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Rethinking Investment Options in Nigeria in Light of COVID-19 Pandemic

Published: 20 May 2020

Article Authored by Olayinka Alao, Managing Partner of Renaissance Practice: o.alao@renaissancepractice.com

Introduction

The Covid-19 pandemic has sent shock waves through the entire world within a short span of time. The unprecedented health emergency has now morphed into an economic emergency. This is no less as a result of the high contagion rate of the disease coupled with the fact there still is no vaccine or formidable drug that can battle the pathogen and neutralise it in its tracks. Hence, most nations have been left with limited options than to adopt containment measures including physical/social distancing and total/partial lockdowns. These measures, while commendable and arguably impactful, have occasioned grave constraints on economic activities and investments making it imperative for a thorough rethinking and adaptation of conventional business options with the reality of the times. This is more so in view of the fact that there still is a cloud of uncertainty hanging over the duration of the containment measures and how soon the pandemic will be over. Thus, the sooner investors and other key players discern the times and make necessary adjustments, the better.

Conventional Investment Options

Some of the traditional investment options which have been adversely affected by the Covid-19 pandemic include the following:

Stocks

The stock market pre-Covid-19 is typically a bastion of commercial activities with a high volume of trading simultaneously concluded by brokers on behalf of their principals. Most investors have embraced investing in stocks due to the high liquidity conversion rate of these securities as well as the ownership rights such securities confer on their holders in the management of the affairs of the companies to which they relate. However, the Covid-19 pandemic has precipitated a profound crash of the stock markets sending the stock prices of many apparently blue-chip on a downward spiral. The Nigerian Stock Exchange lost a whooping N2.3 trillion in the three weeks after the country reported its first case. The All-Share Index (ASI) of the Nigerian Stock Exchange (NSE), decreased by as much as 632.07 points or 2.41% as at Thursday 8th April 2020. Total volume of shares traded have dropped by up to 48.6%.

Treasury Bills

Foreign Portfolio Investment (FPI) in Nigerian Treasury Bills (NTBs) represent the second biggest source of dollar inflow into the country. It is also the biggest source of capital importation into the country according to data released by the Nigerian Bureau of Statistics (NBS) which showed that FPIs purchased $13.5 Billion worth of NTBs in 2019, representing 56% of the total $23.99 billion capital importation into the country during the year. However, the sustained diminution of Nigeria’s foreign reserves triggered by reduced foreign exchange earnings on crude oil coupled with the volatility of exchange rates, is likely to erode investors’ confidence in NTBs.

Oil & Gas Investments

Nigeria ranks as Africa’s largest producer of oil and the sixth largest oil producing country in the world. Earnings from crude oil sales also accounts for more than 80% of total foreign exchange earnings in the country. Not surprisingly, many investors have taken interest in this industry and received appreciable returns on their investment. However, the oil and gas industry has taken a bad hit with the outbreak of the Covid-19 pandemic. In fact, in as recent as last month, crude oil prices per barrel tumbled to record low rates, sometimes even below the cost of production price. Hence, many oil majors have slashed their budgets and projections for the rest of the year. Beyond this, Nigeria has also had difficulties in finding buyers for its crude oil and liquefied natural gas (LNG) cargoes. NNPC (Nigeria’s state-owned oil company) reported that about 50 cargoes of crude oil and 12 cargoes of LNG were stranded on the international market as at 11 March 2020.

Emerging Investment Options

Not all sectors of the economy have suffered as a result of the Covid-19 pandemic. Some sectors have been impervious to the contracting effects of the pandemic, while some sectors have in-fact taken a boost as a result of the pandemic. Investment in these sectors portend uncommon opportunities for profitable returns notwithstanding the present economic crisis. Some of these include:

Investment in Fin-Techs

FinTechs are in a vantage position to assume some of the traditional functions of the regular banks whose operations have been crippled as a result of the social distancing and restriction measures imposed on them. This is as banks customers are encouraged to use online medium and avoid frequenting bank halls as much as possible. Accordingly, FinTechs are presented with the opportunity to take advantage of the situation by offering and facilitating easy online payments whilst increasing their profitability in the process.

Investment in Digital Technologies

There is an immense opportunity for investment in the Nigerian digital space. The Nigerian government has in recent times channelled commendable efforts towards repositioning the sector with the launch of the National Digital Economic Policy and the Communication and Digital Economy Complex. Furthermore, it is expected that the Covid-19 pandemic will stimulate a paradigm shift in the traditional methods of operations in favour of a digital one. For example, many states of the federation have already adopted e-learning resources while schools are shut. Consequently, the alternatives provided by adoption of digital solutions during Covid-19 may have opened the door for growth in the digital economy drive in Nigeria which may outlive the current pandemic.

Investment in Agriculture

Nigeria boasts of large expanse of arable land with is most suitable for farming. Before the discovery of crude oil in commercial quantities in the country, agriculture was the mainstay of the economy. This, however, changed following the discovery of crude oil, and the sector suffered consistent neglect by successive government administrations until lately. There has now been a renewal of government’s interest in the agricultural sector with the introduction of several policies to revive the sector. For example, the government has supported rice farmers with funds and technical resources to boost rice production, and the country is on course to achieving self-sufficiency in the near term. In addition, several agricultural products such as rice, poultry, fish have been banned from importation, and the borders closed since November 2019 to further curb the illegal transportation of these goods into the country. This has therefore created a conducive framework for profit spinning investments in the sector.

Conclusion

There is no gainsaying that we live in uncertain times – health and investment wise, as a result of the outbreak of the Covid-19 pandemic. Many conventional investment options have been rendered unprofitable by the effects of the pandemic. The situation is, however, not entirely hopeless, as many previously overlooked investment options, which are nonetheless rewarding, have now become taken centre stage. We at Renaissance Practice are steeply informed on the workings and nuances of these alternative investment options in Nigeria, and willing to assist potential investors in making the right choices that will best serve their needs.

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