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Interview with William Wallace on Nigeria’s $500 million
Eurobond issue: Excerpts:

We understand that the
bond has been over subscribed to the tune of about $1 billion despite the
gloomy picture painted by some of the investors you interviewed. What do you
think is responsible for this level of confidence?

Firstly there is a lot of investor interest in Africa generally,
given that some of the world’s fastest growing economies are on the continent,
which looks set to grow in coming years at double or more what the developed
world is. Then there is a lack of supply of African sovereign debt. Nigeria as
the second largest economy is obviously going to attract interest.

When weighing up the risks involved, some funds will look at the
country’s long term prospects, its huge natural resources, the size of the
market, and the dynamism of parts of the private sector. They might also take a
favourable view of recent banking and stock market reforms. A look at the
current macro-economic fundamentals does not look too worrying either, when
compared to some African peers.

Others, seemingly a minority, looked more closely at the
country’s deteriorating fiscal position, and worried about big unanswered
questions about how billions of dollars of windfall oil revenues have been
used. You would not normally, for example, expect foreign reserves to be going
down, and oil savings to be depleted, while debt levels are rising too, all in
a year when oil production has recovered and prices are soaring. These more
skeptical investors concluded, so they say, that the general direction of
economic management looks worrying and the risks are too high.

The finance minister says
big investment names from 18 different countries subscribed. We talked to four
major international funds who were put off but there may have been more.

You seem to be saying that some investors are prepared to
overlook some important indicators like macroeconomic management or in this
case mismanagement? Why would that be the case, surely risk assessment is part
of the whole process?

They may for example decide that any mismanagement is connected
to the election process, in other words is short term and decide that fiscal
prudence again will improve after April. Nigeria’s debt profile is still far
more favourable than it was a few years ago even if both domestic and external
debts have been on the rise again. They may also decide that even with
mismanagement, Nigeria’s oil revenues are such, with the price of oil rising,
that over the 10 year period the country will always be able to pay.

We understand that the
bonds are going at 7 % interest rate; do you think this is about right?

It is within the range of what investors and analysts expected.
Some of them suggested that worries about macro-economic management are
factored into the price.

And yet neighbouring
Ghana with no gas reserves, no oil reserves and a smaller population went to
the international market and got 6 percent, is it all about perception?

It is about perception and Ghana despite some real concerns
about a massive fiscal expansion in 2008 ahead of elections, is generally
perceived to be better run. But Ghana went to the market three years ago. It is
not sure that it would get the same price today.

The main aim of this fund
according to the finance minister is not primarily to raise funds but establish
a benchmark yield curve for the country. Do you think he will be pleased with
the outcome?

He seems pleased. The bond was oversold despite some of the
concerns we drew attention to in our story. It prices Nigerian debt at a level
which should facilitate corporate access to international markets. That was the
intention.

Would you consider this a
grand debut at the international market for Nigeria?

It certainly seems to have gone well from the government’s point
of view. I think it would have gone better still if there were fewer questions
about how government has been spending windfall oil revenues.

Is it just political
risks then that make this country a bit dicey or are there other factors?

Given the history of mismanagement of oil revenues, and
especially windfall revenues above the budgeted price of oil, I think there is
always a danger that Nigeria is going to squander the opportunity provided by
an oil boom, and then regret it later at times when oil prices fall. Questions
about the way the ECA has been used for most of the past four years show that
Nigeria has not yet solved this problem. The sovereign wealth fund that is
planned could maybe be an answer.

What is your honest
assessment of the Nigerian economy?

It could be doing so much better. There are so many dynamic
talented people in the country. But they are held back by infrastructure
constraints, and poor management of the resources the country has. Simply
providing power which so far every government has failed to do, could be
transformative.

William Wallace is the
Africa Editor, Financial Times