Kwara Bonds: Setting The Records Straight, By Muyideen Femi Akorede

imageRecently, the Kwara State Government announced plans to raise N20b for infrastructure development through a bond issue. Expectedly, the decision has aroused much interest with comments ranging from genuine concern about its possible impact on the state’s economy to ill-informed commentary.
However, in the interest of well-meaning Kwarans, other interested Nigerians and the investing public, we will like to the set the records straight on the proposed facility.
1) In November 2015, the state government approached the Kwara State House of Assembly (KWHA) for approval to take a N20b bond from the capital market to fund major infrastructure projects which were stalled by the almost 50 per cent drop in monthly allocations to the state. As part of its effort to ensure inclusiveness and give the public a say on the bond, the KWHA directed its members to hold constituency meetings on preferred projects to be funded under the bond window. The subsequent meetings in constituencies across the state witnessed robust input by Kwarans on the desirability of the bond.
However, determined to give other members of the public a say on the issue, the House scheduled a public hearing at the House of Assembly. But, based on popular demand and the need to ensure a wider representation at that hearing, the state government and KWHA agreed to expand the consultation to ensure participation of other stakeholder groups. It must however be noted that there is no constitutional stipulation or financial regulation requiring a public hearing on a proposed bond issue.
2) The subsequent interactive session led by the Kwara State Governor, His Excellency, Alhaji Abdulfatah Ahmed, was attended by representatives of major stakeholder groups including labour, organised private sector, student groups, Conference of Nigerian Political Parties (CNPP) market women, artisans, taxi drivers, and journalists. Over two days, Governor Ahmed, took the 5000-strong audience through his comprehensive plans for infrastructural development in the state.
The State Governor said his administration has commissioned a study on Kwara State’s Strategic Infrastructure requirements which identified a N255b gap. While he was determined to plug this gap, Governor Ahmed said the state government cannot afford to raise such funds within the life time of his administration. He said the state government decided to implement the strategic projects aimed at bridging the gap in phases, starting with the N20b bond. Governor Ahmed made it clear that the proposed N20b was one of several platforms for funding the N56 billion capital expenditure in the proposed estimates of the 2016 budget.
Other sources of funding are Internally Generated Revenue (IGR) and monthly Federal Accounts Allocation Committee (FAAC) inflows into the state. Alhaji Ahmed emphasised that the bond will be used strictly for advertised projects as it leaves no room for any unauthorised variation. At the end of the interaction, the 5000 stakeholders endorsed the Ahmed administration’s infrastructure plan and the proposed bond.
3) Additionally, the proposed bond has led to questions about the utilisation of previous borrowing and the FAAC allocations that have flowed into the state since 2003 when ex-Governor of the state and current Senate President, His Excellency, Dr. Bukola Saraki took office. As most informed Nigerians know, 70 per cent of monthly federally allocated funds accruing to all states in the country go towards the payment of civil servants’ salaries. In the case of Kwara State, which is only gradually shedding the toga of a ‘civil service state’, that situation leaves little room for funding infrastructure development projects. Not only does this demonstrate where the bulk of monetary inflows into Kwara since the 2003 have gone, it also underlines the very limited options open to states seeking to fund strategic infrastructure projects that will positively impact their people and boost the levels of economic activity in their respective domains.
4) In view of this, it is impossible for even “affluent states” to fund infrastructure from recurrently inflowing funds such as FAAC. Indeed, some of these states’ monthly allocation is five times that of Kwara State. As a consequence, one option is the money market. However, bank loans are expensive facilities compounded by short tenor that leave states little room to manoeuvre. As a result, it is the norm for government’s around the world and indeed several states in the country to fund infrastructure from medium and long term borrowing such as bonds which are cheaper, have longer tenor and relatively low repayment instalments.
5) In such cases, FAAC allocations and IGR are used as the basis for raising bulk funds for infrastructure. This was the case with N17b bond obtained by the previous administration of Dr Abubakar Bukola Saraki in 2009. The N17b financed the Kwara State University (KWASU), the International Aviation College, Ilorin, the Harmony Advanced Diagnostic Centre, the remodelling of the Ilorin Township Stadium, Upgrading of Asa Dam Waterworks and phase one of Ilorin Water reticulation Projects, Urban and Rural Electrification, Rural and Feeder Road Projects, Ilorin Metropolitan Street Lights Projects, and the Kwara Mall Project.
These projects have eased access to higher education, boosted healthcare for Kwarans, established the state as an aviation hub, created thousands of local jobs and significantly developed Kwara State. They have also transformed Kwara State into the North Central’s emerging economic hub. However, the Saraki administration was unable to complete some other ongoing projects prior to its exit in 2011.
6) As a consequence, and in view of public confidence in his capacity to continue Dr. Saraki’s good work, Alhaji Abdulfatah Ahmed ran for and won office in 2011 on a platform on continuity. In line with this pledge, Governor Ahmed spent the last administration completing some of the projects inherited from the previous administration. The administration also implemented new projects such as the innovative City and Guilds of London-backed International Vocational Centre, Ajase Ipo, KWASU’s ultra-modern Engineering Complex and remodelling, renovation and equipping of five general hospitals into state-of-the-art facilities, rural and urban road projects as well as people-oriented programmes such as youth empowerment and SME development. The Ahmed administration also paid off the N17b in August 2014.
7) If Governor Ahmed had chosen to, he could have followed the norm in Nigerian governance: abandon inherited projects. He could have started ‘HIS PROJECTS’ with the money spent for inherited projects in a vain effort for ‘performer’ status or be praise-sung. Had he done so, the people of Kwara State will have been the worse for it. They will neither have benefitted from the stalled projects nor recovered the money already sunk into the project. Having completed some inherited projects as well as those who he initiated in the previous administration, therefore, the administration decided to plug the N255b Strategic Infrastructure gap in phases, starting with N65b worth of projects over 4 years. The expectation is that incoming administrations will take the projects to completion and completely plug the identified gap.
8) On the basis of the above, the state government initiated moves to secure the N20b bond. This is less than fifty percent of the N56b capital expenditure proposed for implementation in 2016. The projects include new campuses for KWASU at Osi and Ilesha Baruba, Dualisation of Michael Imoudu to Gamo, Ilorin, the dualisation of Zango-UITH Road, Ilorin, part completion of the N8b Kishi-Kaima Road, part-funding for completion of Ilesha-Baruba-Gwanara Road, and construction, equipping and fitting of New KWASU School of Business and Governance. Others are renovation and equipping of the Ilorin Stadium Indoor Sports Hall, Equipping and Training for the International Vocational Centre, Ajase Ipo, renovation of Oro General Hospital and four other cottage hospitals, renovation of 481 old classrooms and 318 new ones at secondary level, contribution to the construction and equipping of the Kwara Textile Industrial Park, Compliance with Contributory pension scheme and sinking of 938 boreholes. Clearly, the above listed projects have potential multiplier effect on the development of Kwara State and the welfare of its people through job creation, boosting the local economy and expanding livelihoods. However, they are distinct from other infrastructure windows through which infrastructure projects not covered by the bond will be implemented.
9) Yet, the proposed N20b bond, although a fraction of planned spending on infrastructure, has raised questions about the capacity of the state government to repay the borrowing and the possibility of leaving huge debts for incoming administrations. The truth is banks do not offer social services as a core business.
Neither is the Security and Exchange Commission (SEC), the regulatory body for the capital market, a charity. No financial institution will lend to a customer incapable of completing the asset conversion circle. In order words, mid to long term borrowing is not only necessary for funding infrastructure, it is a signal of financial institutions’ confidence in borrowers’ capacity to repay without hampering important obligations like payment of salaries.
10) Just as repayment of the N17b bond of 2009 did not hinder the Ahmed administration’s capacity to meet its recurrent and capital obligations, the current administration has also carefully tailored borrowing to current and anticipated revenue inflows such as enhanced IGR. The repurposed Kwara State Internal Revenue Service (KWIRS) has a monthly target of N2.5b. This will grow IGR by an additional N1.8b monthly. By the government’s calculations, it can borrow N20b for infrastructure for every N500m growth in monthly IGR.
Clearly, the Kwara State government has ensured that its lofty plans for development through Strategic infrastructure and injecting more funds into the economy will leave it thriving and solvent rather than the hamper its capacity to meet current and future obligations. Besides, governance is a continuum. The State Government has an obligation to create conditions for the prosperity of current and future generation of Kwarans. That is what the Ahmed administration signed up for. That is what it has done since inception.


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