Pandemic Anniversary: New Strategies

With 2020 being a year filled with unexpected events, 2021 is already shaping up to be a year of dealing with new realities as the smoke clears. Last year ended with about 83million global cases of Covid-19, (c.88, 000 in Nigeria), 1.82million deaths recorded globally, and fiscal affairs for all countries facing enormous challenges. By the end of the year, monetary authorities around the world had successfully driven interest rates down to record lows, pledging support to their various economies following the huge impact Covid-19 had on the affairs of individuals, companies and governments alike. Nigeria was not excluded from the trend with 1 year, 5year and 10 year bonds falling from the 9.2%, 11.2% and 12.1% levels at the start of the year to 3.6%, 5.9% and 7.5% as at year end. However, since the start of 2021 yields have begun inching up.

The fixed income space was not the only market that saw drastic developments. With oil demand crushed, as the world was thrown into a stand still, the country suffered significant losses in its oil receipts, with crude oil (Brent) price relatively low for most of the year. Similarly, the country’s compliance with Organization of Petroleum Exporting Countries (OPEC) and its allies’ production cut agreement exacerbated the situation, creating a double whammy for the country. It is important to note that the commodity traditionally provides Nigeria with about 50% of its revenues and about 90% of its export earnings. Given this backdrop, the naira was subject to heavy pressures, necessitating the 23.45%, 12.46% and 29.83% depreciations we saw in Official, Investors and Exporters (IEFX) and parallel windows respectively last year. This contributed to the accelerating inflation story for Nigerians as both the scarcity and higher cost of dollars has largely been a major issue.

In summary, it has been a difficult time for Nigerians, relating to business operations, meeting FX obligations and navigating through a double digit inflationary environment all while income levels struggle. This begs the question we all seem to have in unison, how do we navigate through these uncertain and difficult times?

We use this opportunity to share some thoughts and tips that may be worth your while.

  • Stay True to Your Budget: By no means an easy feat but an indelible characteristic required to keep your finances healthy. Given the record level of inflation (particularly food), this is increasingly difficult as staple items prices increase quite abruptly. Notwithstanding, being conscious of these trends and anticipating future expenses would go a long way in keeping your budget in shape.
  • Track Your Expenses and Optimize: Fun fact – Nigerians spent almost 12% of their expenditure in 2019 on restaurants and hotels. Following the point of budgeting, tracking our expenses gives us the advantageous perspective of hindsight. ‘Follow the money’ is our choice slogan for today as this would give you a better idea of where your funds are being channelled into and even aid you in being more realistic/accurate with your budget. It also raises difficult but important introspective queries such as ‘Am I meeting my savings/investment targets?’ or ‘Am I spending too much on chopping life?’ etc.
  • Favour Liquidity over Returns: It is no news that we are in a volatile moment in time and financial stresses can be ever so exacerbating for us and our families. This mind set should invoke a level of caution when making investment decisions through the year. With the onset of numerous investment schemes, particularly those relating to FX and cryptocurrencies, we advise investors to be cautious in the broader chase of finding returns that beat inflation. At this moment, cash is king and having it readily available, at least to a reasonable extent, would be hugely beneficial.  We recommend taking advantage of fintech applications that provide you with higher interest rates than traditional banks do. A notable mention is Ziing, which has a savings platform called Zsave.

Invest in Dollar Denominated Assets: With the naira currently undergoing significant pressures on the back of the earlier mentioned factors, having dollars available to settle obligations has become an uphill task for most. For individuals and companies with dollar obligations to meet, we recommend holding a portion of your assets in foreign currencies to augment dollar liquidity and guard against the incessant devaluation exercises. Investment One has an industry-leading mutual fund, Vantage Dollar Fund (VDF) that is worthy of mention. Similarly, dollar placements present an alternative method toward achieving a similar goal.