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‘FG should explore capital market window for university funding’

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Uche Uwaleke


Nigeria’s first professor of capital market and Head of Banking & Finance department at Nasarawa State University, Keffi, PROF UCHE UWALEKE, In this interview in Abuja spoke on the industrial action by the Academic Staff Union of Universities (ASUU) and why government must explore the capital market window to augment the funding of universities among others.

What is your assessment of the ongoing strike by university teachers?
It is public knowledge that the kernel of the current industrial action is funding of public universities in Nigeria. University teachers are not happy with government over the non-implementation of the Memorandum of Agreement (MOA) signed by both parties concerning the revitalisation of public universities. Recall that sometime in 2012, the federal government commissioned a nationwide survey of the needs of public universities which threw up disturbing revelations concerning the state of public universities such as overcrowded classrooms, empty laboratories, obsolete equipments and outdated engineering workshops, Not much has changed since then.

Owing to increasing demand for university education, the financing needs have become staggering leaving in its wake a huge gap that must be narrowed one way or the other. Unfortunately, poor funding has remained a major challenge in federal and state universities. Indeed, for several years, allocations to education have been nowhere near the United Nations Educational, Scientific, and Cultural Organisation (UNESCO) recommended minimum of 26 per cent.

You will agree with me that education is essentially a public good and so the benefits of university education continue to justify substantial government funding despite competing priorities, such as healthcare and infrastructure. Interestingly, there seems to be a broad consensus that funding for university education needs to increase, but no unanimity on the best means of financing expansion.

Against the backdrop of a dwindling revenue and other competing needs, funding of public universities will continue to remain a challenge in Nigeria except new funding strategies are explored. One way that universities can tap from the capital market is through the issuance of bonds, which enable them to raise large amounts of capital over a long period. As a matter of fact, some of the biggest institutions in the United States featured in the list of top borrowers and with support from rating agencies; they are also becoming popular among universities in Mexico, Canada and Britain.

How viable is the capital market window option considering the fact that public universities are not profit-oriented entities and taking such a route will worsen government’s debt burden?
While it is easy to dismiss the capital market option as unviable for public universities in Nigeria, the experience of an Australian university illustrates the possibilities. Following the winding up of the Education Investment Fund (EIF), the public body that funds teaching and research at the University of Melbourne issued US$250 million in bonds in 2014 to build housing facilities for students and generally upgrade infrastructure, a move that saw an exponential increase in the number of its international students from Asia, United Kingdom and the United States. There is no reason why this should not work in the Nigerian context. The challenge would be to find a sustainable means of servicing the debt. 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 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.

Public universities have the potential to drive development in Nigeria if they find the right environment, many of our first generation universities have been running civil engineering programmes for decades yet major construction contracts in the country are undertaken by foreign companies. The result is capital flight, depletion of foreign reserves and constrained job opportunities for Nigerians. To change this narrative, government can help these universities issue a 20-year bond for the purpose of upgrading curriculum and developing modern day skills required to execute big ticket jobs not only in Nigeria but also in sub-Saharan Africa.

It is from such commercial undertakings that any debt taken from the capital market could be repaid over time. This is just one example. It goes without saying that Nigeria needs skilled manpower to meet broad economic development objectives.

Talking about the capital market where you made your mark as the first professor, what can be done to boost local participation especially when one considers the fact that the last time we had capital market crisis, many local players burnt their fingers and have developed cold feet in playing actively in the market? 
I quite agree with you that in order to boost local participation in the Nigerian capital market, there is the need to re-build investors’ confidence. Recall that the near collapse of the market had a lot to do with the global financial crisis of 2008-2009, which negatively affected the nation’s economy.

So, the sentiments of investors, whether they are institutional such as pension funds and insurance companies or retail investors, are influenced by macroeconomic conditions. An economy characterised by strong Gross Domestic Product growth, stable exchange rate, low inflation and unemployment rates tend to have a non- volatile capital market. So the government needs to recognise this by putting in place appropriate policies that promote macroeconomic stability and engender inclusive economic growth.

On the supply side, the regulatory authorities should continually seek to identify the needs of these domestic investors with a view to satisfying them. The introduction of non-interest capital market products are moves in this direction and are quite commendable.

Investor’s education is key to boosting local participation in the capital market. It may interest you to note that the level of awareness concerning the capital market is low in Nigeria. It is partly due to this fact that the performance of the market seems tied to the apron strings of foreign portfolio investors. As part of efforts to boost capital market literacy, the SEC and the NSE have put in place a number of capacity building initiatives for various segments of the society. More than ever before, there is the need to ramp up these efforts including through introducing capital market studies in the curricula of secondary and tertiary educational institutions in the country.

How do you think the 2019 election may affect the capital market and economy in general and how can this negative impact be mitigated?
There seems to be a consensus of opinion that the increasing political tension, more than any other factor, is to blame for the bearish trend. This is despite the favourable crude oil price, healthy external reserves and relatively good corporate results. Judging from our recent history, government spending usually goes up in an election year, which tends to fuel inflation rather than spur growth, suggesting that the extra public expenditure ahead of polls is largely wasteful. This narrative has to change. If the public is clamouring for low interest rate regime that lowers cost of doing business and boosts credit to the private sector, then unproductive spending that aggravates inflationary pressure must be avoided else the Central Bank of Nigeria (CBN) is constrained to tighten monetary policy.

Government must not allow the economy take the back seat in the coming months; Nigerians and indeed the international community require constant assurances that the economic policies of this administration especially concerning infrastructural development and job creation would remain on track and not be dislodged by national politics.

You tend to suggest that the direction of the capital market is dictated by the performance of the economy. What should be the major focus of the government in bringing about sustainable economic growth?
There is no gainsaying the fact that the performance of the capital market is hinged on the health of the economy, our major challenge in this country is the mono-product nature. The export base of the economy is not diversified. The bulk of the external reserve is derived from the oil sector, which constitutes less than 10 per cent of GDP.

It is this same sector that is the major driver of GDP growth, which is why the current growth rate is considered fragile in view of its vulnerability to external shocks. It is important to note that investments in the oil sector are capital intensive and so the multiplier effect on job opportunities is hardly significant given that the sector employs less than five per cent of the labour force. So, it is not surprising that the positive developments in the oil sector in Nigeria are not having any significant impact on the living standards of Nigerians.

To be fair, the present administration has done some ground work in the area of getting the economy on a sustainable growth path The government should leverage on favourable crude oil price to diversify the export base of the economy.

As an expert, what, in your view, is delaying crowd funding in the capital market? 
The simple answer to your question is the absence of appropriate legal framework and rules. This will entail amendments to some sections of the Companies and Allied Matters Act as well as the Investment and Securities Act, 2007.As you well know, crowd-funding is a means of raising money from a large number of people to fund a project or venture typically through the Internet. Equity-based crowd-funding in particular is growing in popularity because it allows start-up companies to raise money without giving up control to investors while at the same time offering them the opportunity to earn an equity position in the venture. Unlike in the United States and Canada where investments in equity-based crowd-funding ventures are highly regulated, the legal framework is yet to be put in place in Nigeria. The major challenge with crowd-funding is how to ensure that individual contributors to the venture will not be swindled.

What is your take on Labour’s demand for a new minimum wage?
I am in full support of the new minimum wage, the talk about inflationary pressure, for me, holds no water. Any spike in inflation rate as a result can only be the immediate response, which will fizzle out, in the medium term. By the way, it is clear from quarterly reports of the National Bureau of Statistics (NBS) that inflation in Nigeria is more of cost-push than demand-pull. Key inflation drivers have been identified as high cost of transportation, power and so on.

Therefore, the solution to low inflation environment is fixing infrastructural bottlenecks to reduce the cost of doing business. The growth in GDP is still weak due in part to weak aggregate demand and therefore one way to stimulate the economy should be by implementing the new minimum wage. Given the continuous decline in economic activities evidenced by sliding GDP growth rates and relatively low inflation rate, the economy can absorb the new minimum wage without much distortion. I also think the federal and state governments can foot the bill if they get their spending priorities right. The good news is that implementing the new minimum wage will have a positive impact on the capital market, financial intermediation and financial inclusion.


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ASUUUche Uwaleke
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