NIGERIA DIASPORA BOND
A diaspora bond is a bond issued by a country to its expatriates(emigrants). These bonds allow developing countries in need of financing to look to ex-pats in wealthy countries for support.
Diaspora bonds offer migrants discounts on government debt from their home countries. Expats are frequently offered diaspora bonds with extended maturities and low rates. If expatriates have some patriotism and knowledge of their home economies, they will take a lower-risk investment over a low-risk venture.
Remittances and foreign direct investment are important sources of funding for developing countries like Nigeria. Remittances are becoming increasingly big, assisting friends and families in times of need as well as assisting non-residents in acquiring assets back home. Access to international markets and foreign debt markets is not always guaranteed for these emerging countries. Developing countries rely on help for a variety of reasons, including disaster relief and infrastructure development.
There are numerous advantages and disadvantages of diaspora bonds; Diaspora bonds can help to emerge and developing economies finance their projects. For instance, India’s success in selling the India Development Bond, Resurgent India Bond, and Millennium Deposits, the diaspora’s patriotic loyalty to its homeland can be highly crucial.
However, for these bonds to succeed, a number of criteria must be present, including financial stability, international support, internationally recognized credit ratings, the bond’s structure, and the success of individual migrants. Investor confidence in one’s own country is influenced by a mixture of these factors. Diaspora bonds as a debt instrument may prove to be a significant entry to the global loan market at a time when developing economies may find it difficult to get finances outside of humanitarian aid.
NIGERIA AND DIASPORA BONDS
Nigeria registers its bonds with the Securities and Exchange Commission (SEC) in the United States, which entails adhering to a slew of rules. The fees of registering debt instruments with the SEC must be covered, as well as strict asset disclosure and transparency. The Nigerian bonds now have unrestricted access to retail investors in the United States, which the Ethiopian Millennium Bond did not have.
In 2017, the former Finance Minister of Nigeria, Kemi Adeosun, stated the Federal Government (FG) planned to launch a $300 million diaspora bond offer in March 2017.
According to the World Bank’s Migration and Remittances Factsheet 2016, 247 million people, or 3.4 percent of the global population, live outside their native country. In 2015, remittances totaled $581.6 billion, with $431.6 billion going to underdeveloped countries. Nigeria received $20.8 billion in remittances in the same year, making it the highest-receiving country in Africa and the sixth-highest in the world. In 2018, the value grew to $25 billion, making Africa the continent with the highest GDP.
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In light of dropping oil prices and the depreciation of the naira, a diaspora bond offering could be a viable option for Nigeria to raise much-needed funding to pay its massive infrastructure deficit. Foreign investors, on the other hand, left the Nigerian market in 2015 due to ambiguous economic policies and a lack of confidence in the government’s financial management.
The key question is how well will the Federal Government connect with the Nigerian diaspora population in order to develop enough trust for people to invest in the bond? The FG has stated that the Debt Management Office will manage the bond to address some of these difficulties. The benefits of Diaspora Bonds are demonstrated using the $300 million diaspora bond auction from March 2017. Mrs. Abike Dabiri, the SSA on Foreign Affairs and Diaspora, highlighted that the bonds will have a five to ten-year maturity and yearly dividends between five and eight percent, which is more than a bank deposit, which pays off within two percent. Dr. Abraham Nwankwo, the Director-General of the DMO (Debt Management Office), stated that the bonds are tax-free, may be used as collateral for bank loans, and provide discounts on the FG housing scheme as further financial incentives.
The Director-General also said in a statement that the diaspora bond, which was 130 percent subscribed, was intended to give Nigerians living abroad the opportunity to contribute to national development.
The bond was structured as a retail instrument to appeal to a broad spectrum of investors and was offered through private banks and wealth managers rather than institutional investors, who typically deal with huge volume transactions. He added that the offering drew significant interest from investors around the world, with initial orders totaling almost 190 percent of the total amount offered. At the transaction’s ultimate price, final memberships were around 130 percent of the offer.
The Diaspora Bond is the first bond issued by an African nation that is registered with both the United States Securities and Exchange Commission (SEC) and the United Kingdom Listing Authority (UKLA) and is aimed at retail investors.
Nigeria will establish a program for gathering cash from Nigerians and Friends of Nigeria in Diaspora as an outlet for continuing participation in the economy following the successful issuing of the first Diaspora Bond. Market experts praised Nigeria’s decision, pointing out that the government was able to raise the funds despite the highly restricted retail market in the United States.
Click here to view Nigeria’s recent Eurobonds and Diaspora bonds, facts as accumulated on the 28th of February 2022 by the Debt Management Office, Nigeria.
In March, 2017, through its first-ever diaspora bond, the Nigerian government put forward its intentions towards getting its citizens living abroad to put some money towards funding part of its $23 billion record deficit budget, at 5.625%, the five-year bond raised $300 million. The Nigeria Diaspora bond was marketed to Nigerians living abroad as a way for them to contribute to the country’s growth as it seeks to fund major capital projects. It wasn’t clear how many Nigerians actually bought the bond at first. According to reports, the retail investment option was only available through private banks and wealth managers, which are normally utilized by the very wealthy, and the investors might be Nigerian diaspora or not.
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