Summary: Nigeria is currently facing two major economic challenges – a low supply of foreign currency export earnings and skyrocketing inflation. This scarcity of foreign exchange has significantly reduced the country’s revenues, pushing the government to take on more debt to fund its budget deficit. Despite efforts by the Central Bank of Nigeria (CBN) to liberalize the exchange rate and ease capital controls, the country is still struggling with a limited supply of foreign exchange. Additionally, high inflation has eroded the value of the Nigerian Naira, prompting the need for diversification strategies to protect investors’ portfolios and purchasing power.
Diversify Your Portfolio:
To mitigate the risks posed by the current economic situation in Nigeria, it is crucial for investors to prepare and have insurance. This preparation involves maintaining a cash reserve to capitalize on buying opportunities that may arise from falling asset prices. Insurance, on the other hand, calls for diversification to ensure that your portfolio can withstand market shocks. Here are some diversification strategies specifically tailored for Nigerian investors in 2024:
1. Consider opening a dollar savings account in Nigeria, such as the FCMB Legacy Bond Fund, to directly diversify your portfolio. However, it is important to note that holding FX cash in a domiciliary account will only yield benefits if it earns interest.
2. Explore FX dividend-paying Exchange Traded Funds (ETFs) which provide inexpensive means to diversify across sectors, currencies, or countries. The Vanguard High Dividend Yield ETF (VYM), for example, is comprised of approximately 450 stocks and boasts a low expense rate of 0.06%.
3. Invest in money market funds denominated in US dollars if you have direct access to the US market. FDIC-insured Certificates of Deposit can offer attractive interest rates of up to 4%, though this opportunity may diminish as the Federal Reserve adjusts its policies.
4. Consider FX Real Estate Investment Trusts (REITs) that provide exposure to companies engaged in real estate investments. The Vanguard REIT tracker, in particular, is a recommended option.
5. Explore the potential of precious metals, such as gold and silver, as a hedge against inflation. Gold, in particular, has outperformed many major asset classes over the past two decades. Consider investing in Gold ETFs like the SPDR Gold Trust for exposure to this market.
6. Get involved in the commodities market by trading agricultural commodities, such as rice and cocoa. Platforms like AFEX Nigeria provide a convenient way to invest in commodities.
7. Consider stablecoins, but exercise caution and conduct thorough due diligence before investing in them.
8. Seek foreign gigs that offer payment in foreign currency. Leverage your skills and sell products or services online to earn income in foreign exchange.
9. Stay informed about the prospect of FX Bonds being issued locally in Nigeria. If approved, these bonds could provide excellent diversification opportunities.
10. Explore the possibility of receiving payments in kind, instead of cash. For instance, negotiate for fringe benefits such as free rent or accommodation.
In conclusion, navigating Nigeria’s economic challenges in 2024 requires careful planning and diversification. The goal is to protect your portfolio from the impact of inflation and maintain your purchasing power. It is important to note that this article is for educational purposes only and does not constitute financial advice or a recommendation to buy or sell any securities. Investing comes with risks, and past performance is not indicative of future results. Stay informed about market developments and seek professional guidance when necessary.