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Building Your Foreign Investment

Building Your Foreign Investment

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In Nigeria and across the world, investors tend to have a bias for the home court, holding the majority of their investments in their country of residence. Which is understandable; they know the terrain, understand the opportunities, the risks and have oversight of their investments. But sometimes, it’s simply because most of the opportunities that present themselves to you are the ones around you. However, studies have shown that investors may be leaving money on the table by not casting their investments further afield to other countries where returns, macro-economic trends and opportunities may be more favorable than their home country.

The Importance of Foreign Investments to Nigerians

As a Nigerian, you should consider adding foreign investments to your portfolio. There are many reasons for this. First, you need your investments to maintain and enhance your lifestyle both now and after you’ve stopped working. They need to compound and appreciate at an increasing rate over time. Which means, you must consider, and hedge against any major risk to your investments. Two major risks facing Nigerian investments are high inflation rate, and an unstable exchange rate. Our high inflation rate of around 11-12% average means that not only is the naira – your primary investment currency – losing a lot of value annually, your investments may not be earning enough inflation adjusted returns to grow in value over time. That is, when you deduct inflation from your returns, the real value of your investments may be increasing too little, or possibly even decreasing in value. A closely related problem is exchange rate volatility. Someone who made an investment of $100,000 into a Nigerian property in 2014 (N15.4m at the time) may be seeing a paper return of close to 40% in naira terms (N21.6m) but in dollar terms, they only have $59,800 in today’s exchange rates which is a devastatingly large loss of minus 40.2% in dollar terms thanks to the devaluation of the naira in 2016. And while you may think, ‘well I only earn and spend in naira so why should I worry about my losses in dollar terms’, remember that Nigeria is still mostly an import dependent economy which means that prices of most goods and services are tied to the price of the US Dollar. When exchange rates change, so do most prices and purchasing power is impacted. So, you absolutely must consider that, especially for your investments and savings. 

But that’s not the only reason foreign investments are important. In a lot of ways foreign investments represent wider, more varied options; bigger markets and more room for your investments to grow. Compare one of the biggest Nigerian banks, growing at 10% and valued at $6bn to a regional US bank growing at 14% and valued at $600bn yet with far more room to grow, given the size and scale of the US economy and the financial services industry in their country. Which would you rather invest in? How about rental properties in the US, where a property management company can handle all the rentals and maintenance, credit for expansion is easier to get and tenancy agreements are sacrosanct which means your rental cash flow can be relied upon as an income stream earned in dollars? How does that compare with local properties? And finally, how about owning a piece of some of the fast-growing technology companies listed or operating in the US or China? Some of which we are very familiar with (like Facebook, Alibaba or Tecno manufacturer, Transsion Holdings). These are all possibilities that come with making foreign investments. 

Where can I make foreign investments as a Nigerian?It used to take a lot of effort to find places where the average person could invest in foreign assets from home. But now, a handful of Nigerian fintech startups like Trove Finance or Chaka.ng providing online brokerage services that feature local and foreign stocks. And our platform, Rise (www.rise.capital), allows you to auto-invest in dollar denominated foreign stocks, real estate, startups and more, and have the asset selection and management handled by our software. The Internet has made it possible for your money to earn returns across the world without you having to leave home. You should take full advantage.

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