How Profitable is Investment in Currency Deposit? by Babatunde Salami (Babatee)
Many investors, who have investments in Local Currency Deposit, merely invest below inflation rate of 22.42%. Therefore, they have not edged against deprecation of the Naira currency as well.
Therefore, any Naira Deposit, whose annual rate is less than 25% should not be considered a very good investment, considering that NBS acclaimed inflation rate is 22.42%
Any fixed income such as Bonds and Treasury Bills whose effective yields is less than 24% should be afforded.
It is necessary to think thoroughly before investing in any instrument (Money Market or Capital Market) whose returns has not exceed the inflation rate and edged against devaluations of the Naira
Stocks portfolio that returned cumulative dividends than is less than 30% should be afforded.
There will be serious volatility within the foreign Exchange Market, Naira as a local currency will be seriously under pressure in the next three years, largely due to illiquidity within the official market, Foreign Debt services, very low OPEC quota of about 1.5 MBP and we are yet to meet that quota, leading to low National Revenue
The two other Forex Market (Parallel and Transfer rates) are going to be elevated as well. Nigerians being an import dependent Nation, all goods and services that will be imported to Nigeria will bring along foreign imported inflation hangovers.
Consequently, imported goods and services prices will be elevated amidst lowering purchasing power of Nigerians
Prices of Petroleum will not be stable. It will vary based upon OPEC prices of crude oil. If prices moves northwards to say $100 per or more $120 per barrel, the price of petrol will be about N700 to N800. This will only happened when there is supply shocks such as Ukraine and Russia war that broke out March 2022 or any war break out in oil producing nations.
Majorities of businesses are going through tough and difficult times due to high inflation and attendant hike in prices of goods and services.
Most businesses replacements costs had gone upwards by as much 250% to 300% times
Against these backdrops, most companies that cannot refinance their replacements costs to stay afloat will either reduce by about 1/3 of original business operations. Some businesses may close down leading to increase in unemployment rate and Underemployment rate.
High unsold inventory stocks are likely to be witnessed due to lack or low of purchasing of the citizenry.
Pensioner’s pensions have been seriously eroded and it is still unabated
In order to find a save heaven at staying afloat by having investments that curtail the reigns of High inflation and the volatilities in for foreign Exchange rate, our investments decisions should take into cognisance of investments that are inflation linked, such as Real Estate, trading, logistics, transportation and others
More importantly, investments in offshore assets, such as offshore Asset acquisition, Euro bonds, offshore stocks trading and maintenance of Domiciliary account to warehouse foreign currency either purchased or receipt from investments.
We should try as much as possible to stay afloat and insulate ourselves from the unstable headwinds that are likely to be witnessed in the next three years before approaching stability, if the right policies are coming out from the Fiscal policies and Harmonisation with Monetary policies
In addition, the the three tiers of Governments must be bold, decisive in taken appropriate decisions that will benefits the citizens.
But citizens patience is highly required at a time like this.
_Babatunde Salami Babatee delivered this remarks at the meeting of Third-Estate Forum in Ilorin, Kwara State_
