Invest in assets that retain value amidst high interest rate, scarce FX -Expert advises

Corporations and Investors should be prepared for a high interest rate regime, scarce Foreign Exchange (FX) and 18 months of economic recovery.

As such, they are advised to hedge their investible funds to preserve value, by moving excess liquidity and profits into value retaining assets.

FX liquidity remains a challenge, as The CBN is still unable to clear the backlog. Rates have stabilised after the initial volatility with the introduction of NFEM.

Benchmark recommendation for FX =N=1,500 -1,800/$.

Macroeconomic framework needs to be reformed as FX devaluation and inflation eroding returns. Lack of FX liquidity at the CBN also impacting repatriation of funds.

Industry, Trade and Investment Policies need to be upgraded; to enhance FDI inflows, facilitate local manufacturing and drive growth.

The Nigerian economy is still largely a monolithic economy dependent on crude oil exports for the majority of its foreign exchange earnings -95 percent.

The Chief Executive Officer of CFG Advisory, Mr. Tilewa Adebajo, has said that Nigeria needs between eight and 10 percent Gross Domestic Product (GDP) growth rate to sustain economic growth and development.

He said this while speaking on the topic, ‘Nigeria’s fiscal environment in an era of monetary policy tightening’, at the July 2024 edition of the Finance Correspondents Association of Nigeria (FICAN) bi-monthly forum in Lagos.

While noting that the country’s three percent GDP growth rate which currently stood at about three percent was low, he said there was need for policies that will attract Foreign Direct Investment into the country.

Adebajo said, “FDI is at an all-time low of under $1 billion; power transmission and distribution infrastructure are still very poor, impacting industry and economic growth; the macroeconomic situation has declined over the last seven years with a loss of $180 billion to $200 billion in GDP, currently at $390 billion.

He further recommended creation of a stable and predictable investment environment by implementing and enforcing clear and consistent policies and regulations.

Also, the country according to him, needs to encourage foreign direct investment (FDI) through investment-friendly policies and incentives.

Addressing stagflation and achieving sustainable growth in Nigeria will requires a comprehensive and coordinated effort from the government, the private sector, and the international community. It will take time, and progress may be gradual. With the right policies, sincerity and sustained commitment, Nigeria can work its way toward economic stability and growth. It’s a marathon not a sprint.

Most Nigerians’ purchasing power has been negatively impacted by the decreasing naira, the high cost of living, and inflation, which has reduced their desire to invest.

The naira has been under constant pressure since it hit an all-time low on the official market, also known as the Nigerian Autonomous Foreign Exchange Market, and Nigerian inflation surged to 28.92 percent last year, the highest in two decades.

Some investment banking experts have believes that a money market fund would ensure that the money has been invested and it is yielding returns, but it also has the flexibility such that, due to its flexibility investies can always take their funds out any time when and if a better investment opportunity or an emergency comes while a dollar fund would not only diversify the portfolio but also hedge against devaluation.

The proverb, “desperate times call for desperate measures,” resonates deeply in today’s Nigeria. With headline inflation at all time high, a volatile exchange rate and global inflationary pressures eroding the value of both investments and everyday purchasing power, everyone is constantly seeking a haven.

In recent years, dollar earners in Nigeria have enjoyed a distinct advantage in the country’s economy, capitalizing on favorable investment opportunities as the real value of the Naira depreciated.

However, this advantage is now set to wane with the government’s decision to remove fuel subsidies and embrace a floating exchange rate system.

ALSO READ: ICPC refutes recruitment announcement as fake