Governments across the world are ramping up efforts to combat the Coronavirus pandemic. A major challenge to Covid-19 action in Nigeria, like most other African countries, is scarce public finance. Already, Nigeria’s revenue expectations and fiscal projections for the year 2020 has been drastically reviewed downward, largely due to oil price slump.
Overcoming a global health emergency like Covid-19 requires a whole lot of money. It is commendable the Central Bank of Nigeria-led Private Sector Coalition against Covid-19 (CACOVID) fund has grossed N25.8billion. CACOVID is combating Covid-19 by raising public awareness, supporting healthcare professionals, institutions and governments, and by mobilizing private-sector leadership and resources. This is in addition to Central Bank of Nigeria’s (CBN) combined stimulus package of about NGN 3.5 trillion in targeted measures to households, businesses, manufacturers and healthcare providers. These measures are deliberately designed to both support the Federal Government’s immediate fight against Covid-19, and build a more resilient, more self-reliant Nigerian economy.
Essentially, a significant share of the investments needed in the unfolding crisis would be from private finance components. Navigating the uncertain times and meeting the unprecedented financial commitment for Covid-19 pandemic demands a degree of innovation. One such innovation is labelled Covid-19 bonds.
As a recent innovation in sustainable finance, labelled bonds can be applied to any debt format, including private placement, securitization, covered bond, and Sukuk. As with conventional bonds, labelled bonds issue represented borrowed funds over a period, and investors or creditors receive a coupon with a fixed or variable rate of return. The main difference between them is the use of the proceeds.
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The Covid-19 pandemic is a social issue that threatens the world’s population both in terms of health and economic welfare; efforts and investments to combat the pandemic qualify for social treatment. Consequently, existing guidance related to social bonds is immediately applicable to efforts addressing the pandemic.
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For those who are interested in issuing social bonds to help combat Covid-19, the Executive Committee of the Green Bond Principles, the Social Bond Principles and the Sustainability Bond Guidelines (the Principles), supported by the International Capital Market Association (ICMA), have advised that existing guidance for Social and Sustainability Bonds is immediately applicable to efforts addressing the Covid-19 crisis. In Nigeria, the guidelines are adapted in the Nigerian Green Bond Guidelines (GBGs) published by the Federal Ministry of Environment in 2016.
Although beneficiaries of social bonds are usually specific groups, the pandemic nature of Covid-19 means a general population as whole may be targeted. The qualifying projects include Covid-19 related healthcare and medical research, and development of a vaccine; investment into additional medical equipment or manufacturing facilities to produce more health and safety equipment and hygiene supplies; specific projects designed to alleviate unemployment generated by the pandemic. Other qualifying uses of proceeds are: converting facilities into emergency and intensive care units; reconfiguration of healthcare services for Covid-19 treatment; staff costs, including training and salary of researchers; vehicles and transport equipment and buildings; IT and telecommunication systems and equipment, such as surveillance, diagnostics and modeling; and supply chain management, warehousing and storage facilities.
Progress has been made over the last month as the social bond market mobilizes to combat Covid-19. Many institutions are seeing the opportunity – from a financial and sustainability perspective – in issuing this kind of debt. It’s now the fastest-growing sustainable finance sector. The very first labelled Covid-19 bond issuance of USD 1 billion by the International Finance Corporation (IFC) was followed by a record-breaking USD 3 billion issuance by the African Development Bank (AfDB). In each case, the proceeds were earmarked for combating the pandemic. Other labelled Covid-19 issuances include Council of Europe Development (CEB) EUR 1 billion issuance; the European Investment Bank SEK 3 billion issuance; the Inter-American Development Bank (IADB) USD 2 billion issuance; the Nordic Investment Bank USD 1 billion issuance; the Italian development bank Cassa depositi e prestiti EUR 1 billion issuance; Swedish medical supplier Getinge SEK1 billion issuance, etc.
The SEK 1 billion commercial paper issued by Getinge to exclusively finance increased production of ventilators and other capital needs to expand the production of life saving equipment to meet rising demand due to the Coronavirus pandemic shows that issuance of labelled Covid-19 bonds is not restricted to supranational organizations, multilateral development banks and investment banks. Any type of issuer, first-time or seasoned, can issue a labelled Covid-19 bond provided their evaluation is based on four core components: use of proceeds, project selection process, management of proceeds and reporting, as outlined in the ICMA Principles.
These are critical times for Nigeria. As noted by the Governor of the Central Bank of Nigeria Godwin Emefiele: “countries around the world have moved away from multilateralism and responded by fighting for themselves with several measures to protect their own people and economies, regardless of the spillover effects on the rest of the world.” There is a unique opportunity to build on the experiences of past issuance of labelled bonds by the Federal Government, Access Bank PLC, and North-South Power Company Limited to do the heavy lifting in the fight against Covid-19. Considering Nigeria total debt profile at N33 trillion (after recent approval of additional $22.7 billion foreign loan by the National Assembly), issuances of labelled bonds by corporates in the country is desirable as the ongoing pandemic create several investment opportunities.
Even as Covid-19 affects the stock markets, labelled Covid-19 bonds are veritable investment instruments for investors seeking to contribute to responding to the global disruption engendered by the Coronavirus pandemic in addition to achieving financial returns.
The Coronavirus pandemic is a new and immense challenge and we must all rise to the occasion. The reported cases of community transmission of COVID-19 by the Nigeria Centre for Disease Control (NCDC) underscore the need to observe all standard recommendations to prevent the infection. That is our first line of defence until the epidemic runs its course.
Oluwaseun Oguntuase writes from Lagos, Nigeria