A quick and dirty introduction to investing in Nigeria
Your journey to becoming the Warren Buffet of our highly dysfunctional economy starts here ;-)
So earlier today one of the smartest, hard-working, most driven people I know asked me to invest in a ponzi scheme. I wondered why on earth anyone would invest in any such scheme.
They are unregulated,often illegal and often involve losing your friends/families money as well as your own.
Unfortunately advice on how and where to invest in Nigeria is sparse as even account officers don’t know or choose not to encourage clients to invest their money wisely.
So here is a short guide to some of the options you may want to consider.
- Nigerian Stock Exchange
It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price
-Warren Buffet
I am obsessed with the Nigerian Stock Exchange as most people know. So stocks are a key part of my portfolio.
According to Nairametrics, the definition of a stock is a unit of a share of a company that is traded on the floor of the Nigerian Stock Exchange (NSE). It is also often referred to as a share. Every company has shares which the owners lay claim to. When you go to register a company at the Corporate Affairs Commission (CAC) you typically say your authorized share capital is N1m made up of 1m ordinary shares of N1 each. This means your initial capital at the start of your company is N1million represented by those shares. Whilst the value of your capital may increase over time, your shares remain the same till you decide to increase it again and register same with the CAC. When the shares are listed on the floor of the NSE they are tradable as stocks meaning people can buy or sell them.
Generally divide your investments into long term investments and speculative investments when trading on the NSE.
The better you are at understanding a companies annual report, market conditions and growth trajectory; the better you will be at trading.
But if you are just getting started investments like GTB, Nestle and Dangote Cement are considered very stable for the long term.These would be a good start as you get to know the market.
Chapel Hill, Pro Share and Cardinalstone publish detailed daily reports on the markets which you should make a habit of reading to enhance your knowledge of the stock market. Also speak to stockbrokers to get ideas about their best picks.
2. Treasury Bills
Rule №1: Never lose money. Rule №2: Never forget rule №1.
-Warren Buffet
Treasury Bills are short-term debt instruments issued by the Federal Government through the Central Bank to provide short term funding for the government. They are by nature, the most liquid money market securities and are backed by the guarantee of the Federal Government.
They are usually issued for tenors of 91 days, 182 days and 364 days at the primary market auction held fortnightly by the Central Bank of Nigeria. The interest rate (stop rate) at the auction is not fixed but fluctuates based on demand and amount offered by the apex bank.
You do not pay tax on treasury bills and yield is normally higher when compared to fixed deposit. But they are harder to get rid of than fixed deposit if you need money back before the maturity period.
You can buy treasury bills from your bank.
3. Fixed Deposits
You only have to do a very few things right in your life so long as you don’t do too many things wrong
-Warren Buffet
A fixed deposit is a type of short-term financial investments sold by banks to its depositors. A depositor invests in a fixed deposit when he deposits his money with a bank in exchange for interest for a predetermined period. Fixed deposits can often be for one month, three months, six months and one year. In return for fixing your money with the bank for a fixed period, the interest paid on fixed deposits is always higher than the interest that the bank pays on a regular deposit.
Fixed Deposits can be done in naira or dollars, unlike treasury bills.
Fixed deposits are also available from your bank. Make sure you shop around as rates can differ drastically from one bank to another. Mr Pepe demostrates this in his analysis from a few years ago, looking a rates on N500,000 from three local banks.
Minimum investment amount for FD and Tbills is usually about N50K to N500K depending on where you are buying from.
4. Eurobonds
Someone’s sitting in the shade today because someone planted a tree a long time ago
-Warren Buffet
When Davido said ‘thirty billion for account’ he didn’t actually specify whether he meant naira or dollars . Eurobonds are for those of you that only deal in hard currency; you know yourselves :-)
Eurobonds are dollar denominated longer term investments with maturity periods of about five years. Interest rates are generally higher than fixed deposits offered by the banks..
5. Money market funds
A Market Fund (MMF) is an open ended fund that provides financial help and a steady stream of income by investing in high quality, short term Money Market Instruments(These include Bankers’ Acceptances, certificates of deposits, commercial papers, and collaterised repurchase agreements) and Government Securities (These include Treasury bills).
They are offered by investment houses such as ARM and AXA mansard as well as Banks such as Stanbic IBTC.
Developing a habit of saving and investing is important. If you don’t earn much and you can barely pay your bills, the idea of saving money might seem laughable. You may ask, when you only have N200 left at the end of the month, why even bother to try saving? But everyone has to start somewhere! If you work hard at saving, your financial situation is likely to improve over time. Saving money is definitely worth the effort. It gives you peace of mind in emergencies, you begin to have options, and the more you save, the easier it becomes to accumulate additional savings.
At work I bought all of my senior managers shares, to encourage them to start watching the stock market and develop a habit of investing and saving. If you have staff you can do the same with your own terms and conditions. Or add it to your bonus structure.
At my company the Flying Doctors Nigeria Air Ambulance we are in the aviation business as well as the medical business. Due to the high operational costs of our business we maintain a diversified portfolio of high risk start up investments and lower risk fixed deposit/treasury bills & stocks.
I hope this is a useful introduction to some of the various options available in Nigeria; they are certainly better than ponzi schemes. Warren Buffet is often called the oracle of Omaha as his hometown is Omaha, Nebraska. I wish you the best of luck on your journey’s to becoming the oracle’s of Kogi, Bayelsa, Lokoja, Kebbi, Ilesha or whichever hood you are from!
Disclaimer: Dr Ola Brown; @naijaflyingdr (Orekunrin) is a medical doctor, trainee pilot and founder of West Africa’s leading Air Ambulance service; Flying Doctors Nigeria. She is also David’s Khalessi. Ola doesn’t have an MBA… in fact she doesn’t have any financial qualifications at all. Ola will be directing all technical questions on this piece and corrections to her better half and finance guru David Brown (@dbrownanalyst) who is far more qualified than her, but hates writing. I beg of you, do this via DM so you don’t embarrass me in front of my enemies.
Update 2020: About to finish my Masters in Finance and Economic Policy. Author of a book about Economics, Finance & Banking in emerging markets. Creator of finance, banking, capital markets and economics course on youtube. Two time fund manager with total value of companies of over $200m in my portfolio, companies have received follow on funding from Softbank, Visa and Tencent. Raising $1bn for healthcare in Africa.
Remember this is a ‘quick and dirty’ guide.
Read my full profile here: https://medium.com/@drola/my-official-profile-bc53e23c64d3
