The proposed $100million Diaspora bond by the Federal Government may be marred by poor returns, experts at FBN Capital have said.
Billed as part of an ambitious plan to get the Nigerian Diaspora to invest in the country’s infrastructure, the measure is aimed at tapping into the healthy remittance market. There are about two million Nigerians in the United Kingdom (UK) and remittances from the Diaspora worldwide are thought to make up about three per cent of Nigeria’s Gross Domestic Product (GDP).
Finance Minster and Coordinating Minister for the Economy, Dr Ngozi Okonjo-Iweala, had told reporters at the recently concluded World Bank/ International Monetary Fund (IMF) Meetings in Washington D.C, United States, that the Diaspora bond will be concluded in December.
But FBN Capital – a research and investment firm it latest report entitled: Untapped potential of remittances, noted that the main challenge to the Diaspora bond would be poor returns on such investment.
“The FGN plans to follow its forthcoming US$1billion Eurobond with an issue for the Nigerian Diaspora. It has a modest US$100million in mind and argues that it does not have the track record in this field of, say, Israel or India.
“In our view the main challenge will be not the unfamiliarity of the product but the poor return: the first Eurobond yields just above four per cent and the shrewd investor will do better in other asset classes.
“The FGN and also the state governments could tap the Diaspora more often and more substantially for their financing needs,” the report said.
Latest official data by the Central Bank of Nigeria (CBN) showed that 91-day Nigerian Treasury Bills carry a yield of 10.35 per cent while three-month tenor deposit rate of banks stand at 7.99 per cent. Average inter-bank call rate stands at 10.68 per cent.
The Nation’s market intelligence shows that bonds have coupons of between four per cent and 16 per cent, indicating the yield spread within the fixed-income segment.With inflation rate at 8.6 per cent, the low coupons indicate marginal adjusted returns on fixed-income securities.
The average year-to-date return of 25.04 per cent for the equity market underlines the low return in the fixed-income market.
The thinking of the government is that the huge savings kept by Nigerians resident abroad could be invested in the country through bonds for infrastructural development. According to the FBN Capital report, remittances to Nigeria were the second largest foreign exchange inflow last year after crude petroleum.
A recent World Bank report had stated that Nigerians and other residents in the country received a total of N33.6bilion or $21billion last year in remittances from their relatives, friends and business associates abroad.
The report noted that Nigeria accounted for 67 per cent of the $31billion total inflows to Sub-Saharan Africa last year, followed by Senegal and Kenya.
Noting that remittance flows to Sub-Saharan Africa have been recovering from the contraction associated with the global financial crisis, the report said growth has been modest.
The World Bank said: “In 2012, the region is estimated to have received about $31 billion in remittances, only about one per cent increase over 2011. Nigeria is by far the largest recipient of remittances in the region, accounting for about 67 percent of the inflows to the region in 2012, followed by Senegal and Kenya. Zero growth in flows to Nigeria in 2012 is partly attributable to the feeble labour market recovery of its major remittance source countries in Europe, the UK in particular. Remittance flows to Nigeria and the rest of the region are expected to grow significantly in the coming years to reach about $39 billion in 2015.”
The report put stated that officially recorded remittance flows to developing countries grew by 5.3 per cent to reach an estimated $401 billion in 2012. It added that remittances to developing countries are expected to grow by an annual average of 8.8 per cent for the next three years and are forecast to reach $515 billion in 2015.
