The Chief Executive Officer of SFS Capital Nigeria Limited, Patrick Ilodianya, in this interview with TEMITAYO JAIYEOLA, examines how technology has been impacting investment in Nigeria
What is the state of the investment landscape in Nigeria?
The Investment landscape in Nigeria is very interesting with a lot of potential. However, the upcoming elections are a very big event that would significantly affect the potential of all forecasted investment returns. Notwithstanding, most investment experts would agree that provided we have a smooth handover of power things are looking very good for the investment landscape. Real estate prices are expected to improve; the naira is expected to appreciate due to the inflow of FX; and the investment climate is expected to be far more business-friendly. Conversely, the developed countries are expected to start facing a recession and this may be a double-edged sword for Nigeria. Notwithstanding, with the possible recession, foreign direct investment into Nigeria is expected to increase provided there is a seamless transition of power to any of the three main candidates.
Investments in Nigeria are usually associated with get-rich-quick schemes. Why do you think this is so? And why do Nigerians always fall for these schemes?
Actually, get-rich-quick schemes are not exclusive to Nigeria. However, it is amazing how people always consistently fall for them. Education is a very big challenge in Nigeria, and this is even worse when you talk about investment education. Most people have not undergone any training on how to identify, appraise and execute investments to optimise return and minimise risk. This is extremely important. In the same way you need a doctor for health-related treatment; everyone needs to consult registered investment experts before making any investment decisions. It is important that any investment expert you consult is registered with the Securities and Exchange Commission (SEC) for two reasons. First, the registration procedure with the SEC is extensive and thorough. Only technically sound entities would get registered. Secondly, if anything goes wrong with the investment recommended by the registered expert, you can always report the investment expert to the SEC.
Nigerians need to read widely on investments and consult registered experts. It is a similar process to your health. Read widely on the subject and still consult a qualified investment expert.
How is the naira devaluation affecting investments?
Naira devaluation and Inflation are very bad for naira-denominated investments. Both evils effectively reduce the profitability of your investment. However, doing nothing is far worse. As a Nigerian earning and spending naira, it is better to make an investment return of 20 per cent than have naira devaluation and inflation erode it to make a return of 0 per cent and still experience erosion.
Naira devaluation is sometimes positive for some investments like real estate. As Naira devalues real estate in Nigeria appears cheaper to foreign investors using foreign exchange. This in return drives up prices over the long run. However, this applies to mainly diaspora Nigerians who do not need to repatriate the funds back overseas.
The biggest disadvantage of devaluation is that it prevents international investors from investing because devaluation aggressively erodes any profit made when they attempt to repatriate their profit. Generally, a naira profit usually results in a loss when converted back to dollars or foreign currency. International investments are normally the largest source of foreign currency and infrastructure investment available.
With the continued fall of the naira, how can people invest profitably in the market?
For a Nigerian earning and spending in naira, it is easier to achieve profitability despite the devaluation of the naira. However, most people prefer dollar-denominated investments like Eurobonds. Otherwise, high-yielding naira investments are your best bet to mitigate the losses from devaluation.
Crypto investments have gained ground in Nigeria. A lot of Nigerians are investing in crypto. Why do you think this is happening?
Cryptocurrency is an exciting innovation supported by blockchain technology. Generally, Nigerians are very adventurous, and some people believe it provides a hedge against devaluation. Unfortunately, cryptocurrencies are unregulated. And this is a major problem. Due to the lack of regulation, many people would lose the bulk of their investments in the coming years.
In my opinion, putting money in cryptocurrency now is not investing; it’s more of gambling. So, many things can go wrong. The crypto exchanges basically act like banks, fund managers and trading exchanges, all in one without any regulatory oversight. There will be many problems in the future. I believe enthusiasm would deepen massively. But I also believe when regulation catches up and regulators become actively involved, the abuses would reduce and the attractiveness would increase.
Tech has transformed the payment landscape, but the investment scene seems to be lagging. How can tech boost the investment landscape?
Regulators find it a bit difficult to keep up with Tech. Tech is a double edge sword. It makes investing easier, but it also makes fraud easier. Most of the rules and regulations become obsolete as tech changes. It is very important for industry players to carry the regulators along. Fortunately, the Securities and Exchange Commission has done a great job so far in trying to keep up to date. For instance, the entire system of listing and trading of shares has been made completely obsolete with tech. However, the system needs to move slowly to protect all investors.
Tech also makes investing easier. Industry players are encouraged to invest in understanding the merits and demerits of tech. There is no shortcut really. The increase in the usage of smartphones, the integration of mobile apps and the huge population of tech-savvy youths provide the opportunity for a boost in the investment landscape in Nigeria.
Your firm recently launched an app. Can you walk us through what you intend to achieve with it?
The SFS Fund Mobile App was a response to tech and how it can make things easier. In 2019, the firm rolled out a digitalisation agenda with the aim of bringing investment closer to our clients. So, we launched the web app and it was well received by both existing and new clients. With the new clients, we saw a gap that needed to be bridged with the Gen-Zs, who are very interested in becoming wealthy but may not be exposed to easy and legit products like SFS Fund. Seeing that they are a mobile-first generation, it was very crucial that the firm launched the SFS Fund Mobile App. With this, we can provide a financial product that is youth-inclusive and cuts across the needs of the different generations. Our hope is that the mobile app becomes the go-to app for investing. We remain committed to including relevant updates by feeling the pulse of our investors in addition to our experience as investment experts. SFS Fund is here to make investing easy and this is more than just a tagline for us. It is embedded in our mission statement as an organisation.
The CBN has set a 95 per cent financial inclusion target for 2024. Do you think this is attainable?
95 per cent of financial inclusion is attainable using tech. The CBN is moving in the right direction with registering telcos and mobile money agents. Without financial inclusion, investing would be restricted to only the rich or those within the financial system. At SFS Capital, we are doing our bit in contributing to this financial inclusion target, especially with SFS Fund. In March, we launched the Business Shower for women entrepreneurs, an event to celebrate the contribution of women entrepreneurs to our economy. And we intend to further build on the programme in 2023. In the second quarter of 2022, we started looking into a campus drive. We intend to visit schools and educate the students on personal finance.