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Nigeria’s Debt Management Model Excites African Countries

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The Nigerian Debt Management Office, (DMO) touted as a model in Africa, has become a major destination for out-sourced debt management skills and services in nearly two decades of its existence.

The DMO under the leadership of Dr. Abraham Nwankwo has been galvanized to become a leading player in Sub-Sahara Africa. And the achievements it has recorded so far has earned it many accolades from renowned global institutions, as it has become a one-stop-shop for effective public debt management.

It would be recalled that the DMO resuscitated the Domestic Bond Market in 2003 when it first issued FGN Bonds.  This landmark achievement was intended to restructure the Government’s domestic borrowing which was predominantly short term and to develop the  domestic  bond  market  which  had  been  moribund  for  about  20  years.  To achieve these  objectives, the  DMO  in  collaboration  with  other  stakeholders  introduced  several Measures to deepen the market amongst which are: regular and transparent FGN Bond Auctions; the appointment of dedicated market makers known as Primary Dealer Market Makers  to support  the  Bond  Auctions  and  ensure  an  active  Secondary Market;  a  Two Way  Quote based  market; existence of Benchmark  Bonds;  a  Sovereign  Yield  Curve Extending to 20 years and, a diversified domestic investor base. In essence, a strong and  well  established  domestic  bond  market  had  been  developed  through inherent local capacity without any foreign facilitation.

Based on the achievement of the DMO, the Nigerian Bond Market received international recognitions through the inclusion of FGN Bonds in Global Bond Indices. The inclusions were recognition that Nigeria was one of the few emerging market countries with a robust domestic bond market. Thus, FGN Bonds were included in J P Morgan’s GBI – EM (October, 2012) and Barclays Capital’s Emerging Markets – Local Currency Bond Index (March, 2013).

Since these  awards  came  after  the  Nigerian  Bond  Market  had  been  developed,  it follows  therefore,  that  they  were recognitions  for  achievements  already recorded rather than pre-requisites for the development of the market.

It is important  to  note  that  Nigeria  became  the  only  African country  after  South Africa  to  be  included  in  the  GBI – EM and  also  that  there  are  several  other emerging market countries such as Venezuela whose domestic Bonds are not included in any international Bond Index. Their non-inclusion has not limited their markets or economies.
Notwithstanding the benefits of the inclusion of FGN Bonds in the GBI – EM, the DMO continued to introduce measures to attract more domestic investors to the Bond market particularly, non-bank institutions and retail investors in order to enlarge and diversify the Nigerian economy.

Despite the delisting of FGN Bonds from J P Morgan, the Director General of the Debt Management Office, Dr. Abraham Nwankwo insisted that the Nigerian economy remains on a growing path, arguing that the country is operating at near full unemployment of its resources. This, he said leaves the country with all the potentials for real growth. He also said a country like Nigeria that is yet to tap into its huge solid mineral resources and a well fallowed agriculture sector, then the potential for growth is incalculable.

According to him Nigeria had its own Bond Market before JP Morgan ventured in, and that the Nigerian Bond market has been developing before they joined and that their exit mean little or nothing to the existence of the FGN Bond Market.

Nigeria’s economy has been described as one of the most attractive investment destinations in the emerging markets despite the headwind blowing across most oil producing nations since 2014, and according Nwankwo, the country’s economy will be attractive to investors all the time because Nigeria is still a virgin and a great place for both local and foreign investors.

Since its inception in 2000, the DMO which was primarily established to centrally coordinate the country’s debt has attracted the interest of a host of African countries including Uganda, Sudan, Zambia, Zimbabwe, Kenya and recently South Sudan, to learn Nigeria’s experience in public debt management.

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Coming at a time when their country was battling with stifling foreign and local debt, it was inevitable that the attention of the world was glued to the DMO having saved Nigeria from its debt crises and for the unprecedented success of the FGN Bond Market, particularly in reducing debt stock and cost of public debt servicing in a manner that saves resources for investment in poverty reduction programs.

Back in 2006, Uganda came on a study tour to Nigeria on two occasions, when a delegation came to learn from the DMO model as a basis for institutional arrangement.

In its Desire to further developing of its bond market alongside building strategic alliances, the Bank of Uganda also sought to engage Nigeria’s Debt Management Office (DMO), in its capacity as a frontline regulator for all secondary market activities and a platform provider for the efficient listing, quoting and trading of bonds. Whilst acknowledging the impact of the DMO in the Nigerian financial market landscape, with emphasis on technology as a key enabler of its activities, the representatives noted that effective collaboration with other domestic and international financial market infrastructures such as DMO will serve to foster active market development in the Ugandan financial market and encourage cross-border capacity building.

Sudan also came on a study tour to Nigeria on two occasions. The first delegation came in December 12-16, 2005 to learn the workings of the DMO and its interface with stakeholders.

Similarly, another delegation from the External Debt Management Unit in the Central Bank of Sudan and Domestic Debt Unit in the Ministry of Finance of Sudan, visited the DMO for a month secondment programme from Monday, June 23 -Tuesday July 15, 2014 to learn from the Nigeria’s debt relief and restructuring phases as well as Nigeria’s debt management experiences prior to the establishment of the DMO.

Another instance, was a visit by: A delegation from the Ministry of Finance and National Planning of the Republic of Zambia, who undertook a one-week study tour of the Debt Management Office, Nigeria, from 20th – 24th September, 2009. The purpose of the study tour was to enable the Zambians learn how the Debt Management Office, Nigeria is structured, the functions of the Office and how it carries out its responsibilities of managing the country’s public debt and issuance of the FGN Bonds.

If that was not enough, A seven man team from the Zimbabwe Aid & Debt Management Office (ZADMO) in the Ministry of Finance of Zimbabwe visited the DMO for a week study tour from July 17 to 27, 2011 to understudy the processes of establishing and running an effective debt management office in its efforts to set up a centre of excellence in debt management in Zimbabwe.

The World Bank (WB) in August requested the DMO to host a delegation of Kenyan Officials from Kenya’s Central Bank, Capital Market Authority, and National Treasury & Debt Management Office on a Study Tour of the Nigerian Domestic Bond Market.

The main purpose of the Study Tour is for the delegation to gain insight into the developmental initiatives undertaken by the DMO which have led to the remarkable growth and development of Nigeria’s Domestic Bond Market, considering the fact that up until 2003, when the DMO floated the 1st Federal Government of Nigeria (FGN) Bonds, the FGN Bond Market which is the pivot for the domestic bond market was in comatose for about two (2) decades.

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The Kenyan delegation centered their interest on Formulation of Issuance Strategies for Securities, Policies for Benchmark Building, Primary Dealer Market Maker Programme, Communication Strategies with market stakeholders, Price formation and dissemination in the Primary and Secondary markets, Types of secondary market, Architecture, price discovery and transparency.

In accordance with the global recognition of the effectiveness of the DMO, on Tuesday, November 30th 2015, a seven-man team from the Ministry of Finance and Economic Planning (MOFEP) of the Republic of South Sudan came on a 5-day Study Tour of the Debt Management Office to understudy the DMO and gain insight into the developmental initiatives undertaken by the DMO which have led to the remarkable growth and development of Nigeria’s Debt Management Office, which has earned it, its global recognition.

Speaking on the objectives of their visit to the country, the Director General, Directorate of Macroeconomic Planning, Philip Ajack Boldit, who led the delegation, said South Sudan was keen to learning the various strategic debt management plans that DMO Nigeria has, adding that they came with high expectations.

“We expect to get a lot of experience in skill transfer from Nigeria to South Sudan, especially on how to manage the debt, it is one thing to get it done, it is another thing to manage it.

“Nigeria got the experience, we will pick up a lot of experience which we can apply to our situation to be better and be able to manage our debt like Nigeria did.”

Also speaking was the Director General, DMO, Dr. Abraham Nwankwo, who said the DMO appreciates the need to reach out to other African countries, and so in DMO strategic objective, we’ve a programme for us to share our ideas, knowledge and experience with other African countries and also to learn from other African countries.

“So today we have received a delegation from South Sudan which came to the DMO Nigeria on a five-day study tour so that they can share from our experience how we have developed public debt management in Nigeria, how we’ve developed the bond market and how we’ve managed Nigeria’s public debt.”

One industry expert, Chief Gabriel Nwonuma noted that the DMO has been outstanding on debt management, calling for the sustainability in service delivery.

“Governance is a continuum; the DMO should sustain what it is doing considering the economic crisis in the country. I am happy that they have a very competent team that can sustain its service delivery framework. DMO staff are frequently invited as resource persons to various training programmes workshops, seminars and conferences by international organizations including the United Nation and World bank’’.

The DMO’s transformation of the Nigerian financial market, has deepened secondary market liquidity and transparency, thus further aligning it with international best practices.

The remarkable growth in Nigeria’s secondary market has contributed immensely to the growth in the overall domestic bond market.

The DMO is on a mission to ensure that other African governments subscribe to its principles of prudent and sustainable borrowing, and effective utilization of resources by injecting breath of new life over management of internal and external debt through best practices in the way of improved policies, efficient administration, and the sweeping away of old abuses to foster transparency and sustainability.

Nonetheless, the success of Nigeria’s Debt Management Office, has not only being recognised by Nigerian’s alone, both home and abroad but has become a model in Africa.

 

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