Analysts Express Concern over Double-dight Inflation on Investment
Kayode Tokede
Analysts during the weekend x-rayed the state of Nigeria’s double-digit inflation rate on investment in 2023, urging investors to utilize other opportunities in a tough business environment.
The Nigerian economy is going through a tough period with headwinds, including imported inflation, high exchange rates, foreign exchange scarcity, and uncertainty about the outcome of the upcoming presidential election, amongst others.
Speaking at a separate time during the first webinar in 2023 which was organized by Nairametrics on Economic Outlook with the theme: 2023 Economic Opportunities to mitigate the impact of headwinds, three prominent analysts, Mr. Ugodre Obi-Chukwu, Chief Analyst /Founder of Nairametrics; Mr. Kalu Aja, a certified financial education instructor and Dr. Andrew Nevin who is the Advisory Partner & Chief Economist of PricewaterhouseCoopers (PwC), expressed concerns over rising inflation rate in Nigeria and ways it is eroding investors return on investment.
First to speak during the meeting was Obi-Chukwu who explained in his presentation that the country is in an election year which will make investors slow down and remain on the sideline to watch the outcome of the elections.
The Founder of Nairametrics stated that following rising inflation and other operational challenges a lot of companies may turn in not impressive results.
He advised investors not to buy stocks when dividends are being announced by companies but before dividend declaration to achieve capital gains.
He highlighted that the Central Bank of Nigeria (CBN) in 2023 will continue with capital controls to manage the demand side of foreign exchange, adding that new foreign exchange policies will affect payment for online subscriptions as banks are forced to further cut transaction limits.
Low priced goods market, exchange rate that is inelastic to consumers will experience huge demand, foreign exchange crisis is a big opportunity for local manufacturers who can replace the demand for foreign exchange-sensitive imports and CBN’s financial inclusion drive will be a major boost for utilizes ass Nigerians are forced to go cashless, are opportunities he highlighted in a touch business environment.
Speaking also, Aja noted that investors may not make up to 21per cent return on investment, given the high inflation rate in Nigeria.
According to him, ““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 15per cent. Individual top-paying stocks are about 12.3per cent which is the banks. If you go to a fixed income you are not going to get five per cent. 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?,” he questioned.
He advised that if an investor wants to get a higher return on a fixed income there are Commercial Papers (CP) out there paying 12-15per cent, but they have very high minimum deposit requirements.
“The quick answer is that there are no safe investments in Nigeria that are going give investors a real rate of return.
“To get a real rate of return, investors have to take a lot of risks to invest in volatile assets or to do a combination of portfolios that could give investors the desired return,” he explained.
On his part, Nevin said investing in the broader economy is very risky because of double-dight inflation.
He stated that over the past eight years, Nigeria has had a very harsh business environment, with the local currency losing its store of value characteristic, and getting harsher.
He noted that he would not encourage individual investors to take the risks prevalent in the Nigerian investment environment.
He said when Nigeria has a growth of three per cent and the federal government becomes more predatory over the last couple of years toward businesses and individuals in extracting value, it becomes a very difficult situation.
According to him, “If Nigeria were at 10per cent growth a year, the country could have tax revenues growing at 15per cent a year, and the system would work, but right now it’s not working.
“But we continue to say it’s a growing problem; people don’t want to invest in this country because we’re not growing. I think we’re in a crisis right now but for the next government it will take policies to fix them.”
