the first Islamic bank in Malaysia began operations. Thereafter in 1994 the first Islamic inter bank market was lunched in Kuala Lumpur in 1994. According to some estimates from Bank Negara Malaysia (Malaysian Central Bank), Malaysian Sukuk Issuance account for about 39% of the global issuance as at 2009. This put Malaysia in number one position, followed by United Arab Emirate (UAE) with 28%. In Malaysia itself Islamic bond account for about 40% of the total bond market as at 2010 with conventional bond accounting for the rest, another pointer to the increasing manner in which Sukuk is encroaching into the conventional bond space. Next door to Malaysia, Indonesia has entered the Sukuk market with issuance of Sukuk instruments in order to raise capital needed for the development of the Indonesian economy. According to estimates, Indonesia, despite it recent entry into the Sukuk market, account for some 2% of the total Sukuk issuance.
    United Arab Emirates is next to Malaysia in term of the total Sukuk issued worldwide, accounting for about 28% of the total as at 2009. UAE remain the biggest US Dollar dominated issuer of Sukuk. Dubai International financial Exchange (DIFX) account for some substantial number of the total Sukuk issuance in UAE. A lot of these Sukuks from the UAE are from corporate bodies with a state guarantee in the back ground. Saudi Arabia and Bahrain are other very active players in Sukuk market who have between them, so far issued Billion of Dollars worth of Sukuk. Currently Saudi Arabia stands as number three in the world Sukuk total issuance with Bahrain coming as fourth. In 2001 Bahrain offered the first government bills that were developed in line with Islamic laws in the Middle East (Wilson, 2005). In 2004 Saudi Arabia introduced a new capital market authority to help incorporate Islamic issues into the mainstream. Bahrain wants to be the capital of Islamic finance in the Middle East as Malaysia is in South East Asia. With AAOIFI suited in Bahrain while Islamic Development is based in Jeddah Saudi Arabia the two have important role to play in shaping the future of Islamic finance. Other Gulf countries such as Qatar and Kuwait have also been very active in the Sukuk market, as at 2009 each of them have contributed 3% of the total Sukuk issue globally. In October 2003, Qatar issue $700 million Dollars worth of Sukuk the largest of such type of issue at that time.
     Pakistan is a historic player in the development of Islamic finance worldwide. It has at one time or the other issue various type of Islamic financial instruments in the last two decades. Not very long ago the Pakistan International Sukuk company issued a Sukuk of $600 million in 2005. The Pakistan Water and Power Development Authority (WAPDA), a government agency, have in the recent past issued a Sukuk of $134 million to help finance Mangla Dam project with maturity of 7 years. In 1980 Pakistan issued the first Mudarabah certificate successfully (Al-Omar and Abdel-Haq). Germany is the first non-Muslim country to issue Sukuk, when the state of Saxony-Anhalt issued Euro dominated Sukuk of 100 million in the year 2004. Since that German issuance other countries have been rushing to tap into the Islamic Bond market. The list includes United King Dom, Japan, China, Singapore, Hong Kong, Australia, Russia and others. Despite the global economic slow down the double digit rate of growth of the Islamic Sukuk market continue unabated. According to Moody, a rating agency, the global market for Islamic finance in the near future is going to be in the range of $4 trillion making it a very significant player in the global finance industry. 
       The importance of public debt sustainability in maintaining economic growth and development can not be over estimated, especially in a developing economy like that of Nigeria. The debate about the right or sustainable level of debt Nigeria should maintain has been on and off. It was brought to the spotlight once again last year when Jonathan administration tried to secure a foreign debt facility of about $500 million Dollars to implement some developmental programs, according image makers of the regime. The argument then was looking at how Nigeria narrowly escaped debt burden with its debt cancellation arrangement with Paris club in 2005, why should Nigeria rushed again to accumulate another foreign debt. The public pressure then force the government to consider other alternatives like short term foreign liquidity facility, long term debt, as well as domestic borrowing. The general feeling among the Nigerian public is of distaste against foreign debt, because of the believe that it was responsible for the hardships Nigerians undergone during the 1980s and 1990s. But, government officials still believe that looking at the current level of debt there is still more room for government borrowing in order to implement desire projects. But the question we are asking, too, is how innovative is Nigerian government in securing its debts? What is the cost of foreign debt facility visa vi that of domestic borrowing especially one arranged through issuing domestic bonds? What is the portfolio balance of Nigeria’s foreign to domestic debts stock?
     The global bond market is right now tense with Euro zone and US some of the hardest hit by the crisis. This has compounded Nigeria situation especially when it comes to Eurobond borrowings as it has implication on the cost of borrowing. Currently, the federal government ten year Eurobond of $500 million attract coupon rate of about 6.75%, as at September 2, 2011 according to data from the debt management office. Naira dominated bond issued for the domestic market attract interest of between 11 to 12%. Nigeria’s total domestic debt stood at N 5,210,437,263,000.00 with federal government bond contributing about 62.88% of the whole. At around 20% of the GDP Nigeria’s debt is still below the limit set for its debt to enter the zone of non sustainability. All along Nigeria has two major sources of Debt, domestic Naira dominated and Eurobond. But this may not be enough, Nigeria has to be very innovative by looking at other alternative sources of fund. In a period when investors are increasingly concerned about the safety of their investments, thus, the present concern with diversification of their portfolios, Nigerian authorities should follow their inner thinking and tap the markets where they are rushing to put their money. As Mirakhor and Zaidi (2004) persuasively argued in the case of Pakistan, “external borrowing permits a country to maintain domestic investment at levels beyond those that could be financed through domestic saving alone. If these resources have been channeled into productive capital accumulation, these investments could be expected to generate the stream of returns required to repay the original loans”.
But the fear for Nigeria as it was for Pakistan is that the authorities may not have the foresight to restrict the use of the money to only the most accountable investments.


    There are many reasons why Nigeria shall embrace the Islamic bond, Sukuk. The fact that the global debt market is facing some kind of supply hiccups, forcing countries around the world to look for alternatives is enough justification for Nigerian government to look in the way of Sukuk as alternative source of funding. But there are many other reasons why Nigeria shall tap into the Sukuk market among which is the need for reliable and cheaper alternative source of fund, in which case Sukuk is the answer. The large reserve of Surplus cash available in the Middle East should be tapped by Nigeria as others are doing. Like Nigerian economy itself, the market for Sukuk is young and growing at double digit making it one of the fastest segments of international finance. With interest bearing bond becoming increasingly costlier and difficult to arrange, Sukuk with its elimination of interest and substituting it with rent or profit sharing is cheaper and tailored to benefit both sides. As aspiring regional hub for financial transactions Nigeria can not allow this historic opportunity to pass her and go to another country, probably Senegal, Ivory Coast, or Ghana. Other global financial centres like London, Hong Kong, Dubai, Singapore and Luxemburg have been on the rush to get their cut of this promising market. Coming to the issue of negative effects of interest rate on our economy, Interest rate was the major factor responsible for the accumulation of Billions of Dollars of Nigeria debt during the 1990s; that is enough a reason for Nigeria to embrace a system that do not allow that. Past high interest charges are at the heart of Greece present predicament. Under Sukuk both the issuer and issuee share in the underlying risks and it does not allow for the kind of deadly derivatives that caused the last global financial crisis of which are interest rate swaps and securitization of toxic assets.
      As Nigeria is preparing to lunch it own Islamic non interest banking system, Sukuk market will provide the needed instruments to manage liquidity in the banking system. It will act as a channel through which Islamic bank can invest their money for both short and longer term and generate good returns that comply with Shariah. This, too, will increase the amount of fund government can generate to finance it projects. As we well know that because of religious justifications there are many rich Nigerian Muslims that cannot invest in interest bearing bond. Thus, with the introduction of the Sukuk instruments federal government will be able to tap this vast amount of cash and use it to finance it projects. These Sukuk instrument, as with conventional bond, can be subscribed to by both corporate institutions like banks and private individuals. Unlike conventional bond, argued Tariq (2004), “Investing in Sukuk issuances involves the funding of trade or production of tangible assets. Sukuk are directly linked with real sector activities. Hence these will not create short-term speculative movement of funds and potential financial crises”, which is not uncommon in the conventional financial arrangement.  In addition to this Sukuk has the advantage, which is unique to it, of linking the investor directly with holding in the asset thereby making him a shareholder in the underlying assets, unlike in the case of bond where the bondholder is some kind of an outsider. Looking at the different range of debt instruments available in the Nigerian capital market, it is a kind of logical progression for Nigeria to introduce Islamic capital market instruments.
    In a 2007 IMF paper by Cakir and Raei (Working paper, wp07237) that measured the viability of Sukuk as an alternative source of ‘investment/financing instruments’, the study try to find out the portfolio diversification benefits of investing in Sukuk by comparing the Sukuk market to that of Eurobond in some selected countries. The study finding is that there are real and significant gains to investing in Sukuk. World wide, the recent issuance of different kinds of Sukuk instruments and their subsequent over subscription is another pointer to the increasing global demands for Sukuk. The fact that countries in the developed and emerging parts of the world are in hurry to issue their own sovereign Sukuk is additional indication of the future prospect of the market. The resilience of the Islamic finance industry during the last global financial crisis has helped in winning a lot of convert to the System. Conventional capitalist institutions, that before the crisis had no plan of entering the market, have now entered or are planning to enter. With continue innovation that churns out new products into the market, Islamic finance contribution to the development of capital market in developing and emerging economy will continue unabated.

     As an emerging African economy with potential to be among the 20 largest economies in the world in the foreseeable future, Nigeria cannot afford to play with an opportunity that will help her in the realization of that aim. Like Malaysia is currently using Islamic finance to help her in realizing it vision 2020:20 and is in the course of achieving it, Nigeria should use the same to achieve it own 2020:20. In order to make these possible the central bank shall liaise with both the ministry of finance and debt management office to develop the needed infrastructures for the development of Sukuk market in the country. And, Nigeria should welcome partnership with other countries that are in advanced stage of the development of Sukuk market in their respective financial centres. But in order to avoid what happened in the case of the introduction of Islamic banking in Nigeria, the general public need to be well enlighten about positive benefits of the introduction of Sukuk.

Al-Omar, F. and Abdel-Haq M. (1996), “Islamic Banking: theory, practice  and challenges”, Zed Books, London
Alvi, I. (2006), “Review on Several Sukuk Products Issued Worldwide”, KLIFF Malaysia
Cakir, S. and Raei, F. (2007), “Sukuk vs. Eurobonds: Is there a difference in Value-at-Risk? IMF working paper, WP/07/237
Mirakhor, A. and Zaidi, I. (2004), “Foreign Currency Deposits and International Liquidity Shortages in Pakistan”, IMF working paper, WP/04/167
Sukuk Market by Bank Negara Malaysia: Academic visit by INCEIF’s CIFP Student, 30 October 2009
Tariq, A. (2004), “Managing financial Risks of Sukuk Structures”, Unpublished Thesis Loughborough University, UK
Wilson, R. (2004), “Islamic Bonds: Your Guide to Issuing, Structuring and Investing in Sukuk”, Euromoney Books

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