The Islamic bond called Sukuk which recently attracted negative criticism in Osun is now the toast of world powers, including Britain and the Federal Government of Nigeria. In this interview Dr. Wale Bolorunduro, Osun State Commissioner for Finance, said it is now the funding solution for the future. He also argued that the bond has no demerits and that states are already consulting with Osun on Sukuk. Excerpts:
What has been an interesting impact of the Islamic bond which the state government has recently sought?
Sukuk is the funding solution of the future. So what Osun has done is to hijack the future and say the future is now here. If you look at Sukuk, what has it done? It has three basic things. One, it has attracted fresh investors. People who naturally wouldn’t have invested in the capital market; people who would have said I am not sure what my money is going into. By making a declaration that your money will not go into vanities, prostitution, night clubs, hotels but what you will call commercial infrastructure, Remember the Lord Jesus Christ chased out the traders from the synagogue, and said ‘you cannot turn my father’s house to a trading outpost’.
By assuring them, you have fresh investors coming into the capital market, and these fresh investors could be from outside the country because if you look at it today, federal government of Nigeria is issuing bonds, they are financing consumption, which are subsidies through bonds, and who are the people buying? Mostly foreigners and portfolio managers. Now we have been able to attract portfolio managers into the infrastructure development by making a declaration that this bonds is for schools, and this is for schools that will be meant for Christians and Muslims. But one thing you are sure is that your money is ring fenced and it would not go into vanity. That is one advantage.
Going by way of internationalizing the bonds, when you look at Britain, it has a rich history of living on the world political economy and Britain now is trying to subscribe to the same financing mechanism; what does this portend for Osun State?
Well, like I said, if you look at Britain, they have a history of pioneering nations. The early missionaries were mostly Britons, be it Methodist missionaries; be it Anglican missionaries; Baptist missionaries; they were mainly British and the queen of England is referred to as the defender of Christian faith. And then you have the British chesting out and the Prime Minister, Cameron, who is also a Christian to say we are going over to raise over 300 million pounce as Sukuk Islamic bond, and we make Britain the Islamic finance center of the world. That is a strong policy statement and policy thrust. What it portends is that Osun has blazed the trail and chested out. We have become the first to breast the tape in a race towards financing, in the sense that we are able to see beyond our nose and know that if public finance must improve, you must be able to say I am bringing additional comfort to the table of the people of Osun and this is why public financing must be the cheapest.
That’s what Britain has been able to do, and for us it vindicates us that we are not doing this thing because we want to Islamize Osun. It vindicates Governor Aregbesola that he is not doing it because he is a Muslim, and by the way he went to Christian schools all his life, and he has Christians in his immediate family. It vindicates that that we are just looking for opportunities; we are just looking for cheap fund; we are just looking for ways of improving our state. By the time we add N11.4 billion bon to our own cash of over N4 billion, we would have succeeded in building 100 elementary; 50 middles schools and 10 high schools. 50 middle and elementary schools will take 50,000 students and 10 high schools will take 30,000, so we are talking of about 100,000 students in addition to the money we are spending on the renovation of schools; that we will sit under brand new and stimulating learning environment. And it will also make these students proud and glad to come to school, because when you and I went to school in the 70s, our schools happened to be the best building in our communities.
The first time I followed my mother to visit my sister in the boarding school, I saw the dormitory, beautiful and well organized. You know, they wouldn’t allow boys to follow mothers, but from outside it was obvious that my sister was living in an elite building but what we have inherited are schools that were not even meant for fowls or chickens. So the issue is this, should we wait in the name of not wanting special interest. The special interest don’t even keep their children in public schools, they put them in private schools. Their special interest is that suddenly the governor now making a public school to be much more beautiful than a private school which their children attend. So the bruise on their pride makes them mad, and that is why they went around blackmailing government by saying that government is trying to islamise and do other things.
We are simply creating a leveler that even if they can afford to keep their children in private schools and buy all the textbooks, the children in public schools also have Opon imo containing all the textbooks. And by the way, Opon imo just won the most prestigious award in Sri Lanka as the best archival e-learning tool. From Opon imo, when students are doing exams or texts in it, Opon imo is able to archive the answers. So in the future, you can even begin to synthesis how these children think. So Opon imo is a tool for the future, because in the future I can decide to analyze why the children pick a certain answer instead of another. What could have been going on in their mind? We can begin to develop some intelligential part and begin to do pathological study or analysis of how the children are thinking. We can use all this information. So if you look at the history of any new political economy, the special interest will always come after you whenever you are trying to create a leveling situation. So irrespective of whether they brand themselves as this or that, they are special interest.
What would be your advice now to other states on public finance in Nigeria?
With my experience, I will start by saying that since we are talking of regional integrations, let the regions pool their resources together. Imagine if the south west regions could pool resources together and raise Sukuk for a south western university. It will be interesting and if you can raise substantial funds to turn around such a university which will be a conglomerate of most of our higher institutions in south-west because these institutions in south-west are barely funded by the states not only Osun State. If we give them capital grants of 100million or 200 million, if you pool them together, you will be surprised how much they can raise through Sukuk.
Non-vanity establishments of ventures like hospitals should be funded through Sukuk. In addition to something like the south-western university, hospitals can be funded through Sukuk so those are non-vanity projects, we can appeal to investors to let them know that the money raised is for funding of hospitals, and they will put their funds. No matter how hard you are, when you go to hospitals, you become humble. So asides from using it to fund educational infrastructures, they can also be used to fund all other social services like water. So what you will see, you will see many states going the way of Sukuk and they will learn from Osun. Sukuk enables you to specifically invest in infrastructures which are the beauty of Sukuk.
Is it true that Osun raised Sukuk because of the dwindling federal revenue to states, and how is the state coping with this development?
In terms of federal revenue, what the federal government is doing is illegal, and I believe illegality will not stand for too long. You cannot sign an appropriation bill and then say you will not fulfill that appropriation bill, which is what the federal government is doing, and then come up with reasons why they are building up what is called excess crude. So I feel that it is a challenge that the nation will overcome. The governors are already speaking about it, even the PDP states are also affected. We have envisaged that and that is why we have kept plans in such a way that such impact will be minimal and we are also growing our Internally Generated Revenue (IGR). Our IGR level today can sustain that. Our plan is to grow it further and further by looking at new areas of revenue that have not been considered without necessarily increasing the tax rates or introducing new taxes. We will just focus our efforts on improving the existing taxes in terms of collection, preventing leakages and properly doing assessment. Those are the ways I believe we can ameliorate the impact of dwindling federally collected revenue. Federal revenue is something you don’t have full control over.
There are lots of crises in the world money market, especially with experience in Greece; what is your take on this?
The Greece is not just happening now, since the meltdown, Greece as a country has been in trouble in the sense that they were unable to pay their national debt. I think to a larger extent, Nigerian economy is insulated from that happening. What could have affect the Nigeria economy significantly that will also affect the states is our price of crude oil. Federal government budgeted the price of crude oil to be 79 dollars. There have not been a single month this year that it has falling in international market 100 dollars, rather it has averaged at about 103 per barrel. So Nigeria economy is insulated by that fact, so there was no basis for federal government not to give states enough funds, but then the federal government came up to say that there was theft in crude oil. If I’m a guardian to an asset and the asset is stolen, I shouldn’t be proud to say it, anyway.
Other things that can affect the Nigerian economy is the fact that the US secretary of the treasury actually said that Americans may begin to experience the regime of increase in interest rates and they are not going to continue with the low interest rates. What it means is that many of the portfolio investors have come to Nigeria to invest in the capital market. Some people call it hot money. I don’t call it such but I call advantageous money in the sense that money likes to be free and to go to where it has value. The fact that the interest rate here is double digit, the fact the capital market has been growing here; those money find their way into the Nigerian economy because interest rates and returns of investment in America was low because of the low interest rate regime in America. Those money will now begin to find their way back into America. So in that sense, we may begin to enter into high interest rate regime and that’s the advantage of Sukuk. Sukuk returns is fixed. It is 14.75. Nobody can come tomorrow and tell me that the interest rate has increased, rather if the interest rates is low, I can call it and take advantage of the low rates. So those are the two major things that can affect the economy of the country and that is the external factor.
The internal factors in fiscal pressure because of the elections of 2015, a lot of governments expected the federal government to spend money and then we have so much money chasing few goods and then we have inflationary pressure. But the Central Bank Governor is equal to that takes. He is benchmarking the inflation and ensuring that it is kept at a rate at which it can sustain goods. It is subjective because some economies may decide to have a little bit of inflation trade off for growth in economy. It depends on your monetary policy strategy and your targets. So if you are targeting growth, you think otherwise but if you are targeting inflation, you can think the same way the CBN is thinking.
Having said that, CBN has enough tools to check negative impact of growth in fiscal spending, such as growth in expenditure. Another thing that Central Bank has been able to do well is to maintain the exchange rate and in order to do that is control in money in circulation. They have done a good job but it does not affect SUKUK in the sense that the SUKUK is naira. If you have a foreign debt, loan or funding, you will be in trouble if value of naira somersaults. So you can see we know what we are doing. The governor knows what he is doing; keeping his eyes on the board, managing the economy of Osun and ensuring we deliver on the promises. So it is like juggling 20 balls at the same time.