Nigeria’s finance minister Kemi Adeosun explains government’s borrowing plan

Following the completion of a billion dollar Eurobond issue, Nigeria is set to borrow from the World Bank and China to fund a range of infrastructure projects. CNBC Africa’s Wole Famurewa spoke to Nigeria’s Finance Minister Kemi Adeosun about the government’s borrowing program and the economic recovery growth plan and why Nigeria is not considering an IMF loan.

I was saying just before this interview that you must have been living on a plane these past few weeks. Very busy days indeed but fortunately we’ve been able to close what must be one of your highlights of the year, the Eurobond issue. Can you speak about the conversations you had with investors? What was the presentation you were making to investors during this road show?
Our narrative to the investors is the same narrative we have been explaining to the Nigerian public for the last year which is that we needed a reset of the Nigerian economy. In particular, we needed to focus very much on infrastructure. We believe that to unlock the Nigerian economy properly, to go away from this dependence on oil for government revenue, we needed to invest in enabling infrastructure. And to do that we were doing two things The first was to raise revenues by improving our revenue collection and efficiency. The second was to reduce our recurrent expenditure so we made a lot of efficiency savings and took people off payroll that shouldn’t have been on payroll to create enough headroom for infrastructure. The thinking is that if we get infrastructure right so many areas of the Nigerian economy can become productive and create jobs and wealth opportunities for the people and grow the economy sustainably. So, that was really the narrative that the investors embraced on our auction.

Some people I spoke to who were in the room suggested that the big elephant in the proverbial room was still the foreign exchange issue in Nigeria. We know that the Central Bank has adopted a flexible process to the allocation of foreign exchange but many are suggesting that it is not working ideally. When you look at the parallel market rate today, it’s at an all time low of N516 to the dollar. What was your message to investors in that respect?
Well, the Central Bank themselves were in the room and they spoke of their need to fine tune the implementation of their policy. Their explanation to the investors was that the policy itself was a good one. It was well crafted. But the implementation had been sub optimal. That is what the CBN themselves, explained to investors who raised that very question.

Let’s get back to the Eurobond itself. Were you happy with the rate, 7.85 per cent?
Yes. It was within the range of what we were expecting to attain if you look at our fundamentals and you look at how the market was trading. What was pleasing to us was the ability to extend the yield out to about 15 years, which is an important benchmark for our corporates. We were originally looking at 10 but hoping for 15. We are happy to have got 15.

And how will the proceeds from this Eurobond sale be used?
Capital projects in the 2016 budget.

So none of this is going in to the official market to boost forex supply?
No. Absolutely not. This is to fund capital projects. We’ve got lots of projects ready to go. We’ve got rail projects where we need to pay counterpart funding. We have road projects, we have power projects, we have water resources projects, interior projects, defence projects. So I’ve got a huge pile of files waiting for capital spend. That’s what this is for.

Now that we have the Eurobond out of the way, tell us more about the other fund raisins plans especially off shore funding. There has been some talk around Nigeria working with the world bank to raise capital. Can you tell us where that deal is right now?
We had always said that the first money we would raise would be concessional money because that was the cheapest money and the most cost effective money for us. So we stuck to that. We’ve secured as you know a billion dollars offer from the Africa Development Bank from which we have drawn down $600 million. With the World Bank we are hoping to begin the process. Well, we have already started the process. We have been talking to them about funding the 2017 budget with a budget support facility. We have also got an offer from the China EXIM bank to fund the rail project from Lagos to Kano, but the first phase is from Lagos to Ibadan of about $1.3 Billion and myself and the Minister of Transport are hoping to go and sign that loan in the coming months. Our efforts around external funding have been ongoing and have been successful. We have been able to do all of the things we set out to do at the beginning of the year.

And the World Bank? Where are you on that deal?
What happened with the World Bank was we started with the World Bank and the ADB last year and they did a joint mission, but when we did the currency adjustment, the amount of dollars or the amount of external money we could borrow reduced. So because we were further ahead with the ADB we decided to close that transaction which we did with the one billion dollars of which like I said we have drawn down $600 million and then we spoke to the World Bank and said well look, let’s move yours into 2017, which is what we are now doing.

What are we expecting to raise from the World bank?
At least a billion dollars, and then there’s some possibility of doing a sector specific intervention in the power sector. They are working very closely with us on power. They sent down their high level power team. We spent two very useful days here in Abuja dimensioning the problems in the power sector and the possibility of some support specifically for power.

There have been some reports in the media that Nigeria has actually closed a $2.5 billion dollar transaction with the World Bank, can you comment on that?
No. No. It’s all in process.

I had an interesting conversation with former Finance Minister, Kalu Dika Kalu recently. He made the point that why isn’t Nigeria going to the IMF? Because the IMF will give you money at 0 per cent. Why is the IMF not an option for Nigeria?
Well, I mean this is a huge National Debate. For us, the IMF is the lender of last resort when you have a balance of payments problem. Nigeria doesn’t have a Balance of Payments problem per say. Nigeria has a fiscal problem which is that its major revenue source has lost so much of its value. First of all it lost price and then it lost quantity, so the challenges are different. Now, what the IMF does for you is they give you a program of reforms. We are already doing as much reform as any IMF program would impose on Nigeria. So my question is, what would that bring that we are not already doing? What measures would be introduced that we are not already doing? Nigerians want to take responsibility for their future and we must have a home grown, home designed programme of reforms that Nigerians take ownership of because they are painful reforms. When you go through this type of adjustment of your economy the reforms are very painful and I think they have got to be home grown. We have got to take responsibility for this ourselves so that when it succeeds, Nigerians are able to say, “Yes! We did this!” I’m not saying that the IMF are bad, but I’m just saying that right now we don’t see that need. We feel that this is a problem that Nigerians created one way or another, and Nigerians must solve.

Would you say that all the foreign debt raising programmes we have in the pipeline, will provide enough foreign capital for the projects you want to do?
There are two issues. One is that we have a deep domestic capital market and that has always got to be tapped first, and then you supplement it with money from the external market. I think the acceptance of our Eurobond shows that there is appetite for Nigeria, so I don’t have any concerns with our ability to raise money in the external capital markets. I like the flexibility that it gives us. It means that if our fiscal position improves, we can pay down, we can put a sinking fund together toward paying of debt, redeeming debt. But I think the funds are adequate to do what we need.

Let’s get to the Economic recovery and growth plan. I know the Acting President was at Davos in January and he said it would be unveiled fully in February. We have heard a little bit in terms of detail but perhaps not everything that everyone is hoping to get. When can we expect the final details of that plan?
I think you’ll have to ask the Minister for Budget and National Planning and his team who are really co-ordinating that effort but I have seen it. It has being fine tuned and I am sure we’ll all get to see it imminently.

Coming back to the issue of fund raising there has been this debate across the country around asset realisation. Indeed, the last time we spoke you suggested that it was a good idea. Is that still on the table?
Of course you have to look at all options. When you have a budget funding gap, you have to look at all the options. If you have idle assets, and we do have some, that can be realised or that can be put to better use of course you have to look at that option, and we are continuing to consider all options, including asset realisation. But the talk about specific assets? No. But the asset sales as a principle? Absolutely yes!

I think many would expect that if it’s a policy that this government is embracing it needs to be planned strategically, so I’m thinking when we do see the finer details of this economic recovery and growth plan, will we see details of an asset realisation program?
Well I’m not sure the extent to which it will go. I can’t speak to that but what I’m saying is that it’s an option. Realising under used assets that have value is always an option.

Let’s talk about where the government is in terms of revenue. We’ve seen the oil price pick up to well over $50 and it’s been stable at that level recently. What we’re hearing is that oil production has improved. Would we say that Nigeria is in a much better place today?
I get concerned when people talk about oil, because it is exactly that that put us in this position. This over reliance on oil. Oil is only ten percent of our GDP. The question I’d like you to ask me is how is non oil revenue looking. And I’ll tell you that non oil revenue is the most important revenue because it is the most stable revenue. That’s improving very steadily, and the measures that we put in place are beginning to yield fruit. In terms of oil production, yes you are right, oil production is back up and we are very grateful for that and oil price is favourable and looks stable, but I think we should be very careful about getting excited about oil.