Nigeria’s GDP returned to positive territory with the economy growing largely due to a rebound in crude oil prices and production volumes. Inflation has since fallen from all-time highs and the CBN Governor has hinted at a reduction in interest rates.
Treasury Bills were a major source of income for savvy investors last year due to the spike in government borrowing and interest rates. Rates on Treasury bills hit as high as 22% last year, due to the sharp rise in inflation.
While the rates have since trended lower due to the drop in inflation, treasury bills are a key part of any Nigerian portfolio due to their relative safety. The Nigerian government is highly unlikely to default on payment.Though minimum investible amount has been raised to ₦50 million, investment firms often accommodate retail investors by pooling their funds.
Commercial papers are short-term lending instruments to companies usually for a period of about a year or less. While slightly more risky than Treasury bills, they provide a slightly higher return and vary in safety depending on the firm.
Improved macroeconomic fundamentals mean companies have resumed expansion plans and would be in need of short-term finance.
The entry level for this asset class is much higher with minimum investment amounts often running into tens of millions.
Sovereign bonds are debt instruments issued by the Federal Government. They usually have durations of 5, 7 or 10 years. Federal Government bonds are also relatively safe since they are backed by the government and tied to specific projects. The government last year introduced the savings bond which investors can buy with as little as ₦5000
Sub-sovereign bonds are usually issued by states or local governments. Though slightly more risky than sovereign bonds, they are usually tied to specific projects and the state usually creates sinking funds for payment. The Lagos State government has issued several bonds and has been faithful in terms of repayment.
Corporate bonds are medium to long-term forms of finance released by private firms. While much riskier than sovereign and sub-sovereign bonds, the firms compensate for this with higher interest rates. C and I Leasing for instance, has a corporate bond with a coupon (interest rate) of 18.25%.
Eurobonds are simply bonds issued in a currency aside from the domestic currency of the borrower or issuer, usually in dollars. In a bid to take advantage of much cheaper interest rates, the Federal Government embarked on raising $4.5 billion worth of Eurobonds last year.
Private companies have also issued Eurobonds. Fidelity Bank issued a $500 million bond at a 10.75% yield. Tier two peers Union Bank and FCMB, are reportedly considering taking the same step.
The Nigerian Stock Exchange was one of the best performing last year with a 42% Year to date return and has maintained a positive return this year. In addition to price appreciation, investment in equities also provides income through dividends and has a relatively low entry barrier.
Mutual Funds are ideal for investors who are unable to actively manage portfolios and invest across various asset classes. They are also relatively affordable and provide regular sources of income.
Real estate serves as a good hedge against inflation, and also provides earnings through rental income. Investors could decide to hold properties directly or invest in a Real Estate Investment Trust (REIT).
Venture Capital is providing early-stage funding for young companies. While the risks tend to be high, the returns are also bountiful with some investments yielding as much as 10 or 20 times initial capital invested.