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Nigeria is recruiting financial advisers for a $100 mn diaspora bond

Dilip Ratha's picture

The Financial Times on August 28th carried Nigeria’s request for proposal for potential financial advisers for a $100 million diaspora bond. To my knowledge, after Israel, this is the first diaspora bond being implemented the right way: it would be registered with the US SEC. In a smart move, Nigeria also wants to recruit an international bank and a Nigerian bank as financial advisers, which would enhance the credibility of the bond to Nigerians living abroad. And by setting a low target of $100 million – for comparison, Nigeria received over $20 billion in remittances in 2012 – it is almost certain that the bond would be oversubscribed. A separate report from the Reuters mentions that the bond would have a maturity of 5 years and offer a coupon of around 350 basis points above comparable US Treasury. At that high rate, the bond would be hugely attractive for Nigerian individuals who are getting close to nothing on their overseas bank deposits.

In related news, a feasibility study has been commissioned by the KP-FATA province of Pakistan for a provincial diaspora bond to finance development activities. Also there is news that Uganda is considering a diaspora bond.

With many countries – big and small but with large migrant populations abroad – facing balance of payments weaknesses and weakening currencies (for example, India, Pakistan, Comoros), I expect many more countries resorting to diaspora bonds and efforts to mobilize nonresident bank deposits in the coming months.

Comments

Submitted by Christian Ebeke on

Thank you Dilip for sharing this. This is indeed a big deal which could set precedent for other African countries contemplating the issuance of diaspora bonds to finance development. The one million dollars question is: How credible governments back home are to the migrants living abroad? The take-up rate is in my view mostly determined by the probability of being repaid and the likelihood that the "elite capture" won't be at play. In other terms, "trust" on these governments is everything.
It's a good try and I really hope that subscriptions will be high. Governments should understand how critical strengthening governance and institutional quality is to lift trust on their actions and therefore ease migrants' contribution to local development.
The future in terms of complexity of these diaspora bonds (DBs) is to expand their issuance to local governments, as migrants are more likely to respond to initiatives undertaken at their home community levels. Food for thought ...

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