Don’t put all your eggs in one basket as a Nigerian investor, suggests Dr. Andrew Nevin, Advisory Partner & Chief Economist of PricewaterhouseCoopers (PwC) West Africa.
He promoted portfolio diversification due to the frequent policy changes in government that could quickly wipe out investors’ assets.
Nevin made this statement in response to a question about how Nigerian businesses can prevent themselves from going out of business during a recent panel discussion.
Webinar session organized in 2023 by Nairametrics, themed: 2023 Economic Opportunities to Mitigate Impact of Headwinds.
Brain capital
Dr. Nevin also said currently, brain capital is the best investment in Nigeria. He said investing in the broader economy is very risky because of 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 living standards getting harsher.
- He said he would not encourage individuals to take the risks prevalent in the Nigerian investment environment, stressing that the best form of investment in Nigeria right now is investing in self.
- “What I might say to people is, if you want to hedge against the harsh environment, the people that are doing well in this country are people that invest in themselves, invest in brain capital,” he said.
Dead Assets
At the macro level, Nevin had said Nigeria can grow its economy by putting its many dead assets to use. He said one of Nigeria’s major dead assets is its real estate assets that are not being put to optimal use.
- He listed some of the federal government’s dead assets including the Ajaokuta Steel Plant and Nigeria’s refineries as some of its dead assets. He said Nigeria needs to unlock its dead assets to grow; if not, there will be a problem.
- He noted that the government is becoming more predatory over the last couple of years towards businesses and individuals in extracting value, it becomes a very difficult situation.
- In January 2022, Nairametrics quoted Nevin as saying, “Nigeria needs to unlock dead assets that are not producing returns, and also focus on service export growth, as some of the themes that will shape Nigeria’s economy.”
Portfolio Diversification
Alluding to currency policy, Nevin noted that sometime in the past, the British pound was almost at par with the Nigerian naira, but over the decades it has lost value to as low as it is today, stressing that the local currency is losing its store of value characteristic.
- He thus stated that if an investor had a single portfolio of investment in naira denomination exclusively that person’s net worth would fall to zero over time.
- In July 2019, Nairametrics reported that portfolio diversification is a model which a lot of investors use in building their worlds.
- This simply means avoiding putting all your eggs in one basket. You should put money into a portfolio of investments that include bonds, treasury bills, stocks, and other fixed-income securities. That way, you create a balance and hedge against risk.
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Portfolio of currencies
Nevin said, for instance, if an investor had an investment in a corporation that was doing well, it would be wise for that investor to spread his investments into other portfolios, especially portfolios in international currencies, including cryptocurrencies, which is why many Nigerians are drawn to investing in Bitcoin and Ethereum.
- Speaking about investment and export opportunities, he said it’s not feasible in the medium term for Nigeria to be competitive in the export of physical goods because of a number of factors, including the port systems, the customs service, and excess charges.
- He said no one is going to be interested in investing in physical goods in Nigeria, neither Nigerians nor outsiders.
- He stated that the only feasible strategy for Nigeria to boost non-oil exports is in the services.
Services are the way
Nevin noted that a lot of people have a misconception of the services sector, stressing that two-thirds of the world’s GDP is in services, while manufactured goods are at the tail end of the world’s GDP.
- He stressed the need for Nigeria to export knowledge, music, software development services, business process outsourcing, fintech, and talents like football.
- He cited Access Bank, UBA, and other banks on the march across Africa with banking services. He said the government needs to expand on that by training and providing opportunities for its people.
- The services sector currently contributes about 52% of Nigeria’s GDP.
Compared to the two-thirds global average, it means Nigeria still has a wide room for growth in the services sector. Like in most thriving economies nowadays, the services sector is gaining momentum in Nigeria, because more and more people are moving from the countryside to the cities to find jobs.
Moreover, in 2019, the employment level in services as a share of total employment in Nigeria was around 53.03 percent.
- In August 2021, Nairametrics reported that Nigeria’s service sector, which made up about 55.6% of the country’s GDP was the major reason for the growth post-COVID-19.
- The sector grew at a faster pace of 9.27%, one of the fastest in recent years. The other two major sectors, Agriculture and Industry recorded a 1.3% growth and -1.23% contraction respectively.
Reasons to invest in services
The PwC chief stated that there are obvious reasons to invest in services, citing that they don’t have to go through the ports system in Nigeria and face the kind of bottlenecks encountered when exporting physical goods. He also cited that they are value-added.
- He stated that there are Nigerians working from their homes offering services to American companies and earning thousands of dollars monthly.
- He said Nigeria was already doing well in services export than goods export. He drew strength for his proposition from the Indian economy, which he said already exports services to the tune of $200 billion.
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