By John Staatz, Professor Emeritus, Dept. of Agricultural, Food and Resource Economics, Michigan State University Soaring and volatile international food prices since 2007-08 have forced West African governments and their development partners to translate their long-standing rhetoric about support for West African agriculture into concrete programmes. Doing so effectively, however, has proven much more challenging […]
Financing development in a sustainable pathway requires a mix of innovative means of financing, which green bond is essential part, and it can help in closing financing gap to meet current development agenda globally or at national or at sub-national level. In responding to its dearth of funds for climate change adaptation and mitigation projects, the Federal Government of Nigeria (FGN) on 18th Dec. 2017 issued green bond of ₦10.69 billion for a five years tenor with fixed rate of 13.48%.
This issuance is in lieu to the country’s Paris Agreement commitment, and this is the smartest action this government has taken so far. In the same vein, I think people who are responsible for the successful green bond issuance are to be commended by Nigerians. At the same time, appreciating the FGN for issuing African maiden sovereign green bond by Nigerians is not enough but they need to make sure efficient implementation of projects designed for the proceeds from the green bond.
It is well documented how huge the cost to meet 1.5 Celsius climate goal for both adaptation and mitigation. Nigeria’s commitment to the Paris Accord is to reduce emission by 40% by 2025, which had been estimated by the Federal Ministry of Environment’s Department of Climate Change to cost US$142 billion translating to about US$10 billion per annum. This annual estimated cost is 41.22% of 2017 Federal Government budget, in other words, if Nigeria had to meet its 2017 climate financing demand, it will cost the country ₦3.05 trillion of ₦7.4 trillion of it federal appropriation for the same year.
It is obvious from the country’s budget constraint that Nigeria cannot afford to finance its climate adaptation and mitigation projects by spending 41.22% of its annual budget, which is about double of the capital expenditure, moreover other equally or more prioritize sectors are competing for the same budget.
The more reason for Nigeria to finance its smart projects out of conventional means like issuing of the green bond is this wide gap in financing our climate resiliency, the gap is almost 100% in Nigeria, because the just issued green bond closes the gap by just 0.04% without including the effect of issuer cost.
Costing the Federal Government of Nigeria Green Bond
One of the challenges for issuers of green bond is that they incur an additional cost associated with issuing this type of bond, for example, when the additional costs associated with obtaining independent verification, ongoing reporting, and the auditing of the use of proceeds are considered, some issuers may choose to refrain from placing a green label on their bonds.
In the same vein, the FGN incurred additional cost by issuing the green bond. The volume of this cost depend, among other things, on the bond’s value, its complexity, number of market it is issue, risk profile of the FGN, and cost of impact reporting.
In order to attract investors and to make Nigerian green bond profitable for its investors, the FGN discounts the green bond by 14.50%. That is, the actual (market) price of the bond is ₦855.00 against the ₦1,000.00 face value, which translates to a discount of ₦145.00 per Note Unit. At the bond’s maturity date, the government will have to pay extra ₦1.6 billion to meet up its obligation to investors.
Given the fact this is a maiden sovereign bond, the FGN has to discount its green bond beyond other conventional bonds in order to woo various investors and this form part of additional costs for issuing green bond.
Another additional cost is strict framework for sovereign labeled green bond issuance, in Nigeria case, the Climate Bonds Standard Board certified the Federal Government of Nigeria Green Bond. In addition, Moody’s Investors Service conducted a due diligence on FGN Green Bond and assigned it GB1 (Excellence) green bond assessment to the government of Nigeria’s Green Notes, noting that the country fulfills the Green Bond Principles and Climate Bond Standards.
The United Nations Development Programme beliefs that sum of fees pay to rating companies and financial service providers can reach five per cent of the face value. In corollary, the cost of engaging private financial institutions for FGN Green Bond is ₦534.5 million.
Putting the additional costs of issuing the green bond together and the cost of coupon payment, it is evident that the cost of the green bond is at least 40% of the face value for this series of the FGN Green Bond alone. As much as any sustainable development practitioner will like to see her country or world investing in green economy. However, investment of this nature needs not only to be environmentally sustainable but also to be economically and socially viable.
The implications of this heavy cost of issuing the green bond are failure to fully implement the three identified projects – Renewable Energy Mini Utility Programme, Energising Education Programme, and Afforestation Programme – heavy financial burden on already stressed Federal Government and dissecting future green bond by the government.
Therefore, issuing green bond in Nigeria is a commendable effort for resilient development and should be applauded, but the purpose of issuing the green bond will be forfeited if the cost of issuing it and reporting its impacts are almost half of the green bond face value.
As regard to the FGN Green Bond, it will not be able to implement targeted project 100% because of its heavy cost. As a result, the government has to find a way around the heavy cost of green bond issuance, which should include indigenous solution to climate change issues. The next series on this page will discuss some of the steps governments need to take in building resilient economies.
The joy of celebrating Christmas is there. All around the globe in almost every culture, the birth of the Savior, Jesus-Christ will be celebrated in different ways. Just as Jesus came with the purpose of reconciling a fallen humanity with God, and He worked hard to make it happen, we should follow His example to […]
Every Nigerian knows how deep corruption has spread its roots across all sectors of the country. Parents pay money for special centres so their children can pass WAEC, NECO and JAMB examinations. Lecturers in higher institutions demand for money or sex from their students in exchange for good grades in their examinations.
In like manner, Police officers and other law enforcement personnel extort Nigerians on many fronts; for instance, policemen demand for as low as ₦50 on highways from road users for them to ignore serious things like proper search of any suspicious vehicle.
In judiciary, judges declare judgement in favour of the highest bidder even in the face of glaring evidence against such judgement. Media organisations in Nigeria are not only corrupt but also serve as medium for promoting corrupt practices, that’s why media houses deliberately falsified information and intentionally formed public opinions to suit their political sponsors.
Corruption in public service in the country is both historical and historic; public servants and civil servants award their ministries, departments and agencies (MDAs) contracts to their private owned companies making the bidding process stipulated in the Public Procurement Act 2007 no effect.
Politicians are the most perpetrator of corrupt practices, they lack principles and integrity that make them to use public resources entrusted to them for private gains. Nigerian politicians have been able to keep the abuse of public resource this long because the major political parties lack principle, no integrity and lack value. This is a country where what a politician or political party did yesterday has low impact on his or its success so far that politician or political party can pay money to gain people supports again.
Private sector is not left behind, too. Private business collaborates with government officers and MDAs either to convert public treasures to private one or to stay away from financial responsibility like paying taxes.
In addition, faith-based institutions have grossly lost their moral grounds. They are using spiritual gifts to accrue material things and they are preaching mainly on such things that lack virtue.
The above examples of corrupt practices in Nigeria are just few out of many corrupt incidents being perpetrated daily in the country.
Apparently, Nigeria is encapsulated by corruption; what do you expect of a society that has lost its values and morals where virtues like integrity, humility, fidelity, temperance, spirituality, diligence, service, courage, justice, patience, industry, modesty and the golden rule are virtually lost to vices like greed, manipulation, over-ambition, impatience, laziness, materialism, forgery, blackmail, embezzlement, nepotism and favourism. What you get is corrupt society and that is the situation in Nigeria.
Yet, there is still hope for a corrupt free Nigeria if the federal government is ready to take the lead in a transparent anti-graft war, which discourages bullying of selected corrupt individuals and businesses. The fight against corruption will be successful if members of the public do not perceive it as bias or one-sided; the credible of this fight is when the institutions saddled with responsibility to fight corruption in the country perform their responsibility with fairness and objectivity.
Fighting corruption is far beyond setting up Presidential Committee on Anti-corruption and heading it with a professor of law, coming up with whistle-blowing policy, and witch-hunting of past public office holders and members of opposition parties.
However, it requires a systematic approach that embraces basic principles of good governance, which can be summed as bolstering commitment, enhancing coordination and encouraging cooperation from both state and non-state actors with integrity as underlying mechanism. This is a better way to fight corruption in Nigeria.
To be continued…
According to a report, European Climate Foundation chief and former French climate ambassador Laurence Tubiana calls for higher ambition from the global community in order to meet the goals and targets of the Paris Agreement.
Nearly two years have passed since France’s then-foreign minister, Laurent Fabius, struck his gavel and declared: “The Paris agreement for the climate is accepted.” This week, President Emmanuel Macron and the French government will host world leaders and non-state actors for the One Planet Summit.
The purpose of this gathering is to celebrate climate gains made since 2015, and to boost political and economic support for meeting the goals and targets of the Paris agreement.…
President Muhammadu Buhari and his aids had left for Paris for the summit, which will take place tomorrow 12th December 2017. Seemingly, Nigerian leaders are more committed to conferences, summit and other international events than committing themselves to implementing the outcomes of those events.
Honestly speaking, there is no need for Mr president to waste scarce resources on travelling for a summit that he has no effective structure to implement the outcomes. Attending such summit therefore, is a big waste of national treasure.
However, the science of climate change is beyond any reasonable doubt, that is why nations of the world are committed to fighting its effects on planet. From all indications, Nigeria is only paying lips service to climate change issues in the country. African countries like Ethiopia and Kenya are leading the way in term of climate change mitigation and adaption, which make them to be taken more seriously by international development partners than Nigeria that access far-less climate finance than either of them.
Climate change in Nigeria is evident in all parts of the country. The weather
pattern is no longer distinct in the country, we have witnessed very hot weather conditions and high precipitations leading to flooding which ruined crops in parts of the country and created food scarcity; gully erosion has sacked many communities; as a result of persistent drought, the Lake Chad has almost dried up, while there had been persistent desert encroachment in the north.
One major reason why Nigerian government needs to be committed to addressing climate change rather than just attending climate summits is the low score of the country’s climate risk index. Nigeria scores 111.83 that makes the country to rank 122 out of 182 countries.
In addition, from all indication, Nigeria is obviously not ready for climate change adaptation and mitigation. The country ranks 170 of 191 countries in climate change readiness index. If the ranking for readiness is gotten by attending climate conferences and summits, Nigeria will rank first. Therefore, our commitment to climate summits and conferences is not what will adapt to or mitigate against climate change challenges we are facing.
Getting Ready for Climate Change in Nigeria
Every country or territory that is signatory to the Paris Agreement on climate in 2015 has commenced its readiness by submitting its nationally determined contribution, which Nigeria did.
Nigeria made unconditional commitment to the Agreement of 20 per cent below business as usual (BAU) that is conditional on international support. Meanwhile, Nigeria cannot get international support on climate finance or climate related technical assistance without committing itself to creating enablers through which international supports can easily thrive.
One of the major enablers the government can put in place is making the relevant institutions effective. I had a funny experience few months ago with Federal Ministry of Environment’s Forestry Department when I went there to make some inquiries on REED+ program, I was surprised that majority of the staff on sit did not have idea of what the program is all about. Therefore, relevant institutions need to be filled with people who are passionate and skilled about climate change, that is one way to build strong climate institution.
In addition to efficient human capital for climate related institutions in Nigeria, innovative data collection should be embarked on by the government. It is good to see how National Bureau of Statistics is aligning with other Ministries, Departments and Agencies on data collection for measuring Sustainable Development Goals (SDGs).
However, more innovative measures like satellite Imagery, mobile network call records, crowd-sourcing, smart meter technologies and data mining need to be taken and included in national databases for easy access for concerned citizens and development experts. In sum, there are other things like being transparent and accountable and enhancing citizen participation in climate policy implementation that government can do.
It is rational to say that Nigeria leaders should not take attendances at international conferences and summits as end. As far as the One Planet Summit is concerned, both Chinese and Indian leaders are not attending and just 50 leaders of 197 countries and territories that sign up Paris Climate Accord in 2015 are attending . Many of these absentees from the summit are doing better than Nigeria in climate financing and climate change readiness. Therefore, let’s change our focus from meetings to effective implementation of our climate agreement and policy.