While I’m no expert on economic policy, I tend to think about it in two broad strokes – fiscal policy and monetary policy. In layman terms – the former largely refers to what the ministry of finance is doing while the latter largely refers to actions taken by the CBN.
The months of December and January have been the gift that keeps on giving on both axes of economic policy. From a fiscal side – we have seen a new tax regime signed into law, border closure (had to sneak that one in there because it’s leading to inflation which is an economic effect). From a monetary side – we’ve seen the CBN reduce the money market rates, restrict domestic investors from participating in open market operations, last week the Monetary Policy Committee (MPC) increased the cash reserve ratio (CRR) for banks etc.
The implications of all these actions mean different things to different categories of stakeholders but the angle I would like to discuss is from the average Joanna’s perspective.
Average – or above average Joanna (if we are being honest) is your young upwardly mobile individual who may be in formal employment, or is an entrepreneur of a small business, and may be saving towards a goal.
If you have been in any sort of conversation with average Joes and Joannas about finances recently, there has been a lot of questions about where to source funds, how to grow funds, or simply the best savings solutions in the market. In an economy where usual inflation beating instruments of treasury bills are not available, financial instruments to aid wealth creation is top of mind for this user group.
I think the current state of affairs poses immense opportunities to average Joes and Joannas from both the investment angle as well as the entrepreneurial angle. The pessimist would pose that with the recent developments, it would be even harder to find funding – for example this adjustment to the CRR would ultimately reduce loans to enterprises from the deposit money banks; we can’t make the returns we used to on treasury bills so we are cash constrained etc. However, Nigeria is a country where at least 60 percent of its economic activity lies in the informal sector. I think the economic policy creates an opportunity to solve the demand supply misalignment in entrepreneurial financing we face in our country.
There are a group of people who are looking for where to put their money to yield returns that will beat inflation – current economic policies have created a situation where the place most people have put money in the past is no longer an option. There would be at least a small segment of retail investors seeking returns who would be willing to invest in other instruments – and small business is one category of assets. We are seeing increasing activity in peer to peer lending, cash-flow financing etc. through FinTechs that are cropping up in our ecosystem today. So, the traditional financing options are not the only options an average entrepreneurial Joanna has to raise capital for her business.
For average Joannas who are wondering how to build their capital in this economic climate, there are still opportunities to invest that can create returns above inflation. Unless, you have a large pool of capital that fits the threshold of investment managers, who cater to passive investors, one has to be active if seeking to build their capital base. The first thing I would advise is educate yourself on the fundamentals of investing. The great thing is there are several courses that are available tailored to the specifics of our Nigerian market. Second, do your due diligence – as they say if it sounds too good to be true, it must be. Third, you don’t need tons of money to be able to start investing – you can start investing with as little as 1000 naira with some mutual funds. Finally speak to people, you are not the only one in your situation. In the last few months through asking people how they invested their money, I have discovered investment opportunities, investment clubs, and learnt a significant number of new things, I did not find on my good friend google. It never hurts to ask questions!
Finally, on an unrelated note – I have been looking for good wealth management aggregation solution. Given all the alternative investments one needs to participate in to find inflation beating returns – it would be great if someone could create an interface that helps consolidate all the various solutions out in the market.
Mayowa Kuyoro is an Associate Partner in McKinsey’s Lagos office and one of the leaders of McKinsey Africa’s Financial institutions practice. Mayowa co-authored Roaring to life: Growth and innovation in African retail banking. She is passionate about the role that access to finance can play in Africa’s growth and development. Mayowa is a co-author of the newly published research report The power of parity: Advancing women’s equality in Africa, which is a collaboration between McKinsey Global Insights and McKinsey’s Africa offices and explores the “power of parity” in Africa, looking at the potential boost to economic growth that could come from accelerating progress towards gender equality. Mayowa has a MEng (First Class Hons) in Mechanical and Manufacturing Engineering from the University of Warwick and a Masters in Business Administration with Distinction from Harvard Business School.