The Nigerian Bond Market: How Progress Happens (Or Doesn’t) – DoubleEph

Below is a transcript of a thread shared on twitter by Feyi Fawehinmi about the Nigerian bond market and how a country develops or fails to, or even reverses course. I think it contains many lessons for us and I decided to share them here. I’ll repost his tweets with minimal edits/comments.

Thread reads:

I hung out with a friend yesterday and he told me a story that is a metaphor for Nigeria and how progress happens and then doesn’t. Between 1988 and 2003, Nigeria did not issue a single bond. Over that 15 year period, the government was being funded by short term treasury bills only. Naturally, people thought this made no sense and there was need for a proper bond market and everything that comes with it so the government can do more long term borrowing.

A couple of years later, the Debt Management Office (DMO) hired an American guy named Jack Delaney from the US Treasury Department as a consultant. He helped to do a lot of the necessary ground work (to create a bond market) and helped the DMO become a functional institution. He finished his contract in Nigeria (three years I believe), and left to try to do the same thing in Ghana. I’ll come back to this point later. ‘Sauces’ also say he had a naiz time with Nigerian ladies but that’s neither here nor there.

So Nigeria got a functional, deep and liquid bond market that was doing up to $1 billion per day in volume at one point (my edit: don’t quote me but a cursory look at some Bank of International Settlements data would suggest a $125m per day volume now) . International investors took note, as did JP Morgan, who eventually decided that Nigeria’s market was pretty good and included her in their index (my edit: pretty big deal since JP Morgan is the valhalla of international finance and large international bond buyers put buy their index so inclusion in it meant pretty steady capital inflow)People were so excited about this that the DMO took out a full page advert in the papers congratulation President Goodluck Jonathan on the historic admission into the index. It guaranteed about $2bn that just stayed in the country long term as long as Nigeria was in the index. The journey to that inclusion took something like 8 years of work. Many other things happened of course but this is an abridged version of history. And then in 2015, in a fit of economic vandalism (side eye at Buhari and Emefiele) Nigeria got kicked out of the index after being given a number of warnings.

There are two morals to this story: 1. Jack Delaney tried to replicate his work in Ghana but didn’t have success there. When Nigeria is serious about doing something and the stars align, it can do it. It might take time, but it can do it. 2. As is obvious, you can destroy the work of 8 years in a matter of months just because you have your own ideas. And Chesterton’s Fence – don’t remove something unless you know the reason why it was put there in the first place. The good-ish news is that after destroying things, this same government (Buhari) appointed Pat Oniha as Director-General of the DMO in 2017. If anyone knows what it took to build up the DMO and what it will take to rebuild it, it’s her. She was there as a participant from the beginning. So building again won’t take as long as before because there is institutional knowledge of how it was done the first time around now at the helm of affairs. And that is the end of this story.

My additions and reflections: there is a lot of truth to the saying that all progress depends on the individual. Even when you hear the Debt Management Office did this, or the government did that, it usually rests on the efforts of one or two committed persons. People are vitally important, especially at an individual level. Any society that doesn’t allow and support individuals to perform at their best within defined constraints, will not make it too far. 

Second: Nigeria can work. It might take solving different things one at a time over a long time, but it can work. We just need a way to institutionalize knowledge and good governance and maintain a level of consistency. Which means creating means for the best and brightest to sit at the levers of governance at all times. And since they say institutions are usually the extension of the individual, that takes us back to my first point. 

Aside all that, there are very many lessons we can draw from this story. Very many. You can pull yours and share with me or just make notes for the future. 

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