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How varsities can explore capital market option for sustainable funding’

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Against the backdrop of dwindling revenue and other compelling needs constraining sustainable financing of public universities, experts have stressed the need for government to explore the capital market window as a new funding strategy for the institutions.

This, according to them, could be achieved through the issuance of bonds on a securities exchange, which enables them to raise large amount of capital over a very long period.The experts, who spoke in a chat with The Guardian, argued that owing to increasing demand for university education in Nigeria, the financing needs have become staggering, leaving in its wake a huge gap that must be narrowed one way or the other.

According to them, poor funding has continued to challenge federal and state universities in Nigeria, even as allocations to education have been nowhere near the UNESCO recommended minimum of 26 per cent.They pointed out that public universities that have the potential to drive development in Nigeria are not forthcoming due to lack of access to funding.

Furthermore, they added that many of the first generation universities have been running civil engineering programmes for decades; yet, foreign companies undertake major construction contracts in the country.They described the situation as worrisome, noting that it has resulted to capital flight, depletion of foreign reserves and constrained job opportunities for Nigerians.

For instance, a Professor of Capital Market and Head, Banking and Finance Department at the Nasarawa State University, Keffi, Uche Uwaleke, categorically said the solution to the challenge of sustainable funding for universities have to go beyond the traditional mechanisms.

According to him, tapping the capital market through the issuance of government-backed bonds could be one such solution to the perennial industrial action embarked upon by the Academic Staff Union of Universities in Nigeria.He maintained that bond issues by universities in the United States are common, particularly among the Ivy League, noting that the strategy can be replicated in Nigeria.

“In the 2018 Federal Government budget, education got a total of N541.47 billion (recurrent N439.26 billion, capital N102.21 billion) representing just about six per cent of total budget size of N9.12 trillion. “Some of the biggest US universities, including Harvard, Yale, MIT, Stanford and Princeton, feature in the list of top borrowers.

“With support from Rating Agencies, they are also becoming popular among universities in Mexico, Canada, and Britain. Moody’s, one of the leading global credit-rating agencies, has issued ratings for universities in the U.S., Canada, and the United Kingdom.”  He continued: “Because bond markets tend to favour large and reputable universities and penalise smaller ones through high interest costs, the federal government can encourage the big first generation universities to tap into the capital market through the issuance of government-backed bonds.

“This would entail greater autonomy and responsibility on the part of those universities to ensure that the loans are properly serviced. They will be expected to harness commercial opportunities in their activities and programmes to generate income.

Corroborating, a professor in the Dept of Business Law, College of Law, Igbinedion University, Okada, Nat Ofo, argued that there was an urgent need to review the funding structure of public universities in Nigeria. He added that accessing the capital market for funding is a right step in the right direction, if the debt servicing will not affect cost of accessing quality education in Nigeria.

The Director-General, Lagos Chambers of Commerce and Industry (LCCI), Muda Yusuf, said: “The funding model of our university system is something we need to look at. We need to look at the entire framework and review it properly.”


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