James, a Nigerian millennial, who had not been too happy with the snail-like growth of his bank account, chuckled yet again as he took one hard glance at his bank statement. For someone who had about N2 million in his bank account, you’d expect him to be wearing a wide smile. In Nigeria, being financially independent is a luxury for a lot of millennials, especially when you consider the purchasing power of earning in Naira.
But for James, it wasn’t the account balance that was his source of humour, it was the amount of credit interests he earned regularly. By keeping the money in the bank for 3 months, he had earned just N15,650 in interest income. This fell below his expectation. Being a cautious saver, he had avoided the trappings of giving his money to several people promising great returns. He liked risk and if he were to invest in money, he had an array of choices.
Investment opportunities in Nigeria
Traditional investment options: In Nigeria, several traditional investment options are available for millennials to invest in. Risk-free government securities like Treasury Bills and FGN Savings Bonds offer between 10% to 14% per annum in returns. Corporate Bonds offer similar returns but require a larger capital outlay which keeps it out of reach for many.
Real estate and Mutual Funds: Investors can also place their money in real estate, hoping that it will appreciate in a not too distant future. Mutual Funds are increasingly gaining wide adoption among some working-class millennials sipped in herd mentality. For most of them, it is at least better than keeping the money in the bank. However, the returns provided by these investment options are not great enough.
The Nigerian Stock Market: One investment that is often overlooked by this generation is the Nigerian Stock Market. Ironically, this is a market that could deliver the sort of mouth-watering returns they all seek. Unfortunately, it is a much-maligned market ladened with a severe trust deficit. Retail investors believe the market is often rigged in favour of select few.
For a lot of millennials like James, saving or investing in Nigeria Stocks is anything but rewarding going by the returns available. Since Bull Ride experienced in 2017, Nigerian Stocks have posted negative returns quarter after quarter and remained one of the worst-performing exchanges in the world.
While stocks remain on the bottom of the ladder, fixed income securities just don’t offer the excitement of investment. Most millennials will rather place their money on riskier investments like Cryptocurrencies, Forex Trading, High-risk deposit accounts and Ponzi schemes than waste their time on traditional investments.
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NASD OTC: Apart from the Stock Market, Nigeria also has the NASD, an Over-the-Counter market for trading shares in unquoted companies. Unfortunately, this market has failed to live up to its expectations. Retail investors hardly know about its existence and even when they do, they realise the market is shallow and bereft of excitement. Just like the Stock Market, younger Nigerians place little regard to NASD OTC.
Millennials’ stories on their preferred investments
Cryptocurrencies: Ifeanyi, a marketing executive in a leading consumer goods firm said he loved investing in cryptocurrencies and had made “serious money” from it. He declined to mention how much he had made, claiming he did not want to be kidnapped. Cryptocurrencies have posted the best returns in the market for the last two years and it’s not difficult to see why young Nigerians love it. The risk is high, returns are mouth-watering and the feeling you get for placing is “lit”, as Ifeanyi remarked.
Microfinance bank: An employee of a microfinance bank, also a millennial, informed Nairametrics that some of her clients are younger than 30 years old and that the number is growing fast. Her bank receives deposits of N1 million and above and can pay as high as 14% per annum in interest payments. She claims interests can go as high as 18% per annum if the deposits are significantly higher and have a long retention rate. Nairametrics also received significantly higher questions from millennials, requesting to know how to invest in microfinance banks, compared to the Stock Market.
FinTech Products: The allure for FinTech is also of financial interest to young Nigerians. In Nigeria, most FinTech related products are sold to millennials as AgriTech funds or pure peer to peer lending. The more esoteric AfriTech funds involve playing in a market that allows you to lend money to farmers in parts of the country you may never visit. They promise significantly higher returns than traditional investments and offer low rates of loss of investments. At least that is what they make them believe.
Ponzi schemes: For the less savvy, risk-loving millennials, ponzi schemes are the preferred form of investing. For Kola, it’s not just about the risk, it’s the price point. With just N50,000 invested in a Ponzi scheme, he can make three times that amount in three months. He claims he knows the risk and that the schemes are not based on any underlying business, however, everyone who participates in it understands it’s just for a short period. Some Ponzi schemes, hardly last over 2 years, thus the earlier you place your bet, the less the risk.
[READ ALSO: T-Bill Yields Trade Flat as Market Players Shun Lower Rates]
Immigration: If Ponzi schemes are a race to the bottom, immigration is a race for survival. For most young Nigerians under 30, checking out of the country is a new form of investment, the only difference is that it is in their careers. Just like regular investors, they take on jobs that provide regular income, while acquiring experiences required to score immigration points. They then save a huge chunk of their salaries, for tickets, visa applications and living expenses. The upsides here are clear – a chance to get a better life in a foreign country.
Reactions to millennials’ choices of investment
Most fund managers we spoke to placed the blame squarely on the regulators and government. A senior investment officer in a leading mutual fund opined that the lack of exotic investment schemes like financial derivatives makes investments in Nigeria very boring. Doing this will require a significant change in regulations guiding the financial sector as well as lifting the lid on capital flows in and outside the country. According to him, the current government is not ready for this and even if they have a change of mind, it can take 3 – 5 years for markets like this to go mainstream.
Reasons for the hatred
So why the hatred for stocks and traditional investments? For a lot of them, the answer is embedded in a bout of history. Their parents had lost a lot of wealth to the Stock Market crash of 2011. The bitter taste of that experience lives on in the hearts of their children. Unfortunately, this is very bad for the market.
Going by this dangerous trend, the Nigerian Stock Market, as we know it, will only continue to fall out of relevance and in a decade might just become extinct. Other traditional investments like Treasury Bills and FGN Bonds all sound esoteric and enticing until they figure out how “small” the returns are.
Based on the foregoing, it has become imperative for traditional investments opportunities to be made more attractive for young investors. One of the ways this could be achieved is to probably increase the interests accruable to investments. This is the only way to encourage millennials to consider buying shares or treasury bills.
More so, the authorities must work towards ensuring that investor confidence is guaranteed. Young investors who have once seen their parents incur loses and continue to do so may never invest their money in the same loss-making ventures.
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