The combination of falling naira, high cost of living and inflation have taken a toll on the purchasing power of most Nigerians, dampening their investment appetite.
The pressure on the naira has persisted as it fell to an all-time low of 1,348.63 per dollar at the official market or the Nigerian Autonomous Foreign Exchange Market on Monday from 891.90/$ on Friday, according to data from the FMDQ.
Nigeria’s inflation accelerated to 28.92 percent in December 2023 – the highest in 20 years – from 28.20 percent in the previous month.
“The depreciation of the naira reduces the worth of your savings in dollar terms,” Ayodeji Ebo, managing director/chief business officer at Optimus by Afrinvest, said.
He said with the persistent decline in the value of the naira, it’s advisable to have a sizable portion of one’s investment in dollars.
“For instance, if you had converted N1,195,000 to dollars and invested at the beginning of the year at N1,195/$1.00 for $1,000, the value of your investment in naira terms, excluding interest on investment, will be N1,405,000. That is a 17.6 percent return as of Friday, January 26, 2024,” Ebo said.
With a year-to-date return of 39.9 percent, the Nigerian stock market should have attracted many more Nigerians, but inflation and the cost of living crisis have eroded most of the profits.
Lisa Esifiho, a writer based in Lagos, said that after spending on basic needs, there is barely enough to invest.
“I don’t invest because after spending on my basic needs like food, I barely have enough to invest. Apart from financial constraints, I’ve always witnessed people around me lose their money to the wrong investment, and I’m scared of losing money too,” she said.
Last year, the country’s inflation increased every month to 28.9 percent in December from 21.82 percent in January.
The surging inflation was fuelled by several factors such as the removal of fuel subsidy in June last year, the devaluation of the naira and costly food distribution.
As the cost of living continues to rise in Nigeria, many individuals and families find themselves grappling with the challenge of managing their finances amidst increasing expenses.
The World Poverty Clock estimates that about 66 million Nigerians are living in extreme poverty.
“People aren’t investing in Nigeria for obvious reasons. If the naira keeps falling, there’s no incentive to keep your assets here. Also, people save or invest what is left after meeting basic needs. If they’re not investing, it means nothing is left to save or invest,” Boluwaji Davids said in a post on X.
Naira depreciation also affects the ability of Nigerians in the diaspora to invest in Nigeria. Bridget Odogwu, a Nigerian living abroad, shared his experience of losing $3,000 after investing in real estate in Nigeria.
“The land I bought for N5 million in early 2020 is worth N15 million now. I should be happy, right? But, I remember transferring the dollar equivalent in BTC to my broker who sent the payment in naira. Now, the equivalent of what the land is worth in dollars is roughly $11,200. I lost $3,ooo in 4 years,” he said in a post on X.
The naira since June after the devaluation has lost more than 40 percent of its value against the dollar, the biggest loss over that period among currencies tracked by Bloomberg.
Nigerians who are trying to invest in foreign assets are also contending with the high exchange rate, which has deterred some from such investment.
“Imagine exchanging naira for dollars at N1,360/$ to buy a foreign stock, an amount that would have bought more stocks some years ago. It makes dollar cost higher because the naira continues to depreciate,” Bunmi Sofowore, a realtor, said.
Adetu Olayinka, a cultural writer, said he preferred to invest in a business.
“I haven’t started investing, but I am saving up to invest in a business with a friend. Stocks have high risks involved and except one diversifies across countries and industries. It’s not something I think I want to venture into now,” he said.