Unlocking Nigeria’s goldmine: Billionaires and bonds

BY ABIDEMI ADEBAMIWA

Nigeria is bursting with resources, talent, and opportunities. The potential to create a thriving future is right here at home. But despite being one of Africa’s biggest economies, Nigeria continues to rely heavily on loans from other countries, even though so much wealth within our borders remains untapped. This raises an important question: Could Nigeria’s local resources and wealth be the solution? By rethinking our financial strategies and strengthening the bond market, Nigeria can chart a more sustainable path forward.

This shift is not just a financial necessity but an opportunity to redefine the nation’s economic potential.

Think about this: What if Nigeria’s billionaires, who made their fortunes here, started investing in government bonds? The impact could be incredible. Boasting one of the continent’s largest pools of ultra-wealthy individuals, Nigeria holds immense potential to energise its economy. Yet, factors such as mistrust in fiscal policies, concerns about corruption, and a lack of transparency in the bond market hinder their participation. If Nigeria’s wealthiest hesitate to invest, how can we inspire confidence among Nigerians abroad or international investors?

Corruption has shaken people’s trust in Nigeria’s financial system. Research highlights how entrenched systems of influence often allow the wealthy and powerful to manipulate government policies for personal gain, further alienating ordinary investors and discouraging genuine economic progress. As a Harvard study on inequality reveals, this growing divide between the rich and the rest exacerbates economic challenges and entrenches systems that benefit a few at the expense of broader societal progress.

In some cases, civil servants and public officials have discouraged productive foreign investments, particularly when such projects do not align with their personal interests or when foreign partners resist engaging with corrupt systems. As noted in studies, this dynamic creates barriers for ethical investors and distorts the market’s efficiency. Without strong safeguards and accountability, potential investors may understandably hesitate to commit to government bonds.

Tackling these issues directly can help Nigeria build a stronger financial foundation and restore trust among local and international investors.

Fighting corruption and making the system transparent are just as important as strengthening the bond market. Adopting transparent frameworks, similar to those discussed in governance-focused literature, can help dismantle these barriers, ensuring that policies prioritise national over personal gain. Transparent procurement practices, coupled with a renewed sense of patriotism, can transform fund management and allocation. By ensuring that investments are secure and used effectively for national development, Nigeria can attract and retain investors both domestically and internationally.

Relying on international creditors weakens confidence in Nigeria’s ability to handle its own finances. This reliance suggests a perceived inability to manage resources internally, discouraging local investors and reinforcing external dependencies. Reversing this trend, however, could bring transformative change. Imagine Nigeria’s wealthiest stepping forward to invest in government bonds. Such an action would not only provide essential financial support but also send a powerful message of hope, stability, and a shared belief in the nation’s potential. It would demonstrate a commitment to national development, encouraging others to follow suit and invest in Nigeria’s future.

Bonds aren’t just about raising money—they’re a way to stabilise the economy and reduce dependence on foreign loans. A thriving bond market reduces reliance on foreign loans, encourages local wealth circulation, and provides a secure investment avenue for individuals and institutions. For Nigeria’s bond market to become a cornerstone of economic revival, the system must be optimised and made more inclusive.

The findings of recent studies, such as the one published in the Journal of Financial Regulation and Compliance, underscore how transparency and effective governance directly influence investor confidence in government bonds. Similarly, a 2019 study published in the Journal of Public Budgeting, Accounting, and Financial Management emphasised the importance of aligning fiscal policies with national development goals to create an investor-friendly environment.

The 2019 study highlighted that consistent fiscal discipline and targeted reforms can significantly improve investor trust and encourage more robust participation in the bond market. Additionally, a 2022 analysis published in the Journal of Economic Structures highlighted how strengthening local governance systems and enforcing fiscal responsibility can significantly boost domestic investment. This research also points out the role of inclusive policies in creating an environment where both local and foreign investors feel secure. When nations commit to transparent reporting and responsible allocation of bond proceeds, they not only attract domestic investors but also enhance their credibility on the global stage. Nigeria could adopt similar frameworks to mitigate risks and foster a climate of trust.

Today, Nigeria’s bond market reflects the broader challenges facing its economy. Inflation surged to 33.88% in October 2024, prompting the Central Bank of Nigeria (CBN) to raise interest rates repeatedly. This led to yields on 10-year government bonds climbing to 21.22% by November 2024, offering attractive returns to investors but also increasing borrowing costs for the government.

The corporate bond market has faced significant challenges. According to PricewaterhouseCoopers (PwC), in the first half of 2024, only one corporate bond was issued, marking an 83% decline compared to the previous year and the lowest level in five years This sharp drop highlights the growing difficulties faced by corporations in accessing affordable capital through bonds.

Meanwhile, the Central Bank of Nigeria reported that the government raised N264.527 billion through bond auctions in September 2024, even with lower rates. This reflects sustained demand despite broader market challenges and shows that local investors still see value in government securities. Such participation highlights the resilience of domestic financing options, even under difficult economic conditions, and underscores the importance of nurturing this market for long-term stability.

Such resilience offers a glimpse into the potential of the domestic bond market if adequately supported and made more transparent.

Plans for diaspora bonds, as highlighted in Ripple newspaper, were articulated by Central Bank Governor Olayemi Cardoso. He emphasised the eagerness of Nigerians abroad to invest in the country’s development, noting that recent reforms have already increased remittance inflows. Cardoso outlined how these bonds aim to attract $1 billion in monthly remittances, leveraging the diaspora’s connection to Nigeria’s progress and fostering a robust financial link between expatriates and the nation. These initiatives highlight the innovative potential of harnessing both domestic and expatriate resources. However, sustained reforms are essential to build trust and ensure broader participation.

Efforts to diversify funding sources include a $2 billion bond offering and a $2.2 billion Eurobond issued earlier in 2024, which attracted peak order books exceeding $9 billion. These initiatives highlight both international confidence and the urgent need to strengthen the domestic bond market. Proposals like domestic dollar bonds aim to address concerns about naira volatility, while support from organisations like the IMF should remain a backup rather than a primary strategy.

Examples from other countries show how this can work. India used tax-free bonds to fund big infrastructure projects, and South Africa’s well-organised bond market has helped keep its economy steady. The U.S., with the world’s largest Treasury bond market, thrives on transparency and trust. On the other hand, countries like Argentina and Zimbabwe show how poor management and instability can lead to failure—a lesson Nigeria should learn from.

To make Nigerian bonds more attractive and impactful, here’s a strategic playbook:

Offer competitive yields and tax incentives: These make bonds financially appealing to a broad range of investors.

Be transparent about fund usage: Investors need clarity on where their money is going and the impact it will have.

Strengthen legal protections: Ensuring that bond investments are secure fosters trust and encourages participation.

Market bonds as patriotic investments: Positioning bond purchases as a way for citizens and billionaires alike to contribute to national progress can foster widespread engagement.

Tackle corruption decisively: Enforce anti-corruption measures to ensure bond proceeds are managed effectively and transparently.

This isn’t just about raising money; it’s a chance to rewrite Nigeria’s economic story and inspire change. By leveraging domestic wealth and creating a robust financial system, Nigeria can reduce dependence on external creditors and foster economic self-reliance. Confidence starts at home. If Nigerians believe in the nation’s potential, they can inspire others to invest, paving the way for a brighter, more sustainable future for all.