What Future Does Nigeria’s Green Bond Initiative Hold? – Analysis

In 2017 and 2019, Nigeria issued two green bonds worth N10.69 billion and N15 billion respectively, becoming the first African country and the fourth in the world to raise a debt instrument entirely for the purpose of financing sustainable environmental projects.
However, despite the government’s professed commitment to sustainable projects, findings have shown that some of the identified projects implemented under the country’s historic green bond projects within the past four years were poorly executed and are not serving their purposes.

On December 12, 2015, Nigeria alongside 195 other parties endorsed the Paris Agreement pact. Though Nigeria is one of the least emitters, the move re-echoed Nigeria’s readiness to follow the path of low carbon development in order to curb the overhipped impact of climate change in the country by 2030.
The federal government through its ministry of environment rolled out several policies and initiatives in its efforts to implement the Paris Agreement pact.

Green Bonds

The Nigeria Sovereign Green Bond is a financing mechanism to facilitate and assist Nigeria in meeting its Nationally Determined Contribution (NDC) target. It helps the country pursue a low carbon pathway for socio-economic development in line with the Economic Recovery Growth Plan (ERGP). The sovereign green bond presents Nigeria with an opportunity to demonstrate national leadership in the green financing agenda while giving exposure to a new investor base and solidifying the country’s commitment to complying with the Paris Climate Change Agreement.
Eligible Projects were identified from the FG Appropriation. Selected projects met the Green Bond Principles definitions of Climate related activities. Only projects in annual national budget signed by the President are eligible for funding.

Through the long established Inter-ministerial Committee on Climate Change (ICCC) qualifying projects with climate credentials are identified in the budget. To further interrogate the projects green credentials, the Green Bond Program Technical Advisory Team (GBPTAT) is set up under the World Bank funding support to the Green Bond process. The team made up of sector specialists and theme specialists reviews the selected projects in line with the technical, financial, climate, economic and social benefits. The team also ensured that the projects were included in the appropriation act which is the basis that makes them eligible for funding by Federal Government resources in line with guidelines of a sovereign green bond transaction process.
The value of the Nigerian green bonds market has grown to N49.19 billion, recording four issuance in the last three years since the debut issuance by the Federal Government in 2017.

In 2017, the Nigerian Stock Exchange NGX collaborated with the Ministry of Finance and other stakeholders to launch the first Climate Bond Initiative certified sovereign bond valued at N10.69 billion.
This was followed by the N15 billion Series II sovereign green bond in 2019, which recorded a 220 percent subscription rate oversubscribed by N17.93 billion.
The bond was oversubscribed and the proceeds from the issuance is surposed to fund twenty-three (23) eligible projects cutting across 5 (five) NDC sectors from the 2018 FGN’s Appropriation Budget selected and approved through the Inter-ministerial Committee on Climate Change (ICCC). The projects are also implemented by various MDAs, they are the:

Afforestation Programme – under the Federal Ministry of Environment (and its relevant Agencies) .
Renewable Energy Sector – under the Federal Ministry of Power.
Transport sector – under Ministry of Transport & The Federal Capital Territory Administration.
Agriculture sector – under Ministry of Agriculture.
Water sector – under Ministry of Water Resources.
Despite the growth recorded in the equity market the green bond still face daunting challenges in terms of visible development; so far transparency and accountability have been some of the major challenges of the green bond projects in the country.

• Afforestation projects were poorly implemented in Old Oyo National Park despite gulping N30 million from the green bond treasury.
• Renewable energy projects meant to serve over 55,815 students and 3,077 staff members at the Bayero University Kano, fell short of expectations, following the installation of the 7.1 megawatts solar hybrid power plant, launched in September 3, 2019.
  How sustainable is the sustainability plan?
  Nigeria’s infrastructure deficit is estimated at $100 billion annually, which is 189.77% above the 2021 federal budget, projected at $34.51bn. Some of the major challenges of infrastructural development are Poor funding; poor governance; corruption; economic sabotage; poor maintenance culture, strong political will and continuity in governance
  Nigeria’s Debt Management Office (DMO)report in June 2021, said that compared to the Total Public Debt Stock of N32.916 trillion as at December 31, 2020, a marginal increase of 0.58 per cent was recorded in the Debt Stock.
  Further analysis shows that the increase was in the Domestic Debt Stock which grew by 2.11 per cent from N20.21 trillion in December 2020 to N20.637 trillion as at March 31, 2021.
  According to the DMO, the FGN’s share of the domestic debt includes Federal Government bonds, Sukuk and Green Bonds used to finance infrastructure and other capital projects as well as the N940.220 billion Promissory Notes.
  In order words the green bonds constitutes the increasing domestic debt stock of the country as it were.
  Becoming the first African country and the fourth in the world to raise a debt instrument entirely for the purpose of financing, the so called sustainable environmental projects leaves many questions unanswered as to how far, feasible and sustainable these government plans are towards existing developmental projects, how much more a green development transition.