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Home Opinions Op-Eds

Diaspora Nigerians switch away from real estate as depreciating exchange rate erodes returns

Victor Enengedi by Victor Enengedi
July 6, 2021
in Op-Eds, Opinions, Spotlight
Exchange rate
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Four years ago, when Nigeria first suffered a major currency crisis, Chukwuemeka decided it was time to invest in Nigeria. Following the devaluation that occurred in 2016, his $50,000 savings when converted to naira is worth N19 million much higher than the N9.8 million it was worth just two years earlier.

He plunged his savings into real estate investments in the country acquiring a slew of rental properties that helped generate income from his motherland. By the time he was done in 2017, he had sunk in over $100,000 or about N36 million in Nigeria as investments.

READ: Nigeria records lowest remittances from abroad since 2008

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This is the same investment motivation for most Nigerians in the diaspora looking to invest back home. Work hard, save money and invest some of the savings in Nigeria. Real Estate investments such as hotels and rented properties have been the mainstay for diaspora Nigerians for obvious reasons. It is the easiest form of investment for those not savvy with doing business in Nigeria, and a convenient choice for those weary about the intricacies that come with manufacturing, farming, or trade. However, this perception is changing more noticeably as the economic situation in the country deteriorates.

The Covid-19 Pandemic and the ensuing fall in oil price has dealt a serious blow to the economy forcing massive depreciation of the currency and triggering a spike in inflation rate. As Nigerians wallow in economic despair, so is the fortune of diaspora Nigerians who see the value of their investments erode. Real Estate, the investment of choice is a poster child for the erosion of purchasing power.

READ: Diaspora remittances are down 61% YoY highlighting need for CBN’s Naira4Dollar promo

According to Chukwuemeka his N36 million investment is now worth much less when converted to dollars. Rather than get back the $100,000 he brought into Nigeria he is likely to get much less should he decide to flip the property. This situation has made several others like him reconsider their investment options.

Nigerians in the diaspora are increasingly aware of the effect of exchange rate devaluation on their investment returns, especially from real estate, and are reconsidering their moves. Now, they are delving into areas previously viewed with caution and trepidation for fear of losing their investments.

A diaspora Nigerian, Olayinka James, who is also the CEO CyberGuard Global Consulting explains his rationale for diversifying away from real estate.

READ: FG states reason for $100 charges, others imposed on Nigerians in diaspora

“Although there is profit from real estate investments in Nigeria due to the massive population growth, the instability of exchange rate makes it less desirable as an investment vehicle for wealth accumulation. For instance, if you had invested $1M in real estate about 6yrs ago when the dollar was exchanging for N280, that same investment including possible appreciation would be worth around 70% using today’s exchange rate.”

The alternative for him is FinTech, which he believes, provides a lot more returns if the right deal is on the table.

“Fintech has a lot of room to grow in Nigeria. Globally, the overall Fintech market proved remarkably resilient in 2020 despite a broad array of uncertainties. Aas an investor, I believe that investing in Fintech has the potential for quick returns in the magnitude comparable to what the early investor in pay stack just cashed out. Over 400% return in a few short years,” he says.

Data from the National Bureau of Statistics reveals capital importation into Nigeria between April and December 2020 was just $1.6 billion compared to over $9 billion a year earlier. With the dire economic situation, foreign investors have abandoned investing in Africa’s largest economy. This has turned the attention of monetary authorities to diaspora Nigerians who are thought to remit over $20 billion into the country annually.

The CBN in March launched its naira 4 dollar policy which was aimed at diaspora Nigerians looking to send money to loved ones locally or just repatriate their savings in hard currency into the country. While no official data indicates how successful this scheme has been, the CBN’s indefinite extension of the policy suggests it may be working.

Critics point to the external reserve as perhaps the biggest indication that the policy may not be producing the desired effect required to boost dollar inflows and strengthen the exchange rate. Diaspora Nigerians, it will seem, have other government policies which they see as incentives for investing in the country. An example is the Agriculture sector.

Ayoola Julius, another diaspora Nigerian who cofounded an Agric-Startup firm, Green Gold Africa, explained why he delved into the sector.

“The government is putting policies in place to support the agricultural sector and there are investment opportunities in this area. You can now actually get into agriculture without owning a farm. There are investment platforms like Green Gold Africa where the diaspora can invest to support agriculture in Nigeria.”

But Ayo has got his fingers burnt in the past when he ventured into the real economy particularly retailing and logistics. “I have dealt with very difficult business people in Nigeria,” he explains.

Everyone tends to look at business opportunities through a rose-tinted glass. No amount of feasibility study or due diligence will save your investment if you deal with people who are insincere. I have lost money not because the business was not viable but because I was defrauded by someone, I thought I could trust. This is not a characterisation of most Nigerians as most people I have met are honest hard-working Nigerians but once you get your fingers burnt once, you tend to be too careful and lose out on good opportunities later.”

He is also worried about the effect of the depreciating exchange rate. “Exchange rate fluctuations are also a major challenge for transactions across borders. The dwindling value of the Naira makes me think what effect the fluctuation will have on my returns on investments and the true value of my capital repatriation.”

There are more investors like Ayoola and Yinka staking their future in the Nigerian economy which they left behind years ago. A promoter of a consortium of investors based in Canada informed Nairametrics they were interested in “big-ticket deals” that can absorb up to $2 million of investors. The consortium is made up of Nigerians living in the Northern American country, looking for high returns on investment in Africa’s largest economy. Like most diaspora investors, they have enough real estate in their portfolio and are looking to diversify into other sectors of the economy.

Increasing adoption of technological tools has also played a major role in boosting confidence to invest in the country. Diaspora Nigerians can now leverage on several options to track their investments, monitor payments, record and view expense journals. According to Emeka, he has had better visibility of his truck business than even his real estate investment.

“I can see when my track is delivering products and even when they are buying fuel,” he excitedly remarks.

Despite the increasing disinterest in real estate, it remains a major destination for diaspora inflows. However, its days of dominance are fast declining.


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Tags: Diaspora investments in NigeriaFeaturedreal estate
Victor Enengedi

Victor Enengedi

For further inquiries about this article, contact: Email: victor.enengedi@nairametrics.com Twitter: @kuffz999

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Comments 10

  1. Mark Olayiwola says:
    July 6, 2021 at 8:41 am

    Well done Guys. I always enjoy the news from your platform. Meanwhile, I’ll really appreciate if I could get details information about the Russian Investors you wrote about yesterday. By way of introduction, I’m Mark Olayiwola by name and the principal Partner of Aderonke Olayiwola & Co(Tax Advisors & Chartered Accountants) and Peniel Professonal Services(PPS) both firms render professional services in the areas of taxes and accounting. We render tax advisory services for the new entrant by offering them pioneer status which exempt them From taxes for a period of up to 5 years from the commencement of their business if they attain the status. All these and other opportunities are some of the s revives that’s we offer new entrants. I look forward to receiving your response.

    Reply
    • JOEL says:
      July 6, 2021 at 4:23 pm

      Smooth

      Reply
  2. Johnson Olpodiong says:
    July 6, 2021 at 4:30 pm

    This PIB passed will reduce the Niger Delta people to “cap in hand” beggers. They will have not much position in polcy making in the rvent that HCDF, etc takes off. Lrt’s wait and see.

    Reply
  3. Israel Matthew says:
    July 7, 2021 at 9:02 am

    One or the key point is that No amount of feasibility study or due diligence will save your investment if you deal with people who are insincere.

    This is exactly what my client said, When he Mr Olumide arrived Nigeria, thou he was referred by Mrs Okanlami , they are both in the United Kingdom, Mr Olumide said what I will never forget, he said Matthew, alot of diasporas wants to invest but they have had bitter experience.

    We was so satisfy with me helping him to invest his money into real estate and also giving it out for Airbnb.

    Sincere people are scarce to see but when you see one, please hold them tight , even some family members can not be trusted

    Reply
  4. Anonymous says:
    July 7, 2021 at 10:54 pm

    N.a. god

    Reply
  5. 9jaRealist says:
    July 8, 2021 at 8:52 am

    Sorry, but don’t get the premise of this report. Instead of looking at $100K being worth N36m a few years ago, the ATTRACTION is that a diaspora (or even foreign) investor can buy the same N36m property (or properties) for much less in dollars. Diaspora Nigerians are NOT looking at their Nigerian investments to fund their livelihood abroad.

    Reply
    • Kunle Oni says:
      July 8, 2021 at 1:28 pm

      Correct

      Reply
    • Biggyerd says:
      July 9, 2021 at 7:40 pm

      Neither are we in the business of losing money. I earn my money in dollas, so it doesn’t matter what currency I invest in, the end goal is to get it back in dollas. If I invest $1 at the least I’m expecting to get back $1.01. It is not rocket science, just common sense.

      PS: No one with sense invests to fund their livelihood, they invest to secure their future.

      Reply
  6. Emmanson says:
    July 11, 2021 at 7:05 pm

    This is enlightening.

    Reply
  7. olawale bojuwoye says:
    July 14, 2021 at 10:00 pm

    Supposing the exchange rate of naira strengthened against the $.
    May it the best time to invest because the naira is so cheap and the prices of properties has almost stagnant.
    TO HAVE A BALANCE PORTFOLIO

    Reply

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