Jingdong Hua, Vice President and Treasurer
Nigeria is already one of the largest economy and the country with the biggest population on the African continent. By 2050, it will be home to 410 million people, making it the third most populous country in the world.
Sustained economic growth is therefore imperative to meet the challenges of this demographic transformation, bringing with it rapid urbanisation and surging demand among Nigeria’s youth for housing, infrastructure, jobs and business opportunities.
The most reliable engine room for this vital growth is the private sector – the key driver of employment and innovation. To unleash its potential, however, two ingredients are required: entrepreneurship and capital markets.
Capital markets are a necessity for a country’s economic development. Why? Because deep and liquid capital markets are the most efficient way to recycle domestic savings and channel international funds in to critical sectors, such as transport and housing infrastructure, as well as small and medium enterprises.
In most developed markets, economic growth has been essentially fueled by capital markets.
On the one hand, Nigeria is characterised by a unique entrepreneurial spirit, also known as the ‘Naija’ spirit. But on the other hand, the domestic corporate bond market as a proportion of GDP is still in the single digits.
Vibrant local capital markets also provide resilience against external shocks– an important lesson learnt from the Asian financial crisis in the late 1990s.
Strengthened by the strategic shift towards local currency denomination of their debt, Southeast Asian countries were only moderately affected by the 2008 global financial turmoil.
Today South Korea’s corporate bond market stands at more than 70% of GDP. Malaysia, meanwhile has a total bond market worth about 45% of GDP, translating into $150 billion worth of corporate bonds circulating in the Malaysian system – all connecting savings to productive private investment.
Encouragingly, Nigeria is already equipped with adequate capital markets infrastructure.
The challenge now is to move to the next level, and in its increasingly urban economy, to avoid the ‘low development trap’ of crowded, disconnected and costly cities identified in a recent World Bank Group report.
Developing countries have always needed to tap into international savings and mobilise domestic resources to finance essential infrastructure needs from building roads, bridges, railways, power grids and houses, to lending for small and medium-sized businesses.
In India, capital markets have also expanded exponentially in response to the financing needs of the private sector. Since 2013, when IFC joined with the Government of India to issue the inaugural Masala Bonds, a new asset class has been created. To date, IFC has issued 140 billion Indian rupees, or the equivalent of $2.1 billion. For corporate India, the total amount of Masala bond issuance is at $2.9 billion.
For Africa to grow to its fullest potential, Nigeria must be one of its strongest economic powerhouses. That is why IFC, the private sector arm of the World Bank Group, has invested more in Nigeria than in any other Sub-Saharan African country. IFC is very proud to be the first multilateral development bank to issue an inaugural Naija bond – and would like to do much more.
Deepening Nigerian debt capital markets has been a top priority for FMDQ OTC Securities Exchange since its launch into the Nigerian financial markets ecosystem in November 2013. A clear vision has been established for Nigerian fixed income, currency and derivatives markets. The goal is to integrate Nigeria’s domestic capital markets with international markets, making them more globally competitive, operationally excellent, liquid and diverse, in line with its GOLD Agenda.
The 2017 Nigerian Debt Capital Markets Conference & Awards in Lagos was therefore, a conscious move by FMDQ OTC Securities Exchange, the largest securities exchange, by turnover, in Nigeria, to work with regulators as well as domestic and international stakeholders like IFC and the Securities and Exchange Commission, to articulate strategies for the speedy evolution of mandatory debt capital markets, and to boost economic recovery and growth.
Some of the greatest challenges for Nigeria in reaching its economic and social development goals lie in the significant infrastructure deficit. This gap has impacted development and hoped-for improvements in Nigerians’ standard of living. Lessons from other countries show that debt capital markets, by providing a platform to crowd in private capital, can offer comprehensive solutions, setting Nigeria on track to empower its financial markets to be creative, credible and supportive of the economy and the people.
Joint op-ed by Jingdong Hua, Vice President and Treasurer, International Finance Corporation, World Bank Group and Bola Onadele. Koko, Managing Director/CEO, FMDQ OTC Securities Exchange