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Tuesday, March 28, 2023

Cash is Trash as Nigerians Seek Investment Outlets

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Holding onto cash in today’s environment in Nigeria is like a sucker’s game with inflation surging and real returns sliding.

The average interest on savings deposits in Nigeria has fallen to an average of 1.2 percent, following the Central Bank of Nigeria’s (CBN) circular earlier this year to all banks that the minimum interest rate on savings deposit be reduced to a minimum of 10 percent of the monetary policy rate (MPR), or 1.25 percent, from the previous minimum of 30 percent of MPR, or 3.75 percent.

Inflation meanwhile leaped to 14.2 percent in October, marking the highest reading since February 2018.

Assuming one decides to pull funds from a savings account investment options offering positive returns in the country are few and far between.

“Over the past 2 years I have tried my hands on many businesses including imports, Agriculture and exports of Charcoal,” said Emeka Dubem a 32-year-old entrepreneur with a shop in the trade fair area of Lagos.

“There have been hits and misses, but the bottom-line is I cannot keep bulk money in the bank as that is the worst of all possible options.”

All possible investment options are currently yielding negative real returns, including Savings deposit rate, bond yields, the average large cap dividend yields and rental yields.

Bond investors are seeing negative real returns (below inflation adjusted) for the first time in a decade as yields on fixed income securities have collapsed following a push by the Central Bank to force banks into lending.

Every major pool of capital has also been hit by the poor returns from Pension Funds whose assets are lower in dollars today than they were in 2015 to Private Equity (P.E) investors being forced to exit assets at a haircut, sources tell MoneyCentral.

The Real Estate market which usually offers some sort of hedge against inflation for investors is also largely illiquid today with no big ticket deals being done in commercial and residential space.

No new major malls have been built in the past 2 years in primary and secondary cities as the usual suspect anchor tenants such as Shoprite and Cinemas battle with falling margins and slow sales.

For some Nigerians Bitcoin or cryptocurrency trading has become some sort of haven. Africa’s largest economy has some of the biggest trading volumes for cryptocurrencies on the continent according to publicly available data.

Regulation has failed to keep up with innovation in the space however, leaving most of the public confused as to how to invest in the asset class.

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