Financial Analyst, Mr Kalu Aja, has said that with the inflation rate hovering above 20%, it is very difficult to make a real return on investment in Nigeria.
Aja stated this today at the Nairametrics Economic Outlook 2023 Webinar with the theme: 2023 Economic Opportunities to mitigate the impact of headwinds.
Return on investments: He noted that the implication of the current inflation rate in Nigeria is that to make a real return on investment in Nigeria, an investor may not make up to 21% return on investment. He said:
- “Look at all the top stocks in the Nigerian stock market that are paying the highest dividend, there is none that is paying up to 15%. Individual top-paying stocks are about 12.3% which is the banks.
- “If you go to fixed income you are not going to get 5%, so is very difficult to make a real return if you are investing in Nigeria. Property has a low yield in Nigeria. Commodity might achieve that but is it sustainable?
- “So, it is very, very difficult to find an asset class in Nigeria you can hold on to and say that’s going give you a good return without taking an enormous risk.”
Commercial paper: The certified financial education instructor noted that if an investor wants to get a higher return on a fixed income there are commercial papers out there paying 12, 15%, but they have very high minimum deposit requirements.
- “You have to deposit up to N5 million or N10 billion to qualify to get a 15% investment in a commercial paper.
- “So the quick answer to it is this there are no safe investments in Nigeria that are going give you a real rate of return. To get a real rate of return, you have to take a lot of risks to invest in volatile assets or to do a combination of portfolios that could give you the desired return”.
Impact of insecurity: While commenting on whether inflation will continue to go up in Nigeria, Aja said it depends on the security situation adding that inflation in Nigeria is driven by scarcity of food.
- Food and logistics are basically because the middle Belt region is not producing enough food due to insecurity. If we can handle insecurity and the cost of food goes down, I believe that will drag the inflation down.
- “So it is tough out there to find a real rate of return. What investors should do is group together and see if they could raise capital and take advantage of commercial papers out there.
- “If you want to do equities, you have to build your portfolio, if you are a pensioner in this market, you are in big trouble because you are a fixed-income person and you can’t take a lot of risks because options available for you out there are really, really poor,” he said.
Investment outlook: On the outlook of the nation’s stock market, Chief Analyst / Founder, Mr Ugodre Obi-Chukwu said that the country is in an election season which will make some investors slow down and remain on the sideline to watch the outcome of the elections.
- He also stated that following rising inflation and other operational challenges a lot of companies may turn in not impressive results.
- It is dividend season and a lot of companies are going to have fairly worse results due to operational challenges.
- He advised investors not to buy stocks when dividends are being announced by companies but before dividend declaration to achieve capital gains.
Seeking real return on investment in a dysfunctional economy is like seeking arbitrage by investing in sandcastles – the reality of the economic ecosystem will always betray the pursuit of passive income. It’s like investing during war without any assurance of surviving that war.
Thank you very much sir aja I am very greaful for this information you just impact on us, Sir please i want to also let you know that there are so many young people here in the rural area who fine it difficult in getting all of this you said and having a mind set of exspecting this kind of opportunity to invest but the finance is not there so such kind of people what should there do to be great in life
I totally disagree with you on “Property has a low yield in Nigeria”. Some major reasons why you will experience a low yield as an investor is when you did not get the location right. In the RE world, location is very key if you really want to make good returns.
Real estate investing is mostly done by using REIT, not buying the actual property. Returns on those investment are low and also very risky