Amid ASUU-FG logjam: Experts open capital market solutions for university funding

• Bonds, blue chip shares, commercial papers

• Over-dependence on govt funding causing constant friction

Nigerian public universities’ over-reliance on government direct funding has been the major cause of constant disagreements between the university staff unions and the federal government, which has come to see university funding as a millstone around its neck. These disagreements have led to lockdowns of the university system in the form of prolonged industrial actions, translating to time wastage on the part of students, poor learning outcomes, and loss of faith in the education system, with their attendant economic consequences.

Amid the over seven-month-old impasse between the Academic Staff Union of Universities (ASUU) and the federal government over non-implementation of previous agreements bordering on funding, stakeholders drawn from across Nigerian universities as well as the capital market sector have sought ways to unlock the funding logjam that has held the country’s university system by the jugular over the decades.

The stakeholders, at a webinar on sustainable funding for universities organised by the Association of Capital Market Academics in Nigeria (ACMAN), identified the capital market as a veritable means of generating sustainable sources for funding solutions to both private and public universities.

Nigeria’s higher education sub-sector has grown from one university college in 1948 to 217 universities as of August 2022, Suleyman Ndanusa, former director-general, Securities and Exchange Commission (SEC), said in his opening presentation.

Yet, though the number of universities has grown significantly, they can only accommodate between 15 percent and 20 percent of the 1.5 million-1.7 million candidates who sit for the annual Unified Tertiary Matriculation Examination (UTME), he said at the webinar themed, “Any capital market solution to university funding in Nigeria?”

Ndanusa, who is also a former pro-chancellor of Ibrahim Badamosi Babangida University in Niger State, stressed that funding challenges for universities would worsen due to the huge deficit in the national budget. The solution, he said, lies in new value propositions and creative sources of funding attuned with modern economic trends rather than the traditional sources of funding.

Funding priorities for universities should revolve around research, teaching and entrepreneurship, and the capital market offers unique and flexible channels of achieving such objectives, he said.

Nigerian universities can raise straight project tight bonds for students’ accommodation, alumni bonds/projects can be packaged to attract alumni investments, while new infrastructure can be funded through impact bonds, he said.

“Instead of waiting for alumni members to give free money for projects, you can entice members with a bond they can invest and get returns but at the same time, creating resources for the university to do projects,” he noted.

At a time the federal government is in a debt trap and its ability to provide the kind of funding that universities require now seems to be impossible, Oluwole Adeosun, president, Chartered Institute of Stockbrokers (CIS), argued that the capital market is a solution to university funding in Nigeria.

According to Adeosun, the federal government’s funding of Nigerian universities between 2015 and 2021 stood at approximately seven percent, which is why many public universities struggle for sustainability.

Funding of public universities needs to be substantially increased, but with the government attending to other competing priorities like health and infrastructure amid dwindling revenue, new funding initiatives need to be activated, else university education would continue to be a challenge. Over-reliance on government direct funding is the cause of continuous lockdown of Nigerian universities, like the ongoing ASUU strike, he said.

“The federal government should have the political will to exploit the capital market because it has the capacity to provide the much-needed fund. I can tell you that there is N14 trillion of capital funds that is just placed in federal government bonds, then you borrow the entire funds that should have been used for development,” Adeosun said.

“Go to Chile, it is the pension fund that funds infrastructural development in Chile where we took this model of pension fund from. But here, 70 to 80 percent of the N14 trillion is directed at non-yielding projects. That is not where it should be. It should be tied to specific projects and those projects will pay themselves up over time,” he said.

Speaking on new funding initiatives, he said the capital market, in terms of issuance of government-backed university bonds on the stock exchange, would generate large amounts of money over time to finance different types of infrastructure in the universities.

Magnus Kpakol, Nigeria’s chief economic adviser in the Olusegun Obasanjo administration, said the human capital deficiency pervading the country has impacted the tertiary education system so that return on investment of attending a university is barely visible.

“We need very good education, very good skills to create the return on investment (ROI) that we need, but we are obviously not seeing that,” he said, suggesting that the result of attending a university should be assessed based on a student’s financial status several years after graduation.

Kpakol supported the idea of funding universities through capital market investment. However, he said the capital market is not enough to generate the bulk of money needed to finance university education, urging universities to embrace other forms of investments.

“I think that we can get right away some special money from the biggest source of income to our government and that is from oil. We can get some money from crude oil and create some sort of endowment or facility that universities can look into if they can justify their ability to invest and get a good rate of return on it,” said Kpakol, who is also chairman/CEO and chief strategist at Economic and Business Strategies (EBS).

“I think that we should really look at endowments and invest in things such as real estate, contracts, etc. There should be strong partnerships between governments and universities. There are some things that the universities can do such as offering services for the manufacturing sector. There are some universities that can be strong enough to participate in that regard. So, you can get money from all these places,” he said.

Kabiru Dandago, federal commissioner of tax tribunal and former finance commissioner in Kano State, encouraged universities to key into SUKUK as a viable source of funding for requisite research and development. He also urged the government to refrain from seeing SUKUK as a debt instrument, but rather as an investment tool which can be utilised in advancing capital projects in Nigerian universities.

“The Nigerian capital market should accommodate or encourage the formation of SUKUK which will bring about the mobilisation of funds, and universities should capitalise on that. All they need to do is find ways of securitising the SUKUK,” he said.

Tanko Muhammad, former vice chancellor, Kaduna State University, emphasised the need to restructure the staffing of the university to be effective in the sense that it will yield beneficial result.

“On the aspect of the university itself, are we looking for funding to continue to build classes and laboratories? The future we should be working towards is a robust IT system that will cater to the services of the university,” Muhammad said.

“The future doesn’t call for what we are looking for, if we continue to seek funding just to build classrooms and laboratories. What we want is a robust system that will accommodate ICT development,” he said.

“The university system needs to be restructured in such a way that there will be justification for funding needs,” he added.

Solomon Adebola, vice chancellor, Adeleke University, Osun State, said tertiary institutions can effectively exploit the funding potential present in the capital market through issuance of bonds which can be used to generate large amounts of funds over a long period of time.

“This will be a lot easier for bigger and first generation universities because they have government backing to raise funds but not easy for private schools. The bonds can be floated after negotiations with the the Securities and Exchange Commission (SEC) to raise large amounts for specific purposes and it is important to add that such funds raised must be used judiciously and not used for consumption but for expansion programmes,” he said.

While trying to raise funds through bonds, Adebola said universities should approach some risk-checking agencies, such as Moody’s, Fitch and the likes to assess and rate the risk value of the university itself. This, he explained, would give the public investors an idea of the level of risk they are getting into by investing in that kind of university.

Universities can also go for an endowment fund which can be used to raise large amounts of funds that can be invested in capital projects usually in the capital market, Adebola said. The endowment funds are usually placed in four main categories, including restricted endowment funds which can be invested in specified areas as dictated by the donor of the fund; unrestricted endowment funds which are to be used strictly at the discretion of the university; term endowment fund where the principal, not just the interest, is utilised after a specified period as given by the owner and the donor; and quasi endowment fund used to fund a specific purpose as given and dictated by the donor of the fund, he said.

Universities can also place commercial papers to raise funds in capital markets as specified by SEC and the regulations. They can invest in blue chip shares of corporate bodies and such shares are not to be kept in but could be held when the values have been seen to hold up and effectively optimised, Adebola said.

“We should note clearly that the funds that are generated must be re-invested in things like construction of hostels for students, in which case this will bring many more students and therefore raise more money in terms of school fees from the school and that can be used for other things,” he added.

While agreeing that the capital market is a veritable source of funding for universities, Seth Akutson, former vice chancellor, Greenfield University and first vice president, ACMAN, noted that the nature, character and makeup of the ownership of the university play a key role for investors. Which is why, according to him, private universities have better prospects to approach the capital market for funding because they are well placed to run as a business.

Akutson said the capacity of a university to manage fund and recoup investment is hinged on management structuring, but many vice chancellors in Nigerian universities lack the required capacity to run a business and generate substantial revenue.

Rather than engage in the technical aspect of running a business, universities can concentrate on their academic activities and research and then outsource their businesses such as entrepreneurship centres, bakeries, printing presses, among others, to business experts who can run them efficiently and make significant gains. These outsourced businesses can then approach the capital market and get funding for such businesses on behalf of the universities, he said.