Diaspora Nigerians switch away from real estate as depreciating exchange rate erodes returns

Four years ago, when Nigeria first suffered a major currency crisis, Chukwuemeka decided it was time to invest in Nigeria. Following the devaluation that occurred in 2016, his $50,000 savings when converted to naira is worth N19 million much higher than the N9.8 million it was worth just two years earlier.

He plunged his savings into real estate investments in the country acquiring a slew of rental properties that helped generate income from his motherland. By the time he was done in 2017, he had sunk in over $100,000 or about N36 million in Nigeria as investments.

This is the same investment motivation for most Nigerians in the diaspora looking to invest back home. Work hard, save money and invest some of the savings in Nigeria. Real Estate investments such as hotels and rented properties have been the mainstay for diaspora Nigerians for obvious reasons. It is the easiest form of investment for those not savvy with doing business in Nigeria, and a convenient choice for those weary about the intricacies that come with manufacturing, farming, or trade. However, this perception is changing more noticeably as the economic situation in the country deteriorates.

The Covid-19 Pandemic and the ensuing fall in oil price has dealt a serious blow to the economy forcing massive depreciation of the currency and triggering a spike in inflation rate. As Nigerians wallow in economic despair, so is the fortune of diaspora Nigerians who see the value of their investments erode. Real Estate, the investment of choice is a poster child for the erosion of purchasing power.

According to Chukwuemeka his N36 million investment is now worth much less when converted to dollars. Rather than get back the $100,000 he brought into Nigeria he is likely to get much less should he decide to flip the property. This situation has made several others like him reconsider their investment options.

Nigerians in the diaspora are increasingly aware of the effect of exchange rate devaluation on their investment returns, especially from real estate, and are reconsidering their moves. Now, they are delving into areas previously viewed with caution and trepidation for fear of losing their investments.A diaspora Nigerian, Olayinka James, who is also the CEO CyberGuard Global Consulting explains his rationale for diversifying away from real estate.

“Although there is profit from real estate investments in Nigeria due to the massive population growth, the instability of exchange rate makes it less desirable as an investment vehicle for wealth accumulation. For instance, if you had invested $1M in real estate about 6yrs ago when the dollar was exchanging for N280, that same investment including possible appreciation would be worth around 70% using today’s exchange rate.”

The alternative for him is FinTech, which he believes, provides a lot more returns if the right deal is on the table.

“Fintech has a lot of room to grow in Nigeria. Globally, the overall Fintech market proved remarkably resilient in 2020 despite a broad array of uncertainties. Aas an investor, I believe that investing in Fintech has the potential for quick returns in the magnitude comparable to what the early investor in pay stack just cashed out. Over 400% return in a few short years,” he says.

Data from the National Bureau of Statistics reveals capital importation into Nigeria between April and December 2020 was just $1.6 billion compared to over $9 billion a year earlier. With the dire economic situation, foreign investors have abandoned investing in Africa’s largest economy. This has turned the attention of monetary authorities to diaspora Nigerians who are thought to remit over $20 billion into the country annually.

The CBN in March launched its naira 4 dollar policy which was aimed at diaspora Nigerians looking to send money to loved ones locally or just repatriate their savings in hard currency into the country. While no official data indicates how successful this scheme has been, the CBN’s indefinite extension of the policy suggests it may be working.

Critics point to the external reserve as perhaps the biggest indication that the policy may not be producing the desired effect required to boost dollar inflows and strengthen the exchange rate. Diaspora Nigerians, it will seem, have other government policies which they see as incentives for investing in the country. An example is the Agriculture sector.

Ayoola Julius, another diaspora Nigerian who cofounded an Agric-Startup firm, Green Gold Africa, explained why he delved into the sector.

“The government is putting policies in place to support the agricultural sector and there are investment opportunities in this area. You can now actually get into agriculture without owning a farm. There are investment platforms like Green Gold Africa where the diaspora can invest to support agriculture in Nigeria.”

But Ayo has got his fingers burnt in the past when he ventured into the real economy particularly retailing and logistics. “I have dealt with very difficult business people in Nigeria,” he explains.

Everyone tends to look at business opportunities through a rose-tinted glass. No amount of feasibility study or due diligence will save your investment if you deal with people who are insincere. I have lost money not because the business was not viable but because I was defrauded by someone, I thought I could trust. This is not a characterisation of most Nigerians as most people I have met are honest hard-working Nigerians but once you get your fingers burnt once, you tend to be too careful and lose out on good opportunities later.”

He is also worried about the effect of the depreciating exchange rate. “Exchange rate fluctuations are also a major challenge for transactions across borders. The dwindling value of the Naira makes me think what effect the fluctuation will have on my returns on investments and the true value of my capital repatriation.”

There are more investors like Ayoola and Yinka staking their future in the Nigerian economy which they left behind years ago. A promoter of a consortium of investors based in Canada informed Nairametrics they were interested in “big-ticket deals” that can absorb up to $2 million of investors. The consortium is made up of Nigerians living in the Northern American country, looking for high returns on investment in Africa’s largest economy. Like most diaspora investors, they have enough real estate in their portfolio and are looking to diversify into other sectors of the economy.

Increasing adoption of technological tools has also played a major role in boosting confidence to invest in the country. Diaspora Nigerians can now leverage on several options to track their investments, monitor payments, record and view expense journals. According to Emeka, he has had better visibility of his truck business than even his real estate investment.

“I can see when my track is delivering products and even when they are buying fuel,” he excitedly remarks.

Despite the increasing disinterest in real estate, it remains a major destination for diaspora inflows. However, its days of dominance are fast declining.

Source : Nairametrics