Financial Freedom Nigeria

Financial Freedom

Why sell National Assets where there is Sovereign Sukuk?

Sukuk Market

By: Basheer Oshodi

The Nigerian government needed to reduce the dominance of foreign influence on the economy and made some attempts in 1972. They later promulgated the Nigerian enterprise promotion decree No. 4 of 1977 termed as the indigenization decree which allowed the government and local companies to buy these assets. In the 80s down to the 90s, the Washington Consensus set forth a ten point agenda and sought to achieve a market-based economic development and restrict government from doing business. Elements of the consensus included fiscal discipline; redirection of public expenditure priorities towards health, education, and infrastructure; tax reforms; unified and competitive exchange rates; secured property rights; deregulation; trade liberalization; privatization; elimination of barriers to direct foreign investment; and financial liberalization. Perhaps, with sincerity, the West wanted to help developing economies and ensure private sector overcome coordination failures. They had thought that this economic prescription would improve the GDP aside other development indicators thereby reducing poverty, unemployment and income inequality. This led to the Structural Adjustment Programme (SAP) in the 80s which aligned with the ten point agenda of the Washington Consensus. Hurriedly and happily, the Nigerian state started to deregulate, privatize and liberalize. The financial sector quickly enjoyed this new policy and the government gave away the shares they had acquired at the start of the indigenization decree. Way back in the 80s, we therefore found mild state-capture and trivial neo-patrimonial rent seeking behaviour when compared to the 21st century in this Nigerian state.

In the 60s and 70s, South Korea and Taiwan, though allies of the West, were more systemic with their approach of privatization. They created embedded autonomy – a team of the best minds with mandate to implement policies for the growth and sustainability of their economies, while ensuring employment, poverty reduction and prevention of income inequality. They implemented a part of the Washington Consensus. Yes, they implemented new fiscal policies and were disciplined. They redirected public expenditure towards health, education and infrastructure. They also created improved tax regime. With regards deregulation, trade liberalization, privatization, trade barrier elimination and financial liberalization they adopted the state-led development approach and prevented state and market capture by the elite. The elite, are those Karl Marx would refer to as the ‘bourgeois’. Again, the words of Marx in 1883:

“…all history has been a history of class struggles, of struggles between exploited and exploiting, between dominated and dominating classes at various stages of social evolution; that this struggle, however, has now reached a stage where the exploited and oppressed class (the proletariat) can no longer emancipate itself from the class which exploits and oppresses it (the bourgeoisie), without at the same time forever freeing the whole of society from exploitation, oppression, class struggles.”

Related: Exploring the Sukuk Market Further

How relevant are these words of wisdom in 2016, in Nigeria? The state and entrepreneurial class consciously or unconsciously only pursue selfish interest. While South Korea and Taiwan early in the day trailed national interest, our leaders seek for sale of national assets. These countries rapidly moved from agriculture and manufacturing to knowledge-based economy, yet, perfecting agriculture, fishing, mining, light and heavy manufacturing. Rather than ‘so called’ natural endowments, or indeed, comparative advantage, they have institutionalized the service sector and converted it to competitive advantage.

So, why sell national assets to anyone when the Nigerian state can create a sovereign Sukuk. Sukuk are asset-backed bonds or investment certificates where such asset are usually income generating.

The government can simply create a special purpose vehicle (SPV); place relevant asset in this basket; and lease it to the investors for a defined period, say seven years. Investors may source funds locally or from outside the country and would enjoy periodic income or rent from these assets. The asset then revert to the Federal Government at the end of the investment term of seven years. With this, national assets are protected from the forcefulness of the bourgeois.

How would the political and entrepreneurial bourgeois have raised capital if they were to buy state assets? They would have gone to the banks or form alliance with foreign entities to raise capital. Thereafter, the state would still provide intervention funds for them to keep the assets running just like the case with the power sector. With a Sukuk, the Nigerian state can use its goodwill to attract investors, guarantee the investment, and get other multilateral institutions to guarantee the asset-backed bond. Practically, the Debt Management Office (DMO) should structure this ‘investment certificate’ with relevant local and foreign experts and ensure that investors have recourse to the underlying assets as additional comfort to certificate holders. This way, tomorrow’s generation would be proud of the socio-economic decisions their parents took.

Basheer Oshodi (Ph.D.) with research focus in development economics  

Member, Nigerian Non-Interest Finance Working Group

Associate Fellow, Institute of Islamic Banking and Insurance, London

Senior Fellow, Trans4m Centre for Integral Development, Geneva 

Member, International Atlantic Economic Society (IAES)

Member, American Economic Association (AEA).


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