About $300 billion (N108.75 trillion) is required to close Nigeria’s infrastructure gap, according to experts. Without fixing infrastructure, Nigeria’s road to economic recovery will be long and tortuous, they claimed. The Federal Government has turned to the Islamic Development Bank (IsDB). But, experts urge caution because of Nigeria’s secularity. Asst. Editor CHIKODI OKEREOCHA reports.
When Finance Minister Mrs. Kemi Adeosun early this year opened the Abuja office of the Islamic Development Bank (IsDB), many knew that a closer collaboration between Nigeria and IsDB was afoot to enable the country exit recession through aggressive investment in infrastructure.
IsDB is a Sharia compliant International Development Finance Institution (DFI) that participates in equity capital and grants loans for productive projects and enterprises. It also provides financial assistance to member-countries in other forms for economic and social development. The 43-year-old DFI has upgraded its Nigerian office to a regional hub.
The bank’s plan was to coordinate operations in its West and Central African member-countries from the Abuja (Nigeria) gateway office, which will serve Nigeria, Gabon, Niger, Mozambique, Burkina Faso, the Republic of Cameroon, Uganda, Senegal, Djibouti and Guinea Bisaau, among others.
The decentralisation of the bank’s operations through the opening of regional offices was aimed at bringing its services closer to member countries as well as enhance communication, improve efficiency and performance.
Nigeria became a member of the IsDB, headquartered in Jeddah, Saudi Arabia, in 2005 under the administration of former President Olusegun Obasanjo. And on the strength of its membership, Adeosun had at the opening of the bank’s Abuja office sought its support in the implementation of the Economic Recovery and Growth Plan (ERGP) particularly in the area of infrastructure.
Again, at IsDB’s recent 42nd annual meeting in Saudi Arabia, the Minister passionately repeated her plea, saying: “We want IsDB to be more visible and deliver signature infrastructure projects in Nigeria.” She specifically called on the bank to increase its financial and technical assistance to Nigeria to fast-track the achievement of the EGRP, which aimed at reviving the ailing economy.
The EGRP, which covered a period of three years (2017 to 2020), was launched in Abuja by President Muhammadu Buhari. The medium term plan broadly targeted the restoration of growth, human development and a globally competitive economy, in an effort to combat recession and reposition the economy on the path of sustained growth.
It specifically targeted to grow the economy by 2.19 per cent this year and subsequently, seven per cent in 2020. But with infrastructure critical to realising these ambitious targets, and government unable to raise significant cash to build infrastructure, it has turned to Islamic finance for succour
However, the move, partly forced by Nigeria’s recent cash flow problems caused by crashing oil prices, may not have gone down well with some experts and financial analysts. Some of them, who spoke with The Nation, argued that Nigeria is not an Islamic country, but a multi-religious state that is constitutionally secular and so, should not turn to Islamic finance under the excuse of building infrastructure.
They cautioned that Nigeria should be wary of hob-nobbing with IsDB and other Islamic banks as this is capable of undermining the nation’s constitution and its secularity. While insisting on the need to defend Nigeria’s secularity, some of them pointed out that there are other viable options and numerous non-religious lending institutions Nigeria can turn to for help.
For instance, a Lagos-based lawyer/public affairs analyst, Barr Obiora Akabogu, said although, the only thing that can interest any responsible government in Islamic finance is its zero or low interest offer, there is the need for Nigeria to study the conditionalities very well before appending her signature for any facility from IsDB.
He said studying the conditionalities before appending signature was necessary to avoid using the loan as an economic weapon to enslave Nigeria. “Nigeria must not come out of European colonialism and enter into Arab colonialism, because it is not a very good alternative, Akabogu warned, adding that there is one kind of attachment or the other that borders on religion.
While recalling that when the economy of countries such as the United Kingdom (UK), Spain, and Greece were down, they never went to Islamic bank, Akabogu said “Nigeria should know better why those countries didn’t turn to Islamic bank for help.”
Why Islamic finance is gaining traction
According to the Managing Director/CEO, Islamic Banking and Finance Institute of Nigeria, Alhaji Sani Aminu Dutsinma, the Islamic finance industry is growing at 10 – 20 per cent annually, while “Shariah compliant financial” assets are currently estimated at $2 trillion, covering bank and non-bank financial institutions.
Dutsinma, who made this known in Abuja, during a sensitisation workshop for journalists on the “Fundamentals of Islamic Economics, Banking and Finance” organised by the Institute in collaboration with the Nigeria Union of Journalists (NUJ), noted that Islamic banking assets have been growing faster than conventional bank assets.
He said there has been increased interest in Islamic finance from countries like the United Kingdom (UK), Luxembourg, South Africa and Hong Kong. While pointing out that within sub-Saharan Africa, South Africa led the way in Islamic banking, he noted that Islamic finance was not reserved for Muslims only.
According to Dutsinma, it is not a Muslim finance, with no such tag on Islamic finance products either in Nigeria or in any other part of the world. He, therefore, called on Nigerian policymakers to recognise Islamic finance as capable of significantly contributing to economic development, given its direct link to physical assets and real economy.
The CEO was, however, quick to note that “Since the introduction of Islamic finance in Nigeria about 18 years ago, concerns and apprehensions have been voiced that the introduction might be a ploy to Islamise Nigeria. But as at today, we are yet to receive any report of religious discrimination as regards access to any Sharia compliant product.”
As if sensing the concerns and apprehensions that may still greet Nigeria’s latest move to access Islamic finance, Adeosun noted that Nigeria had derived many benefits from its membership of the 43-year old IsDB.
“We appreciate their intervention in the water supply, health and education sectors in a number of our states, but we want IsDB to do more,” the Minister, who was represented by the Permanent Secretary in the Ministry, Dr. Mahmoud Isa-Dutse, said. Isa-Dutse led the Nigerian delegation to the meeting of the bank.
She said that given IsDB’s unique role as Islamic Bank with multiplicity of intervention instruments not available to traditional development banks, “We expect IsDB to be bold and work collaboratively with other Money Deposit Banks (MDBs) to ensure overall complementarity in all development interventions in Nigeria.”
Already, IsDB President Dr. Bandar Mohammed Hajjar has assured that the bank would enhance the development impact of its projects and programmes through comprehensive development solutions that integrate services and products in its member-countries.
Indeed, Islamic finance has grown progressively in the last 40 years, spreading to over 70 countries and becoming a $2 trillion market at the global level. Africa currently has only about two per cent of global Islamic banking assets and as little as 0.5 per cent of Sukuk outstanding.
But with Nigeria throwing her hat into the ring, the stage appears set for the rapid growth of Islamic banking and ûnance across the continent, which is said to be home to over a quarter of the global Muslim population.
According to experts, Nigeria’s economic managers may have been forced by the current economic downturn to realise that Islamic finance is being increasingly deployed as a strategic instrument to tap into the unbanked population in Africa and innovatively address the vital issue of financial inclusion.
Besides, they have realised that it has become a catalyst for boosting Foreign Direct Investment (FDI) and trade vows between the continent and Organisation of Islamic Countries (OIC) markets. Furthermore, Sukuk is well positioned to play a powerful role in meeting the funding gaps in strategically vital infrastructure projects across the region.
This must be why Dutsinma called on Nigerian policymakers to recognise Islamic finance as capable of significantly contributing to economic development, given its direct link to physical assets and real economy.
He said: “The use of profit and loss sharing arrangement encourages the provision of financial support and generates jobs. The emphasis on tangible assets ensures that the industry supports only transactions that serve a real purpose thus discouraging financial speculation.”
Dutsinma was of the opinion that Islamic finance helps promote financial sector development and broadens financial inclusion by expanding the range and reach of financial products, while helping to improve financial access and foster the inclusion of those deprived of financial services.
$300b infrastructure deficit also a factor
According to experts, Nigeria requires an investment of $300 billion to close her huge infrastructure gap and unlock the real sector’s potential to reflate the economy severely battered by crashing oil prices.
The $300 billion infrastructure deficit represents 25 per cent of the nation’s Gross Domestic Product (GDP). This translates to an investment of about $25 billion annually, which Nigeria can hardly afford given the current cash crunch.
Yet, the achievement of Nigeria’s numerous economic, developmental and inclusive growth goals articulated under the Federal Government’s ERGP was hinged on massive investments in infrastructure.
Experts disagree, list other options
Akabogu said rather than hub-nub with Islamic finance and make Nigeria an Islamic state under the guise of raising money to build infrastructure, the country should turn to other sources. “What is the use for Excess Crude Account (ECA)?” he asked, noting that external reserves is also there and has not been completely depleted.
The public affairs analysts added that Nigeria could also fall back on the Sovereign Wealth Fund (SWF) to raise cash to build infrastructure. While noting that the country’s economic buffers are being funded, he said Value Added Tax (VAT) and money accruable from Customs and Excise are also viable sources.
“Remember that Customs is the only organisation in Nigeria that continues to declare surplus all the time. There is money from the private sector. There is capital inflow into the country from foreign investors. Nigeria continues to be number one investment destination because as others are leaving, others are coming,” Akabogu told The Nation.
Experts also say that Nigeria’s pension fund, which stood at N6.02 trillion as at last November, is another viable option to build infrastructure. With the National Pension Commission (PenCom) projecting that the nation’s total pension asset may hit N20 trillion by 2020, this huge pool of funds is seen by not a few analysts as a better choice than Islamic finance.
Yet, others have recommended the Public-Private Partnership (PPP) model for designing, building, financing and operating new and infrastructure.
