CBN: Corporates should take advantage of infrastructure bonds

The Governor of the Central Bank of Nigeria (CBN), Godwin Emefiele, recently emphasized the importance of corporate bodies in the country leveraging the opportunities presented by Presidential Order 7 to issue infrastructure bonds at concessionary rates. In a television interview on CNBC Africa, Nnamdi Nwizu, Co-Managing Partner at Comercio Partners, explored the potential impact of this initiative on Nigeria's money market. Emefiele highlighted that while existing provisions like the rural infrastructure fund provide some tax incentives for investments in infrastructure projects, the new scheme aims to incentivize private sector participation in developing essential infrastructure such as road networks. By investing in these bonds or undertaking infrastructure projects, corporates can not only contribute to community development but also benefit from tax rebates. Nwizu discussed the attractiveness of infrastructure bonds, noting that the success of the initiative would depend on the interest rates offered. While the government already issues bonds for infrastructure projects, the focus of this new directive is to engage the private sector in addressing critical infrastructure gaps. He suggested that sectors like agriculture could band together to finance road networks, capitalizing on the associated incentives. Shifting the conversation to the fixed income market, Nwizu reflected on the significant movements witnessed over the past month. Yields on treasury bills and bonds experienced marked declines, with the one-year treasury bill dropping to 8.5%. However, he cautioned that investors, particularly pension funds, may hesitate to commit long-term at these lower rates, potentially leading to market instability. Nwizu predicted that the forthcoming treasury bill auction could reveal investor sentiment and hinted that it might be the final auction for the month. He explained that the Debt Management Office (DMO) determines auction schedules and speculated on the possibility of adjustments to maintain a balanced market curve. The interview also touched on the sustainability of the current rate environment in Nigeria's money market. Nwizu considered the implications for currency management, government debt service, corporate borrowing, and overall market dynamics. He suggested that the reduced rates could encourage corporates to seek alternative financing options, fostering innovation in fixed income investment structures. In conclusion, Nwizu expressed optimism about the evolving investment landscape in Nigeria, anticipating increased diversity in financial instruments and a more dynamic fixed income market. As the country looks towards 2020, the balance between incentivizing private sector investments and maintaining market stability will be crucial for economic growth and infrastructure development.