Many investors cannot hide their sadness as the year 2019 crawls to an end in a few days’ time. Their discomfort stems from the fact that investment yields have not been impressive, especially from the traditional investment options, except perhaps the fixed income market. Nigeria’s economic growth did not meet expectations. The economy has remained weak, closing the third quarter ended September 2019 at 2.8 per cent. This is a country in which GDP growth hovered between 6 and 7 per cent growth before 2015.
There is every indication that 2020 might be a very difficult year for investors given the harsh macro-economic environment. Despite the N10.6 trillion budget which has just been signed into law, Industry analysts appear unanimous that the on-going trend and federal government policies are incapable of nudging the economy towards achieving any significant growth.
More worrisome in recent times is the signal by Moody’s investors’ service, a global rating agency that changed its outlook on Nigeria’s ratings to negative from stable.
Despite the discomforting ratings, Moody’s however, maintained a stable outlook on Nigerian banking system. ‘Our view reflects the banks’ resilient capital buffers and their stable deposit bases. Although Nigerian banks’ asset risk and profitability will remain key rating challenges, we expect these challenges to gradually ease in 2020 as the economy improves further,’’ the agency said.
It however, noted that the GDP projection would be well below the level required to improve the Nigerian’s living standards. Fitch, an international credit rating organisation, also downgraded Nigeria’s economic outlook from stable to negative while affirming the B+ rating. Fitch stated that the downgrade of Nigeria’s economic outlook is traceable to the disruptive macroeconomic policies under the administration of President Muhammadu Buhari.
Fitch also noted that its downgrade of Nigeria’s economic outlook reflects the increasing vulnerability from the current macro policy setting in Nigeria, Central Bank’s complex regulatory measures, rising country debt, low fiscal revenue and uncertainty in governance. Coming on the heels of Moody’s & Fitch’s troubling and gloomy ratings of the country, the World Bank had also revealed its belief that the number of Nigerians living in extreme poverty may increase by more than 30 million by 2030. The bank warned that Nigeria will be home to 25 per cent of the world’s destitute people if government does not revive economic growth and create jobs.
The scenario painted above should worry investors, however, no investor will pack his money and wait for improved conditions; they will still invest somehow. However, when Business Hallmark went to town to seek expert opinion, there was a consensus that the following sectors may prove to be better in the coming year.
Equities market: That the equities market will close in the negative this year at about-15.7 per cent does not make investing in equities entirely bad. Some of the sectors have proved to be relatively strong and have outperformed the market. For instance, the Food $ Beverages and the Banking sectors did not fail woefully. The crop production sector did not totally disappoint also, especially Presco and Okomu oil which have been bullish. Big broker houses and portfolio investors are still scraping some capital gains aside other gains from dividends in the same market. It is also instructive to note, industry analysts’ advice, that long term investors can invest in low price but promising stocks now and reap higher returns later.
Of course, Dangote Cement, Lafarge and Julius Berger are going to benefit from the N2.1 trillion budget allocation for capital projects next year. The emphasis on building infrastructure will favour the aforementioned firms among others because their products and services will be required for that purpose. Nevertheless, building of the road projects will trickle down to their bottom-line and benefit the shareholders of those companies.
A partner in one of the big names told Business Hallmark, ‘’why do you think I have remained in that sector since I left school 20 years ago’’.
Though real estate business may not have been very impressive this due to weak economy, compared to other investment options in Nigeria in 2019, real estate investment is still fairly good. But it requires relatively high capital. There is something in the neighbourhood of a 25 million housing deficit in Nigeria. Real estate involves houses, land among others in that category. Buying properties in Nigeria is one of the surest investments one can make because it is a developing country. Location is very important in real estate business. Though there are empty spaces in big and high rise buildings on Lagos Island that are un occupied, quick and high returns exist in property investment in major cities like Lagos, Abuja, Port Harcourt or cities like Delta, Onitsha, Ogun, Enugu. Many persons have learnt to build small unit apartments for lower level income bracket individuals. An investor can buy the land, wait for a while and dispose of it for money.
The investor can also build on this piece of land such kinds of properties like hotels, apartment houses, hostels, shopping malls, events and conference halls and other. Real estate investment appears better than keeping or saving money in banks with very small interest volumes of about 3 or 5 per cent per annum.
It is now easier to practice agriculture given that the government has designed various soft loans to help persons engaged in that sector.
Many millionaires have emerged through agriculture in Nigeria and there will be many more. Recently, Nigerian agricultural products are now better priced given the closure of border and the ban to access forex for 43 items by the Central Bank of Nigeria.
Though the government has continued to drive agriculture in order to diversify the economy, the support to grow that sector which contributed 22.86 per cent of GDP has increased and it is an attractive area for investors. Rice, Maize, Cassava, Cocoa, Tomato, Cotton, Oil-palm, Poultry, Fish, and Livestock/Dairy are notable areas of interest.
Indeed, livestock farming in particular is a top business and investment attraction in Nigeria today even as farming of food items is a necessary means of survival. This industry is supported by the Nigerian government as a way of promoting economic diversification.
Presently, the cattle population in Nigeria has been estimated as 15.3 million and breeds of cattle indigenous to Nigeria include White Fulani, Red Bororo, Sokoto Gudali, Adamawa Gudali, Wadara, Azawak, Muturu, Keteku, Ndama and Kuri. There are also goats, sheep, piggery, snail among others livestock.
Commercial Papers (CPs): FMDQ noted recently that there is increasing interest in commercial papers with about 60 Commercial Papers (CPs) worth N505.30 billion already listed on its trading platform. High net-worth companies appear to be taking advantage of this window to raise capital for their operations. Some of the big companies displayed strong score cards even in the third quarter 2019.
Many industry analysts observed that not many initial public offerings featured at the Nigerian Stock Exchange (NSE). Therefore, CPs among other windows however, solved the needed financial problems of some of these firms.
The Foreign Exchange market is a big and lucrative investment option but requires high skills because of its high risks. However, those who are skilled in it are scraping good fortunes from forex. The local currency, the Naira, hovers between N357 and N360 to a dollar but has just weakened to N363 over the weekend. But there has been back-breaking pressure on the naira despite CBN’s effort to keep it strong and stable.
The Services sector: This sector includes telecommunications, banking, Nollywood and the informal economy. This sector contributed about 50 percent of the Gross Domestic Product of Nigeria in 2018. The banks, of course, the most liquid sector in the market, did not perform badly in the third quarter 2019, an indication that next may still be fair.
The telecoms companies are strong and have depended on voice which contributes about 70 per cent of their bottom-line. However, additionally they have started harvesting hugely from data, implying that their services are needed at all times. These will trickle down to investors who will smile to the bank at the right time.
FIXED INCOME SECURITIES: Fixed income securities are one of the best in-terms yield in recent times. In the year 2019, the yield which hovered between 13 and 15 per cent attracted even banks to invest heavily in it. There is a story of a particular bank which invested about N1 trillion in Treasury Bills in one quarter. Analysts believe that fixed income investment option will remain attractive even in 2020. Though the government may tend to borrow more externally, bonds will still be very attractive. Despite that fact that its yields are becoming thinner, fixed income yields may not go below the double digit next year. So portfolio investors, high net-worth investors and small investors who invest through mutual funds will still smile to the banks through tapping this arena.