Leveraging investment potential in Federal Government Securities

 

As most Nigerians continue to decry the increasing public debt stock of Federal Government, others look at the lucrative investment opportunities in some of the debt instruments.

These debt instruments refer to the various Federal Government of Nigeria (FGN) Securities, which make up the local component of government debt.

FGN Securities refer to the FGN Bond, FGN Savings Bond, FGN Green Bond, the Sovereign Sukuk, the Eurobond and Treasury Bills.

In recent times, the Debt Management Office (DMO), the government department saddled with the responsibility of coordinating the management of the country’s debt, has embarked on awareness drive, to educate retail investors about the benefits of investing in these debt instruments.

The awareness drive, which was inaugurated in Lagos in March, has also been taken to Enugu in the Southeast, Ibadan in the Southwest and Kano in the Northwest.

Patience Oniha, the Director-General of DMO, said the aim was to sell the various existing FGN Securities to the Nigerian public.

Oniha said the various FGN Securities, apart from raising funds to finance government projects, also offered attractive investment opportunities for Nigerians.

According to her, the Federal Government, through the DMO, issues the securities and makes periodic interest payments to the investors, while the principal is paid at the end of each tenor.

“The Federal Government has various investment platforms like the FGN Bond, FGN Savings Bond, Treasury Bills, the Green Bond, the Soveriegn Sukuk and Eurobond.

“One function of these FGN Securities is to raise capital to finance deficits in the budget, and also to raise funds to execute critical infrastructural projects. They are backed by full faith and credit of the Federal Government of Nigeria, and are default risk-free,” she said in a recent media report..

She said that the FGN Securities also contributed to the development of the domestic capital market, adding that they served as benchmark for other private institutions to issue their own securities.

“They enhance the savings and investment opportunities of the populace, thereby promoting financial inclusion.

“They also attract foreign investors into the domestic financial market, to refinance maturing domestic debt and to diversify sources of funding for the Federal Government. You can use them as collateral to obtain loans from banks and other financial institutions, and they help in diversification of investment portfolio”, the report further quoted her as saying.

Because of its potential to offer returns on investment, Mr Monday Usiade, the Director, Market Development Department of the DMO, urged Nigerians to embrace the various FGN Securities.

According to Usiade, it is more profitable for Nigerians to invest their monies in FGN Securities.

“Saving is a culture we must all imbibe, and the FGN Securities have come to help Nigerians save. The driving force is to encourage us to save in a secure environment. The Federal Government cannot default on a loan in its own currency,’’ he said.

He said that the various FGN Securities were already competing with the Deposit Money Banks (DMBs), adding that there was the need to challenge the DMBs to improve on their service delivery.

According to him, the securities could also serve as means of diversifying investment as it could be too risky for an investor to put all his eggs in one basket.

“We can encourage Nigerians to invest in the various Federal Government Securities to diversify their investment portfolios and improve their earnings. But we cannot undermine the integral role of the DMBs in the financial system and in delivering our mandate. We also need the banks to execute our mandate,” he said.

Financial experts caution that investors should be properly educated on the risks associated in investing in securities such as bonds which includes the influence of inflation on returns; what becomes of the investment in face of failure of corporate bond issuers inability to repay the debt.

However, some members of the stockbroking community say they are confident that the Federal Government’s securities are worth giving a try.

According to a stockbroker, Mr Abiodun Fagbohun, with the FGN savings bond, you can earn between nine per cent and 10 per cent interest per annum, adding that it is a good opportunity which was not there for the retail investors before now.

According to Fagbohun, in the past, institutions like banks and pension funds administrators were the ones who took advantage of FGN Securities.

He said that the DMO, along with the stockbroking community, was trying to ensure that the general public can participate in the bond market.

“We created this window through the FGN Savings Bond, whereby retail investors with as low as N5,000 can also participate in the market.

“For example, if you put about N10, 000 in your savings account, you will earn like two per cent interest per annum”, he said.

Another stockbroker, Mr Kayode Olayemi, said that it had become increasingly imperative to create awareness about government securities among retail investors and how they can benefit from them.

Olayemi said posted that government securities also enhances the saving and investment opportunities of the populace, thereby, promoting financial inclusion.

Mr Adeyinka Sonekan, Divisional Head, Sales and Business Development of a stockbroking firm urged Nigerians to take advantage of the investment opportunities to key into the financial system and also improve their finances

According to Mr Fortune Ibe of CSL Stockbrokers Limited, the investment in FGN Securities is an additional way for Nigerians to make money.

“The Federal Government is telling Nigerians that they can borrow their money for infrastructure and they will get interest on it. The interest rates on FGN securities is higher than what the banks will give you”, Ibe said.

As the expenditure needs of government continue to grow in the midst of scarce resources and imperative to borrow, stakeholders are encouraging Nigerians to lend to government by investing in its various security instruments, which constitute the local component of government borrowings.

They say such investment will also help to promote and encourage financial inclusion, while growing the local capital market.

Experts say that FGN Securities can be sold for cash at the Nigeria Stock Exchange, and they are acceptable as collateral for loans by banks.

They are also good for savings towards retirement, marriages, payment of school fees and for housing projects.