USA Africa Dialogue Series - On the Matter of Nigeria Diaspora Bond {RE: Will Diaspora Bonds Help Nigeria’s Economy? - by Ms. Azuoma Anugom

 

 

Azuoma:

 

You have written well below.  The answer to your question is a simple "Yes - it will help Nigeria's economy."

 

The million-dollar question is "When shall it begin?" - and the answer, my sister, is blowing in the wind.

 

Please come with me......

 

My FIRST SUBMISSION  about a Diaspora Bond is that we must understand is that it does not NECESSARILY promise a greater return on investment than if the money by the Diasporan was invested where he lives, or in some other market abroad.  Rather, it is PRIMARILY a statement of PATRIOTISM.

 

So the first response to my million-dollar question is "When the Patriotism of a sufficient number of Nigerians Abroad reach a certain threshold."

 

Now that "threshold" is not a permanent one, but one that RESPONDS to a particular stimulus at a particular time in home country.  For example, in your two examples on Israel and India (with India providing 3 examples by itself), Israelis and Indians abroad were reacting to a PARTICULAR threat that they felt that their Diaspora bond could avert.  [Israel in 1951 for the maintenance of its three-year old State of Israel; India because of a particular cash crunch in 1991/sanction in 1998/Millenium entry in 2000]. 

 

My SECOND SUBMISSION is that I believe that for a country to emulate Israel and India succesfully in this regard, it must identify a particular STIMULUS that will tug at the PATRIOTISM of its Diaspora.

 

My THIRD SUBMISSION is probably the most crucial: how has HOME COUNTRY used the financial resources ALREADY available to it, INCLUDING any DIASPORA BONDS floated earlier if any?  Clearly a prudent use of earlier resources encourages more contributions, while a lack of it is a major disincentive.

 

This is where the Nigerian government will hit a rock.   Evidence of its lack of accountability in managing our already enormous resources is too vast to even begin to list. Concern over $5 billion? $10 billion? or is it $13 bilion used to manufacture more darkness rather than light in the power sector is a case in point.  Our roads nko, when same kinds of billions have been spent, and yet they remain death-traps.  The stupendous salaries and benefits of our elected officials is another case in point.  It is when we couple such mismanagement of our present financial resources with the lack of integrity of our cash-and-carry court system that a Diaspora Bond managed by the Nigerian government will not fly.  [Note that legal luminaries such as Justice Esho and Chief Afe Babalola recently termed our Judges CORRUPT, and yet nary an official investigation to their otherwise wild allegations has been instituted.]

 

Is all hope lost about inaugurating a Nigeria Diaspora Bond?  No....rather, it should be one MANAGED OUTSIDE of the government axis, using international best practices.  In fact, proposals about such a PRIVATE BOND have been around in ebbs and flows for over 10 years now [Chamberlain Peterside and I worked on one and presented it at and refined it after a NIDO conference in New York ages ago], but events at home, particularly in the banking and legal arenas in Nigeria have not been too encouraging to break one's neck over it.

 

One hopes that once some electoral reforms which lead to more accountable executive and legislative governance is in place, leading to more social, economic and financial stability in Nigeria, both private and public Diaspora Bonds will be instituted to play a positive role in Nigeria's economy.  Until then, it would be a tall order.  Nothing however, stops us from planning ahead of time for that day.

 

And there you have it.  You do well, Azuoma.

 

 

 

Bolaji Aluko

 

 

 

Azuoma’s Chronicles:

 

Will Diaspora Bonds Help Nigeria’s Economy?

By

Ms. Azuoma Anugom

 

 

 

The latest buzz amongst some developing economies is Diaspora Bond. Many developing nations took notice when they saw how Israel and India utilized Diaspora bond as a vehicle for development and wealth building.  From Israel to India, to Ghana, to Sri Lanka, to South Africa, to Grenada, to Jamaica, to Ethiopia, to Philippines, to Nigeria  and  several other countries with significant diaspora populations have either issued these financial instruments or have announced plans to proceed with this instrument.  

What is a diaspora bond?  A Diaspora bond is a bond or debt instrument that is issued by the government of a country, say Nigeria, similar to other bonds except that this financial instrument will be marketed to Nigerians overseas and will not be sold in Nigeria. This bond gets its name because it is sold to a nation’s diaspora who are able to purchase the bond in foreign currencies which is extremely valuable for financial investment at home. Although the diaspora bond is marketed and sold to the diaspora, several countries that have successfully issued these bonds have permitted proxy purchasing which allows citizens at home to buy these bonds through friends and families abroad.

Diaspora bonds have been used for many purposes like improving infrastructure and relieving national debt. Before we continue delve briefly into the history of diaspora bonds.

Flash Back:

Israel was the  first country to issue a Diaspora bond in 1951, when its then first Prime Minister Ben Gurion traveled across the globe urging Jews and friends of Israel to help the fledging young nation survive amidst mounting challenges.  Bonds issued by the Development Corporation for Israel (DCI) have totaled well over $25 billion over the years.  Israel has reaped tremendous benefits from its bonds, which are currently rated by Wall Street rating agencies.  Apart from financial consideration, the government of Israel also used diaspora bonds to keep Jewish diaspora actively engaged in the welfare of Israel.

No other country issued diaspora bond until 1991 when faced with financial crisis, especially in the nation’s foreign exchange, India turned to Diaspora bonds to avert economic collapse. The bonds were fully subscribed within a couple of months and a financial collapse was averted. It was reported that India’s first bond raised a whopping $1.6 billion.

Again in 1998; when a global embargo was declared against India after it exploded a series of nuclear test bombs in violation of the global nuclear weapons ban; India launched its second diaspora bond.   It was reported that less than two months after floating the bond, they were oversubscribed and India raised $4.2 billion. A school of thought believed that India floated this second diaspora bond in order to enable it operate its economy outside the coordinating agencies of its traditional economic partners

Once again in 2000 India issued the India Millennium Deposits, another diaspora bond and netted another $5.5billion. On three separate occasions India successfully issued diaspora bonds.

The successes, witnessed by Israel and India especially, galvanize global interest in Diaspora bond as a development instrument.  The Indian experience was like a shot heard around the world. It signaled to the world, especially those nations with significant amount of diaspora that diaspora bonds could significantly impact a developing country’s foreign exchange earnings or inject much needed capital to its fledging economy.  The rest of the world was now ready to duplicate these success stories.   Sri Lanka, Ghana, South Africa, Kenya, the Philippines, Ethiopia, Grenada and several other countries have either issued these financial instruments or have announced plans to do so. South Africa is reported to have launched a project to issue Reconciliation and Development (R&D) bonds to both expatriate and domestic investors.  Ghana reportedly, was so successful that it had to issue twice its Golden Jubilee bond because it was oversubscribed to the tune of over $500m and Sri Lanka has raised more than $550m from its overseas populations.  Now enters Nigeria ready to get a piece of the action.

 

Examining Nigeria’s Viability for Diaspora Bonds.

Why Diaspora Bonds? Why not? Nigerians love to travel and live abroad. We probably have more Nigerians abroad than any other African country.  Nigerians in Diaspora remit an average of $300 per month to families in Nigeria. I should know because I patronize Western Unions and I know the calls for financial assistance I get from folks at home every day---- ditto for a lot of folks.  According to World Bank’s report, Nigeria made $10 billion (N1.5 trillion?) from remittances made by its citizens living abroad in 2008.  While I don’t have the census of all Nigerians scattered all over the world, it will not be a stretch to assume that on the average, Nigerians remit over $100 million annually via Western Union, Money Gram  etc  to Nigeria.  Note that these remittances via Western Union, Money Gram and the rest of them come with a huge cost---as you have to pay processing fees to send money to your families or whatever via these companies. When you think about it, if Nigeria made a staggering $10 billion from remittances made by its citizens living abroad in 2008, then it won’t be a stretch to deduce that the money that Nigerians in Diaspora remit annually represents a significant percentage of Nigeria’s gross domestic product.  Most families in Nigeria depend solely on their families abroad for their sustenance. Most will go hungry without these remittances from Nigerians in diaspora. According to the UN's Office of the Special Adviser on Africa (OSAA, the average African migrant living in a developed nation is sending $200 per month home to his or her family. In its report, it stated that “...Remittances from Africans working abroad in the period 2000-2003 averaged about US$17 billion per annum virtually overtaking Foreign Direct Investment flows which averaged about $15 billion per annum during the same period. (http://www.un.org/africa/osaa/press/Resource%20flows%20to%20Africa.pdf)

 

Concerns have been raised that a significant amount of remittances sent by the Diaspora is used for direct consumption without getting into long term investment and savings, diminishing the money’s impact on the development of Nigeria.  This is where Diaspora bonds come in.  Diaspora bonds from what I have read typically mature in 5 â€" 7 years and pay annual dividends between 5% and 8%. (Currently, I don’t think bank deposit and certificate of deposit interest rates are more than 2%). Every year, the bond pays the purchaser this interest and at the end of the term, the purchaser receives her principal as well as the accrued interest.

There are so many advantages of diaspora bonds. One of the advantages if we have to borrow a leaf from Israel is keeping diaspora actively engaged in the welfare of Nigeria or encouraging patriotism amongst Nigerian nationals abroad. Apart from the patriotism, diaspora bonds may also help the investors save money from cost of sending money to Nigeria via Western Union. Most times, when people abroad send the money to their relatives, these monies ended up being misused. I have read instances whereby folks kept repatriating money home thinking they were investing or that the money were being invested only for them to find out that the money have been squandered by their relatives.  With Diaspora bonds at least you are sure where your money is going.  According to the Director General of the Debt Management Office (DMO), Dr. Abraham Nwankwo, “The bonds are tax-exempted, implying bigger income for the investors; the bonds provide an alternative investment to equities, real estate and bank deposits. Bonds can also be used as collateral for borrowing from banks and discount houses, and bonds can be sold either through any of the 21 PDMMs licensed by the DMO or on the floor of the NSE†.

Factors to Consider before issuing Diaspora Bonds:

Based on my research, there are several factors to consider before issuing Diaspora bonds. Some of these factors are: the size and wealth of Nigerians in diaspora; the compactness or dispersion of Nigerians in diaspora; level of patriotism; integrity and stability of legal systems in Nigeria; and the potential for full subscription of the bond itself.

Some of these factors augur favorably for the government to seriously explore issuing a diaspora bond; while some of the factors present some concerns to the serious investors.  For example, I am not sure about the integrity and stability of the legal systems in Nigeria, based on the rumors of justice being for sale and people influencing the scale of justice based on money----however, that’s a topic for another day.  As for the level of patriotism---depends on whom you talk to, and your perception of Nigerians and the current state of affairs both in the country and outside.

Be that as it may, there is no doubt that there is a sizeable number of Nigerians abroad. What with the brain drain in Nigeria and the economic hardship in the country, many Nigerians have fled/left the country for greener pastures abroad.  While we can only make an educated guess as to how much Nigeria can raise from this instrument, one can estimate that based on the population of Nigerians abroad, we may raise well over $4 billion.   For example, in the United States alone, we have up to one million Nigerians resident in all 50 states.  Now when you combine this with Nigerians resident in Canada, United Kingdom, Australia, Caribbean, South Africa, Southern African countries, North African Countries, West African countries  and scattered all over the world, it is plausible that Nigeria can realistically achieve tremendous success with a diaspora bond. 

Furthermore, Nigerians abroad are highly educated and have the ability to earn high incomes. Recently it was reported that Nigerians in the US are the most educated immigrants when compared to other immigrants.  Nigerians hold their forte in all walks of life. Many are successful business men/women; while it is safe to assume that most Nigerian immigrants are gainfully employed.  To buttress that we have our fair share of wealth diaspora, recently, we read that a Nigerian bought the Gatwick Airport in Britain. This was a no mean task. Also a Nigerian family owns one of the fastest growing cosmetics industries (Clear Essence e); we have several business moguls and successful Nigerians from all walks of life---from the allied health industry, to building contractors/constructions, to lawyers, to doctors, to teachers to nurses, to pharmacist, to those in oil business, to all what notsâ€"we can safely say that the average income of Nigerian household is $65,000--- which is above the average for those in Nigeria.   These factors are favorable to floating  Nigeria diaspora bonds.

 

To be continued.

 

~~~~~~~~~~~~

Ms. Azuoma Anugom is a lawyer based in Los Angeles, California. She can be reached at: adaejiagamba@...

Ps: I am developing my blog site: "Azuoma's Chronicles", which will be up and running soon. Please stay tuned.

--
You received this message because you are subscribed to the "USA-Africa Dialogue Series" moderated by Toyin Falola, University of Texas at Austin.
For current archives, visit http://groups.google.com/group/USAAfricaDialogue
For previous archives, visit http://www.utexas.edu/conferences/africa/ads/index.html
To post to this group, send an email to USAAfricaDialogue@googlegroups.com
To unsubscribe from this group, send an email to USAAfricaDialogue-
unsubscribe@googlegroups.com