I am delighted and honored to join you today to provide the Keynote Address at this year’s BusinessDay Investment and Capital Markets Conference, themed: Market Recovery, Innovation and Regulation in Nigeria.
Earlier this month, during the Nigerian Economic Summit, I posed the question: What do we want our future Nigeria to look like; and how will we design the necessary policies, sustainably finance it, and ensure the thriving and booming private-sector led economy integral to bring about the much needed paradigm shift that will lead us there? I also shared a vision for a future Nigeria where the majority of Nigerians have been sustainably lifted out of poverty, and have access to fundamental services including education, health care, water supply and sanitation. A future where all are financially included, with affordable access to financial products and services. A future where we have left no one behind.
Our capital market is crucial to actualizing this future, and to achieving the sustained, inclusive and equitable socio-economic growth that this Government aims to achieve. It allows for the mobilization of long-term savings for investment as well as efficient pricing of financial instruments. Further it has provided a necessary platform through which the business sector and Government have been able to source for capital to expand their operations and provide public goods and services for the citizens.Therefore, we recognize the importance of maintaining a competitive, resilient and innovative capital market through, in part, the development of appropriate policies, and a strong regulatory and enabling environment, and continued implementation of the ten-year Capital Market Master Plan (2015 to 2025), aimed at positioning the Nigerian capital market for accelerated development of the national economy.Overview of the Macroeconomic Environment:I plan to share Government’s priority areas generally, and specifically the priorities and economic agenda for the Ministry of Finance, Budget and National Planning. Let me first take a few moments to provide context on the macroeconomic environment.
Global Economy: The global economy has experienced a synchronized slowdown with growth weaker than expected in about 90 countries. Specifically, growth is projected to slow down from 3.6 percent in 2018 to 3.0 per cent in 2019, representing the weakest over the last decade. Main triggers of the global slow down includes; the trade tensions leading to the disruption of global value chains, entrenched policy uncertainty, rising debt concerns, looming crisis in Brexit and adverse geopolitical developments. We therefore called for continued momentum from trade truce to trade peace that will enhance macroeconomic stability.
Domestic Economy: Pursuant to implementation of the Economic Recovery and Growth Plan (ERGP), we have seen the economy exit from recession and set on a path of sustainable, inclusive and diversified growth. Specifically, we have seen real GDP recover from the -1.6% contraction in 2016, and we have had nine consecutive quarters of growth since the exit from recession, though levels remain below desirable targets.
Annual GDP growth increased from 0.82% in 2017 to 1.93% in 2018 and 2.10% in 2019. In Q2 2019, GDP grew at 1.94% due to growth moderation in Agriculture, Telecommunications, Manufacturing, Real Estate and Trade.
On Economic Diversification, we continue to deepen our non-oil economic performance with non-oil Gross Domestic Product (GDP) at over 90% of GDP as at Q2 2019. In the area of Security, we made successful efforts to counter the insurgency in the North-East and to resolve militancy conflicts in other parts of Nigeria.
Regarding Trade, we have seen improved trade balances, with a move from a deficit to a surplus. As at Q2 2019, the trade balance was positive at N588,777.96. Additionally, we have been able to raise and maintain more stable oil production levels.
Learning from the Lessons of the Recent Oil Price Boom & Bust:Having recognized that Nigeria’s past failure to plan and execute for sustainable, diversified and inclusive growth and development lead to the inevitable recession precipitated by external shocks (oil price collapse) and other factors, Government remains committed to: Executing the ERGP’s priorities programsDeveloping the Investment Driven Non-Oil Sector NOT dependent on Oil EarningsUsing Oil and Non Revenues to transition away from past dependencies on the Oil Sector Ultimately, it is about building a more resilient foundation moving forward, and a strong, innovative and thriving capital market is integral to such a future.As we continue towards sustainable, diversified and inclusive growth and development, Government remains mindful of:Current and prospective Economic HeadwindsSlower GDP growth & recovery (due to challenges in the Agriculture (e.g. security, floods, etc.) & Oil Sector (e.g. technical issues, underinvestment in production, etc.)The lingering impact of politics & the 2019 elections on investor sentiment, economic recovery & growth Revenue challenges as economy recovers: e.g. tax revenues to rise in tandem with economic recovery, although with a 1 year time lag for corporate & trade related taxes Issues of sustainability relating to the debt service to revenue ratio
Government’s Eleven (11) Priority Areas:13. Government is currently focused on the implementation of policies and programmes in line with the following Eleven (11) Government Priority Areas:(A) Economic & Governance Reforms1) Macroeconomic Stability through Coordinated Economic, Monetary, Fiscal & Trade Policies 2) Fight Corruption & Improve Governance(B) Enhanced Investments in Physical Infrastructure, Human Capital Development to spur Job Creation & Economic Growth3) Improve Health, Education & Productivity of Nigerians4) Ensure Energy Sufficiency (Power)5) Ensure Energy Sufficiency (Petroleum Products)6) Improve Transportation & Other Infrastructure7) Drive industrialization, focusing on macro, small and medium-sized enterprises(C) Optimize Investments in Physical Security & Food Security to drive Inclusive Socio-economic Development8) Improve Security for All Citizens9) Enhance agriculture self-sufficiency to achieve food security10) Enhance social inclusion by scaling-up social investments11) Improve access to mass housing & consumer credit to enhance financial inclusionPriorities and Economic Agenda of the Ministry of Finance, Budget & National Planning14. Integral to achieving our collective goals under the Eleven Priority Areas is the need for a significant push towards mobilizing domestic revenues, increased coordination and allignment of fiscal, macroeconomic, monetary, and trade policies, and the prudent management of emerging fiscal risks. This is especially relevant to today’s discussion, as it is well established that the above factors are important as we look to strengthen, further enable, and to ensure continued innovation in the domestic capital market.15. The Federal Ministry of Finance, Budget and National Planning is focused on the following 5 priority areas:Enhancing Revenue Generation, Collection & Monitoring: particularly through (a) continued implementation of the Strategic Revenue Growth Initiatives (SRGI); (b) the ongoing reconciliation and monitoring of revenues by the Presidential Revenue Monitoring and Reconciliation Committee; (c) the review of current tax laws and development targeted of fiscal policy reforms to coincide with the annual budget cycle; and (d) the deployment of innovative ICT solutions (such as the Ministry’s Project Lighthouse) aimed at leveraging and mining big data to enhance revenue tracking for informed decision-making.
On tax laws, we reconstituted the National Tax Policy Implementation Committee (NTPIC) to review various tax laws & produce a single draft Finance Bill 2019 to support FGN’s 2020 budget.
The Draft Finance Bill, which accompanied the 2020 Executive Budget Proposal submitted by His Excellency President Muhammadu Buhari to the National Assembly on October 8, 2019 included five (5) strategic objectives aimed at achieving incremental but necessary changes to the country’s tax and fiscal laws. Amongst these strategic objectives is the introduction of tax incentives for investments in infrastructure and capital markets, and specifically the introduction of Tax Rules to complement existing SEC Regulations for Securities Lending Transactions on The Nigerian Stock Exchange. This strategic objective recognizes the crucial relationship between fiscal policy, the regulatory environment and the strong capital market we all seek to ensure in Nigeria.
We plan that going forward, the annual budget will always be accompanied by finance bills to enable the realization of revenue projections. Future Finance Bills will therefore also provide us with additional opportunities to incrementally improve the fiscal policy and regulatory/legal environment in order to further strengthen our domestic capital market, and ultimately ensure sustained and inclusive growth and development.Accelerating Fiscal Consolidation by Optimizing Priority Capital & Recurrent Expenditure – In particular social inclusion has been prioritized through the $500bn Social Investment Programme, which has been implemented in the last four annual budgets and will be continued under the 2020 budget. Additionally, we continue prioritizing human capital investments, with spending in the health and education sectors being optimized at both the federal and subnational levels. We are also increasing investments in critical infrastructure, in part through the implementation of crucial initiatives such as the Road Infrastructure Tax Credit Scheme and the Family Homes Fund.
Optimizing Management of both Domestic & Global Fiscal Risks: – we are implementing a debt management strategy aimed at achieving an optimal debt balance, through (a) the increase of oil and non-oil revenues, (b) the continued use of diversified borrowing instruments including Sukuk and Green Bonds, (c) a continued focus on concessional loans and lower cost external debt. Such reforms will ensure that our borrowing remains fiscally sustainable.
Increased Coordination of Fiscal, Macroeconomic, Monetary & Trade Policies
Integrating Annual Budgets & Medium-Term Fiscal Strategies into rolling Medium & Long-term National Plans – with discussions between the Executive and the National Assembly currently ongoing regarding the 2020 Budget Proposal, we are well on our way to ensuring a stable January to December budget cycle.
An important next step will be to transition our 2017-2020 Economic Recovery and Growth Plan to a successive long-term Vision 2040 Plan. To this end, I am currently working with the Honourable Minister of State Budget and National Planning to prepare a Medium-Term Economic Growth Acceleration Plan for 2021-2024 as a successor to the ERGP.
Nigeria’s Use of Innovative Debt InstrumentsNigeria is also innovating in the use of debt instruments, including Sukuk Bonds, and Green Bonds.
Sukuk Bonds: Nigeria issued Sukuk Bonds in 2017 and 2018 to finance critical road infrastructure projects. Specifically: In September 2017, Government issued a Sukuk Bond of N100bn, with proceeds to fund 25 Road Projects by FMPWH across 6 geo-political zones, and in December 2018, a 7-year Sukuk Bond of N100bn was issued, with proceeds to fund 28 Road Projects across 6 geo-political zones. The offer attracted significant interest from a wide range of retail and institutional investors with a total subscription of N132.20 billion, which represents a subscription rate of 132.2 percent.
Green Bonds: In December 2017, Nigeria became the third country in the world and the first emerging market sovereign to issue a Sovereign Green Bond (N10.69 billion for the financing of solar powered lighting for security on university campuses across the country, as well as solar powered electricity for small households). A second Sovereign Green Bond was issued in June 2019, in the amount of N15 billion. The total value of subscriptions received was N32.93 billion, representing 220% of the N15 billion offered. The Green Bonds issued thus far have been used to provide off-grid renewable energy in 7 federal universities in different geopolitical zones of the country, and to generate and distribute off-grid renewable energy resource in underserved and rural communities. This has resulted in emission reductions of up to 41,888.04 metric tons in the last two years, creating green jobs and planting trees in over 2000 hectares of land across Nigeria.
In 2020, we plan to issue a Third Green Bond, with which we intend to triple Nigeria’s GHG emission reductions, stimulate economic growth and drive investment in social programmes such as education and health.
Jollof Bonds: We are currently exploring the use of so-called “jollof bonds” to fund infrastructure. To this end, during the recently concluded 2019 Annual Meetings of the IMF and World Bank, we met with UK Authorities to advance discussions regarding their commitment to support our infrastructure financing through the possible issuance of jollof bonds. Already, a working group is being set up to work on Naira denominated, internationally traded bonds. The Central Bank of Nigeria is leading this effort. We will explore all options on this at the next UK Investment Summit in January 2020.
Conclusion
18. The Federal Government of Nigeria, particularly the Federal Ministry of Finance reiterates its commitment towards building lasting, endurable, and increasingly more innovative capital market. I therefore, look forward to today’s deliberations and to your continued support in achieving inclusive and sustainable economic growth and prosperity.19. Thank you.
*Being a Keynote Address Delivered by Mrs Zainab Ahmed, Hon. Minister of Finance, Budget & National Planning at a Capital Market Conference in Abuja on Thursday.