The National Bureau of Statistics announced on Tuesday that Nigeria has now exited from recession. This is after a real GDP growth rate of 0.5% in the second quarter of 2017. In this article, we will attempt to explain what this means to you as an ordinary Nigerian.
What is GDP
Gross Domestic Product (GDP) is a measure of the goods and services produced in a country at a given point in time. A GDP growth rate is therefore the difference between GDP of one period (usually a quarter) to a corresponding quarter in a prior period.
Why GDP Growth rate
GDP growth rate is used the world over as a measure of progress in economic activities in a country. For developing economies like Nigeria, GDP growth rates are often expected to be in double digits while developed economies like the US and UK typically post GDP growth rates of less than 2%. This is because the economies of smaller countries like Nigeria are expected to grow faster than more mature ones. A GDP growth rate of 0.5% though a good development is quite paltry and will need to improve in the coming quarters for the wider economy to feel the effect.
What is recession?
A recession is when an economy fails to grow for two consecutive quarters in a given year. Nigeria’s GDP contracted consecutively for the four quarters of 2016 and the first quarter of 2017. A negative GDP implies that economic activities in the country have reduced in one period compared to the corresponding period last year. Contracting twice in a row suggest the economy is in a bad shape.
Why is this important?
A recession indicates the economy is in bad shape in nearly all sectors of the economy. During recession, businesses post lower revenues, more losses, prices of goods and services fail to rise or sky rocket (like in our case) and jobs are lost. The government also experiences a drop-in revenue and finds it hard to fund its developmental obligations.
Does end of recession mean all is well?
Yes, the end of recession means well. A country exiting recession only indicates economic activities are no longer contracting on a general scale. It also means business activities are now picking up in most parts of the economy. While an end of recession is good for the economy in general, certain sectors or businesses may still be experiencing slower growth due to drops in sales and lack of demand. However, it is expected that as things improves around the economy it will stimulate other sectors, then other businesses will start to feel the boom too.
Does it mean more jobs?
Technically, a return to growth in the economy should translate to more jobs in the near term. This is because when an economy experiences growth, businesses can sell more goods and services and in fact add more jobs. Unfortunately, this process takes quite some time to materialise as businesses will have to increase inventory, start marketing, sell their products, then actually see their bottom line improve before they decide to employ more people. However, the fact that the economy is growing is an indication that we are in the right direction.
Does it mean lower prices for goods and services?
Getting out of recession does not necessarily mean that prices of goods and services will drop or are rising; a measure for that will be inflation rate. Indeed, being out of recession more likely indicates that in time, Nigerians may have more money to afford goods and services as the general growth in economic activity starts to spread across the country.
Does exiting recession affect exchange rate?
Not exactly. However, it is expected that when economic activities pick up in the country, the exchange rate will remain stable and importers will have access to more dollars to continue to import goods and services and continue their trade. Also, foreign investors are typically disposed to invest in emerging economies that have positive GDP growth rate and flee from those in recession. Therefore, now that we are out of recession, we expect to see more foreign inflows and thus a stronger naira. This is already happening.
Will my life improve?
As mentioned, exiting recession is a good thing for the economy; however, it doesn’t mean everyone will benefit at the same time or even benefit at all. Whether your life improves will depend on your personal development, opportunities that come to you, health and luck. The good thing, however, is that with the economy back on the path of growth, the chances that you will get an opportunity to change your life for the better has all but improved, at least a bit. Taking advantage of that now depends on you.
5 things you can do to attract equity funding for your business
Equity financing is a reliable funding option.
One challenge that is peculiar to all Micro Small and Medium Enterprises (MSMEs) is that of funding. Of course, the level of challenge depends on the size of the business and the plan that needs to be executed. It is even more so for start-ups looking for funds to bring their business ideas to life.
To solve this challenge, entrepreneurs and business managers explore several sources including applying for loans, grants, partnerships and so on.
Equity financing is a reliable funding option. It basically involves giving out some equity or ownership in your business, in exchange for capital. This could come from friends, family members or potential business partners, and it is often aimed at raising money to pay short-term bills or financing long-term expansion plans.
Recently on the weekly Nairametrics “Business Half Hour” with Ugodre, Tokunboh Ishmael, Co-Founder and Managing Director of Alitheia Capital, discussed the topic “Private Equity Funding for SMEs” in detail.
Among other things, Tokunbo gave some pointers as to how business owners could attract the right equity financing for their business options. The points summarized below tell you what potential equity finance partners (individuals or partners) look out for.
Management (Who is the manager?)
Any company or individual who puts up money for your business, in exchange for equity, is definitely concerned about the management.
They want to know if the manager of the business has had any experience managing a similar business before. This is considered a form of apprenticeship and it is expected that whatever knowledge gained would help make you more efficient in dealing with issues that may arise in the course of the business.
Does he have the requisite educational background? It does not always take someone with a Masters in Business Administration (MBA) to grow a successful business. But that MBA degree could suffice, especially when you do not possess any other relevant experience.
Do you have the relevant track record? What happens if you have overseen a business which eventually went bankrupt or crashed due to management problems? Does this make the Equity fund partner more or less willing to put money into the business? Obviously not!
Some people can wake up and be successful entrepreneurs at first try, but this is not usually the case. Most will go through years of rising and falling, or working under others to gain the relevant experience of running a business.
Management is a critical point that any company or individual will look at, when you approach them with the offer of equity in exchange for funding.
Opportunities (What opportunities does it bring to the investor?)
Every business idea is an attempt to solve a problem. But what separates successful business ideas from others is that there is something unique about your solution.
First identify and understand the problem you want to solve, and from there work out a sustainable business solution. Every equity investor will be concerned with the uniqueness of your solution. Is it peculiar to you? Or is it something that everyone else is doing?
If your business idea has an easy entry point, meaning your idea is not unique to you, it would be difficult to get equity funding. Why? The potential investors already understand that you would soon have to deal with serious competitors who might end up doing what you do even better.
If your business idea shows a potential to make investors part of something big and unique, then you are more likely to get the funds you need. No company or individual wants to invest money in a business idea that will soon be drowned by competition.
You may get some sympathy funds from family members and maybe friends, but not any significant sum that will take you far.
ROI (How soon can investors get returns?)
Returns on Investment (ROI) are a key consideration for any investor (except perhaps charity organisations).
An investor’s concern with returns can best be likened to a retiree’s concern with pension. It is a most sacred topic and in fact, one of the first things they want to find out before putting in their money.
Based on your business idea and model, do I have to wait a year, two or three years before getting any returns?
A quarter may be too short to expect returns, but maybe three years would also be too long to wait. It all depends on your business venture, and of course, the investor’s plans. If he has plans to start channeling the returns into other ventures within six months, then a two-year wait would not be for that investor.
READ ALSO: Google’s advertising revenue plunges
Returns are not always financial, they could also be social. If the equity company is one that is more disposed towards a certain sector of the economy, say tech or agriculture, then the success of the company brings not only financial returns, but social returns to the company.
This is something you should also look out for before approaching any company for equity funding. You do not want to approach a company with an agricultural business idea, when the company is more disposed towards technology or education.
Ability to scale (Is the business expandable and replicable?)
A private equity partner is also concerned about how soon your business can expand, and how replicable your strategy is. Can it scale up?
Do you have a business idea that is so built around you, that it cannot function without you? Do you have a business idea or structure that will likely crumble if you die? Do you have a process that can be replicated?
The investor wants to know for sure that there are growth and expansion potentials. There is a need to be sure that the business idea you have is not one that can only remain confined to your bedroom. They want to know that you can move from offering your services in one state to serving several states and even the global community.
Why is this even necessary?
Because, it affects how attractive the business will become to the next level of investors who will take over from the private equity investors. This leads us to the next point they consider.
Exit potential (How can they sell out their equity and exit the company?)
Private equity investors are often not interested in taking over your business from you. Their aim is to bring in money for you when you are starting up, provide you advice and partnership, and sell out when it grows. They are not interested in having investments in different sectors of the economy. This explains why they are often concerned about the exit potential in your business.
Is there the likelihood that we can exit sometime in the future? Or do we just invest and get stuck? How attractive can this business become for the next level of investors – the institutional investors who will come in to own the business with you and stick to the end?
One of the most frightening possibilities to the private equity investor is that when he is ready to exit, there is no one to buy in and take over. So you need to answer the question – how attractive is your business idea to investors, and what is the exit potential?
If all five questions are dealt with satisfactorily, then you are well on your way to getting a good private equity partners to provide you financing for your business.
5 indispensable money advice for the 21st century working adult
Some excellent finance tips for the 21st-century adult to keep in mind.
A lot of people argue that the digital century has made it much easier to make money. With a simple tap on your phone screen, you could invest in global stocks and resell at a high price within a short period.
Some others are making money by simply entertaining the world on their YouTube channel, and some others have built a loyal community of followers on social media platforms like Twitter and Instagram, turned into ‘mini celebrities’ and brand influencers who now make serious money by helping to bring merchant’s products into the consciousness of their followers.
Now, whereas the ability to make money has become easier, managing one’s finances is, however, a different ballgame. As a matter of fact, it is guided by completely different laws from those of making money. We hereby bring you some important tips on how to manage your money.
Below are some excellent finance tips for the 21st-century adult to keep in mind. Why the 21st century? Well, this age has completely different trends and a whole different kind of financial challenge.
Never regard gambling or money doubling ventures as investments
Such ventures are ‘for-profit’, meaning that they are out to make more money than they payout. So what are the odds that you, out of the millions who play the game, will end up as winners? Probably less than 0.000001. That said, you are more likely to lose your money than win more.
Playing or not playing such games may completely be a thing of moral disposition. However, if you want to play the game, consider the money as one that many never come back, instead of as one that is expected to come back in multiples as return on investment.
Better still, find other pastimes or distractions if you enjoy playing games. Once again, these are not ‘investments’. It is gambling.
Understand what promotions and discounts really mean
Discounts and promotions often come across as saving some money. But of a truth, you are not saving, you are spending – maybe less, but you are still spending nonetheless.
It is not an unwise decision to take advantage of discounts and promotions, but if you do not already have the item listed in your budget, it is better to disregard it.
Unfortunately, this is not often the case as young adults continue to be overwhelmed by the sense of urgency when a merchant declares a 30% discount of sales of his products for a limited period.
The emotional pull is to cash in on this promo while it last, especially since the message says you can save a certain amount of money by buying it. However, the practical reality before you is that you are spending and not saving at the moment you make the purchase.
You are only actually saving some money when you already have the item in your list of expenses and end up spending a lesser amount to purchase the same item.
However, if a discount is being offered on a product you absolutely need, you can go ahead to make the purchase even if you have not planned for it, so long as you understand the difference between needs and luxuries.
This should not be a habit because it makes a mess of the financial discipline you have been trying to build on so, it’s something you should be mindful of.
Whenever you go shopping, go with a list and stick to it
Never go shopping without a market list. It probably seems like a weird thing to do but having a market list can and should prevent you from impulsive buying, where you buy items you do not need and forget the things you need.
Every Merchant is out to make sales and the result of this is that they try to make their products as appealing and captivating as possible.
No matter how few items you want to buy make a list and stick to it. You have no idea how much heartache it can save you.
Place a cap/limit on your weekly spending
Nothing truncates your financial goals like unplanned spending. Having understood what makes up your weekly budget, make some allowance for emergencies and place a weekly limit.
The attitude of ‘lets-see’how-it-goes’ is not the best for managing your finances. The choice to place a weekly limit is akin to checking your expenses, especially since you know that spending on unnecessary items could result in you sacrificing some of your actual needs till the next week.
Banks and financial institutions can help you activate this feature, thus preventing you from making any debit transaction on your card once you have reached your limit.
With this, you are compelled to postpone other expenses until the start of a new week.
Make buying decisions based on value and not cost
For the purpose of clarity, cost is what you pay for the product and value is what you get. The summary of this point is that you should know when an item actually costs more than it is sold, and make your buying decisions based on this knowledge.
READ MORE: Why this is the best time to buy Bitcoins
John and Francis both decide to get a car, but while John decides to buy a brand new car, Francis opts for a fairly used car at less than half the price.
Three months later, Francis’ car has spent more nights at the mechanic shop than in his garage, while John has only now remembered to take his car for the regular maintenance and check.
On the surface, John might have paid more but he got his money’s value, while Francis has come to discover that he paid more (cost) for less (value). For all the troubles it has given to him, he would probably have been better off going for the newer car or staying without a car at all.
When you want to make a buy, decipher the cost and the value and let this be your guide. You might spend much, but make sure it is right for the value you are getting.
5 tips to ensure that you save more even when you spend more
These are ways to ensure that you save more even as you earn and spend more.
Have you ever had an increase in income, with high hopes of achieving lofty targets, only to find that your expenses still gulped the entire sum?
That is the summary of what lifestyle inflation means – expenses increasing to match up with your income. And it never goes the other way. Yes, your income does not rise to meet your expenses. It is always your expenses rushing up to meet income.
Most people will spend more if they earned more, but not necessarily save more or invest more. This is not the best of financial habits.
We will be looking at five things you can do to prevent lifestyle inflation, and improve your money habits. These are ways to ensure that you save more even as you spend more and earn more.
Have a budget
Ridiculous as it sounds, some persons do not keep records of monthly expenses, and they have absolutely no idea what they spend their money on. You cannot go month to month, spending on every and anything which comes up without having a clear idea of what you spend on. Your budget should capture everything your money goes to, including monies you give out to family or friends, provided it is done regularly.
The first thing your budget does for you is it tells you what direction your money goes. Some people spend ridiculous amounts on regular costs like data, but still complain at the end of the month that they do not know where all their money went to.
The next thing a budget achieves for you is prioritisation. When you have a clear idea of what you spend every month, you can easily stream down and decide what expenses to reduce when you have less purchasing power. It would also help keep your expenses in check, ensuring that they do not suddenly double because your earnings increased.
Make your financial plans in percentages not figures
Ensure to make your financial plan in percentage, not figures. E.g., instead of saying you will save N10,000 every month, decide to save 15% or 30% or 40% depending on the size of your income. Now, what this means is that when your income increases, your spending may increase but your savings would increase also. There could also be room to review your percentages; if you start earning more, you could decide to increase the percentage you save or invest monthly.
Structure your financial plans in percentage and stick to it, because it pays in the long run. Even your savings could be further structured, so that you have a certain percentage in liquid assets, or have some in high-risk assets, and others in low-risk assets.
The percentage plan always works, particularly if you are not very disciplined with finances.
Learn to differentiate assets, liabilities, necessity and luxury
Unless you have an unlimited amount of money at your disposal, it is very important to differentiate between assets, liabilities, necessities and luxuries.
This has nothing to do with the item itself, but everything to do with you and what purpose it will serve you. So, while getting a new laptop may be a necessity for a data analyst who needs a gadget with a higher capacity to serve his work needs, it may simply be termed luxury for the factory worker who just wants something to keep him busy when there is power outage.
Now all four categories deserve to be captured in your budget, but differentiating one from the other will help you better prioritise and know what you really don’t need to spend on.
If an item is not going to directly affect your earning capability or increase your income, then it is not an asset. It could still be a necessity though, even if it is a liability. It can be a bit challenging to accurately label your expenses, but it is something you need to consider so that you do not end up rationalising every luxury item on your list.
Necessities should always get priority in your budget.
Build and maintain an emergency fund
Simply put, emergency funds are funds set aside for emergencies. if you decide to invest such funds, they have to be invested in liquid assets which you can easily convert to cash when the need arises.
Some people refer to emergency fund as miscellaneous, and end up spending it on other expenses. You cannot spend emergency funds on electricity bills or any other utilities. Expenses which occur regularly must be provided for, so you do not end up spending your emergency funds on routine expenses.
Emergency funds must be kept aside for emergencies only. Of course, your insurance plan will come in handy if emergencies occur, but getting a comprehensive plan may not be too affordable for you, depending on your income. Your emergency fund should be your first point of call then.
Have a regular budget for treats
On a final note, have a budget for treats. It is quite easy to make a monthly budget and capture utility bills, data, food, and transportation, without making any provision for treats. But what happens when you have that occasional craving for pizza and ice cream, or you feel like going to get a massage at the beauty parlour, or you want to get a gift for a friend? Failing to make provisions for the occasional treats could mean that you end up dipping into your savings or funds meant for other things when these cravings come, or you need to buy yourself a gift after working really hard and achieving your goals.
Life is not meant to be tight, and you cannot be so stringent with spending on yourself. Some people will make a budget for every bill in the month without setting aside something to occasionally spoil themselves. This may be good on your finances, but not so good for you.
Even though you want to save and invest towards your retirement, you also need to occasionally treat yourself to something good, or reward yourself for working so hard and achieving your goals. Life is not all about nails and hammers, after all.
These cravings for luxury are bound to come, and since you are not going to go begging to get it, it is better to have a monthly provision for treats. It could range anywhere from 2% to 10% of your earnings, depending on you. If played well, it could become a good source of motivation to you, knowing that there is a reward for working hard. Also, the quality of your life naturally improves (with more money for treats) as you earn more.