Information technology specialist Jamiu Agah, of Lagos, would have had to wait an additional ten years to invest in a Nigerian Eurobond and begin realizing the maximum return on his dollar savings.
The thirty-three-year-old IT specialist works remotely for a tech start-up in the United States and makes around $50,000 a year, of which he saves thirty percent, or $15,000.
He has saved $45,000 in those three years, but he still has ten years to go to reach the $200,000 minimum subscription amount needed to invest in a Eurobond—an asset he lusts after due to its steady dollar returns.
Here comes the local dollar bond of Nigeria.
The domestic dollar bond will reduce his waiting time to zero. This is so that Jamiu can invest $10,000 in the bond and receive consistent dollar payouts.
The Federal Government’s domestic dollar bond, a $2 billion program to be raised in four batches of $500 million each, has one week of primary trading under its belt and five more days left. It provides a coupon of 9.75 percent and pays interest in dollars.
In addition to providing superior returns to investors in Nigerian Eurobonds, the bond lowers the entry barrier for thousands of Nigerians, including Jamiu.
The Federal Government’s $1.25 billion 2029 Eurobond, which matures in five years, has a yield of 9.58 percent, although the coupon on the five-year domestic dollar bond is higher at 9.75 percent.
As group president of United Bank for Africa’s Assets and Liability Management Chuka Nwachukwu says, Nigerians overseas have gravitated to the local dollar bond like bees to honey (UBA).
Nwachukwu stated, “Participation in the domestic dollar bond has been quite good and highly encouraging.”
“Nigerians living abroad have embraced it. They see it as a chance to make investments in Nigeria,” Nwachukwu continued.
Nigerians living in Nigeria, Nigerians abroad, and institutional investors are all eligible to purchase the domestic dollar bond.
An immigrant from Nigeria to Canada declared, “I am investing for the returns.” “It’s better than what I get now.”
Enhanced individual investors
With the domestic dollar bond, the government is also aiming its targeted ordinary investors at a minimum subscription quantity of $10,000.
Almost N1.12 trillion was invested by retail investors in 2023, more than doubling their appetite from the year before. Based on information from the NGX, their transactions made up almost one-third of the N3.1 trillion in total domestic trading.
Data from the Central Bank of Nigeria (CBN) shows that as of the end of 2023, Nigerians have approximately $30 billion in their domiciliary accounts.
The banking sector has lost the trust of Nigerians who held dollars in domiciliary accounts due to some constraints. Analysts say that when these limitations are lifted and Olayemi Cardoso, the new governor of the CBN, takes the helm, confidence will progressively grow again.
Ghana’s local dollar bond’s rise and decline
Ghana offered domestic bonds denominated in dollars to citizens of the West African nation in 2016.
Nigeria’s bond was for five years, whilst the $94.64 million bond was for two. At the time, Ghana’s domestic dollar bond had a 6% coupon rate.
The bond was oversubscribed by $5 million and will draw 26 bids totaling $99.64 million.
However, since Ghana fell into a debt crisis that led to debt restructuring, the allure of its domestic dollar bonds has soured.
What makes dollar assets desirable?
With returns promised in dollars, fixed-income dollar assets are highly sought after in Nigeria as a hedge against the volatile naira, which has fallen by almost 100% since the new government’s market reforms in the middle of last year.
For Nigerians living in Nigeria and the diaspora, Ibrahim Tajudeen, head of research and strategy at ChapelHill Denham, clarified that it is a great investment.
“The diaspora can invest in it with great success because the returns are higher than in their home countries, where bond yields and interest rates are typically between three and four percent.”
