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Investment Guide

Natural Resources A Gift Not A Curse

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As revenue dwindles from Nigeria’s foreign exchange reserves, calls for the government to find alternative export revenue sources have never been as loud. A return to agriculture, once the biggest industry before the oil boom of the seventies, has been touted as the most viable solution. Mining has come to the fore as another potential revenue earner, though the drop in global commodity prices will have a bearing on investor appetite.

These alternatives can generate significant revenue for the nation but, as seen with oil, a robust and watertight system will be required to ensure that all revenue from mining is redeployed into states where there is mining activity.

There are many factors that have prevented mining in Nigeria being considered a real growth earner. Whereas Nigeria’s oil is internationally recognized, the grade and quality of the country’s minerals are not recognized as meeting international standards. This has led to questionable practices being carried out by miners and traders to ensure that they make a profit on their substandard material. Furthermore, testing centers and labs are few and far between, diluting the viability of finding a buyer.

The recently installed Minister of Solid Minerals and Mining, Kayode Fayemi, has already begun to develop strategies to ensure the development of the sector is maintained from federal to artisanal level. The fragmented nature of the mining sector in Nigeria allows for local cartels to take advantage of what is seen by many as a hostile business. Due to the lack of legislation, locals prefer to sell ores for quick gains to foreign buyers, rather than dealing with the bans and restrictions that come with the legal channels. Foreign buyers are able to get more for their money by capitalizing on the porous laws. The government in Congo is aware that the trace minerals, associated with the ores, amount to something valuable and have made it illegal to export them.

Confidence precedes investment and, with the global mining sector experiencing a downturn, the lack of protection given to mining in Nigeria risks deterring potential investors. Abundant natural resources should be a gift, not a curse. The lack of policy presents an opportunity for the ministry to develop the legislation that governs the sector. This will give confidence to mining companies who want to invest in a robust system. As with the Local Content Act in the oil and gas sector, there are policies that can protect the mining sector to keep the wealth in Nigeria. A ban on importing raw materials that could be mined in Nigeria is a start.

Today, a lot of Nigeria’s mining is at artisanal level. A workforce is usually made up of locals from surrounding villages. Armed with a spade, they get to work using crude techniques to extract the ore. This exposes toxins, leading to poor health and damage to the environment.

When visiting a mine, it is not uncommon to see the landscape punctuated by parcels of land ransacked for their minerals. In countries where mining is prominent, there is a synergistic approach with environmental and mining ministries working together to ensure that the environment and surrounding communities are not negatively affected by the excavation.

Unofficial tax collectors are also known to plague the routes on which the mined material is transported. While  companies have come to expect this in Africa, business will increase if this practice is eradicated in Nigeria. The mining ministry must engage with states and local governments to ensure that royalties and taxes reach federal accounts. With idiosyncratic systems catering to minorities, the fact that no major international mining companies are established in Nigeria is indicative of the lack of confidence they have in the country’s mining sector.

The general perception among Nigerians is that Minister Fayemi has the skills and intellect to successfully navigate his challenging post. During his term as Governor of Ekiti State, he attracted international finance. He is now expected to be just as bullish in Nigeria’s potentially lucrative mining sector.

Investment Guide

How to invest in uncertain times: 6 Essential tips you should follow

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Currently we all are experiencing uncertain times & everyone is worried about their investments & savings. The COVID-19 pandemic has caused many South Africans to be concerned about the state of the SA economy and its long-term future recovery, with most countries under some sort of lockdown.

Since the start of 2020, many of the JSE’s Top 40 stocks have lost as high as 38% of their market capitalization from the year high to mid-March low, but since then market has recovered some of its losses as of April.

The South African Rand has depreciated to its all-time low touching R19 in the start of April, which is almost 30% fall against the US Dollar since the start of year, this has happened as foreign investors are choosing risk aversion.

When the global markets are in free fall during a crisis, it may seem that investing during such times is an unwise decision, however, the opposite may be a smarter move. 

If the markets fall due to widespread panic and uncertainty, it may seem like you need to cash out to protect your capital. But withdrawing your investments at such a time may be a bad move since you will get a low value for your investments and it is very likely that the markets will rise again once the uncertainty passes. In fact, investing even more in good companies when the markets are low may be a wiser decision.

The decision to invest more or withdraw your investments should depend on your personal and financial circumstances. If you have lost your source of income, then it may be a better choice to hold off investing & focus on paying your bills until you regain financial stability.

But if you have spare cash, here are a few important things you should keep in mind before making investment decisions in such times.

  1. Make a Financial Plan

A sound financial plan is a strategy that takes into account your current financial situation and aligns it with your overall financial goals. A financial plan doesn’t simply mean investing.

Your financial plan needs to have clear goals. Make an estimate of the kind of returns that you would need from your investments to achieve your financial goals. Take into account the kind of risk that you can bear in case the investment goes wrong. Do not invest in high-risk portfolios that promise high returns unless you have the appetite for such risk.

Once you have calculated how much you want to invest, review the different investment strategies & options that are available, that align with your goals and risk-taking ability. Select a strategy that works for you.

Your financial plan should be made taking into consideration several factors such as the purpose of investing, the time-period of your investments, and projected inflation in the country during that period.

  1. Review Your Budget

The most critical aspect of your financial plan is your budget.

A budget is a breakdown of your earnings, savings, and expenditure. While making your budget, you should calculate your monthly expenditure, how much you need for essentials, your rent expenditure, how much you need for emergencies, your children’s education, loan repayments, insurance premiums, and any other expenses.

Once you have a budget in place, you are in a better position to know how much you can afford to invest and the level of risk that you can bear.

As a rule of thumb, you should only invest the money that you can afford to lose. If you can’t lose any of your capital but still want to invest, then consider highly safe options such as fixed deposits at banks.

  1. Look for Opportunities

Depending on your investment strategy, conduct market research to spot the best opportunities.

If you’re looking to invest in equities, check the sectors that are performing & expected to do well during the current market slowdown. Review the fundamentals of top companies in these sectors to judge whether they will continue to grow long-term. For example, pharmaceuticals and FMCGs are currently outperforming other sectors, due to the rush for essentials.

Are these stocks available at a good discounted price? Look into the dividends they have distributed in the last 5 years and the earnings per share (EPS).

Currently, the Johannesburg Stock Exchange has lost over R4.5 trillion in market capitalisation since the beginning of the year. This is a good opportunity since most blue-chip companies are trading at a severe discount of around thirty per cent (compared to 52-week high). Try to invest in safe blue-chip companies rather than high-risk stocks in difficult times.

If you’re looking to trade in currencies and derivatives, then this may be a good time since the market is experiencing the highest levels of volatility in nearly 5 years. Currencies that have been relatively stable for many years without much movements such as the EUR/USD are now experiencing high volatility.

While currencies of emerging economies like Rand (ZAR), Brazilian Real, Russin Ruble, Nigerian Naira have depreciated considerably (as high as 30% since the beginning of the year), due to a rush towards risk aversion. But analysts say that worst might be over for Rand & expect it to rebound by the end of the year, which might present more opportunities for currency traders.

Many global forex brokers are now reporting as high as 200-400% increase in trading volume due to growth in currency speculation.

If you are a currency day trader focusing on speculation & short-term gains, this may be a good time to take advantage of the volatility.

FX pairs can be traded at regulated forex brokers or through an exchange like JSE, which offers it as Futures & Options derivative instrument.

For Commodity traders: Prices of commodities like gold and silver may rise as people look for a safe investment. Gold has been viewed in the past as a safe investment during uncertain times.

The price of WTI oil has fallen considerably from close to $60 at the start of the year to as low as $19 per barrel due to OPEC+ price wars due to supply agreement issues from the falling oil demand during this crisis. The oil price could rise in the short term if there is some deal to slash output, and in the long term when the demand for oil rises again once the global economies open up. Commodities including – Oil, Gold & Silver are mostly traded as derivatives at major exchanges like JSE or at CFD brokers.

Investing in derivatives like – Commodities & Forex may carry much higher risk and you should only invest or trade in such products if you are comfortable with the risks these instruments carry and understand the underlying trading fundamentals.

  1. Focus on Long-Term Goals

If you are investing in uncertain times, it is best to look at your long-term goals. Short term gains may be limited in a receding volatile market, but that doesn’t mean that your investments do not have long term potential.

Do not judge your investments by their current status since they may be undervalued or underperforming due to market turbulence. But at the same time, be wise to understand the risk of your investment & how does the current situation affect its long term outlook.

When seeking long-term growth, consider your investment strategy. Are you looking to make money from stock dividends in blue-chip high EPS companies? Are you looking to invest in high-growth companies that are poised for high valuations but are not necessarily concerned about short term profitability? Or do you want to make short term gains by speculating on the current volatility of the stock & other markets?

When deciding on your investments look at how they have performed in the last three to five years as this may give you a better idea of the kind of future performance you can expect. Check the 3-5 year CAGR (or the Compound Annual Growth Rate) of your investments.

Remember that the fundamentals of a good company with sound management do not change depending on short-term market volatility. You should rely on the fundamentals to make your investment choices.

A good investment strategy would be to invest in companies that are currently undervalued but have strong fundamentals and scope for growth.

  1. Don’t Rely on the Advice of “Experts” and Don’t Panic

Instead of relying on specific advice from experts on investment choices, you should seek to learn how to judge fundamentals and the technical aspects of trading. Solely investing based on recommendation or expert advice is notorious for being misleading and it is better to rely on your own informed judgment.

Due to uncertainty in the market, the valuations and prices of several investments are abnormal. Do not buy into the short-lived panic and exercise cool judgment to make your decisions.

The current market volatility is an excellent opportunity for day traders, especially in currency markets. Also, if you are an equity investor, remember that strong fundamentals will win over short-term volatility in the long run.

  1. Conduct Proper Risk Management and Assessment

Every type of investment carries its own risk profile. Study the kinds of risk that are involved with each type of investment and assess the risk of your overall portfolio.

Remember, do not invest more money than you can afford to lose. Every investment carries a certain amount of risk and do not trust “guaranteed profits”. You should err on the side of caution and only make investments that you understand.

Investing in uncertain times may carry more risk but they also carry greater opportunity for better price discovery. There is a greater possibility of finding good long-term investments at lower prices.

Instead of staying off investments during such times, it is advisable to spend more time studying the markets and investing cautiously. 

Content Supplied by Forex Brokers SA

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Economy

Cryptocurrency for Africans

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George Gordon is on a quest to revolutionize the financial system. The director of Africa Master Blockchain Company talks digital currencies, blind risks and board games.


What is this new African cryptocurrency you are offering?

Where the majority of current digital currencies are based on speculative models, AfriUnion Coin (AUC) and the AfriNational Tokens (ANT)are designed for a transactional purpose allowing international payments, remittances, foreign direct investment as well as day-to-day transactions at local retail stores and other outlets. While the option for speculative trade is available with AUC, the focus is not around that.

Each African country will have a specially-designed ANT which will allow users to pay for goods and services and bills easily through completely digital means without requiring any bank account. AUC and ANT will be fully interchangeable to one another and there will be no fees for the user.

It’s the natural next step for digital finance from mobile banking which most Africans are accustomed to. The ability to freely have the power to send and receive money locally and internationally will allow the freedom of choice and spending power many Africans don’t have currently.

What is your own investment philosophy?

I am a gambler! I believe in taking risks and putting things on the line. That being said, blind risk or whimsical guesses don’t get you very far. Always acquire enough information to understand to a reasonable level what the thing you are planning on investing is or how it works and then trust your instinct and gut feel.

What advice would you give entrepreneurs wanting to invest in blockchain?

First, do some research in terms of what the blockchain technology is being applied for or created in terms of its application to an industry or project. Thereafter, check the white paper for the design of the platform as well as its functionality and applicability to what it is trying to achieve. If it aligns with your personal investment rules, then go for it,however, remember that blockchain is continuously evolving and thus you need to explore outside the usual and standard.

First cash-less, now card-less. What is the future of online banking?

If we are looking into what is currently science fiction, I would say the future is digital contact lenses that will be able to connect you to all your social media accounts, internet, news as well as make payments by just looking at QR codes or specialized barcodes to approve and accept payments.

Now, realistically we are not far off from such innovation and technology, but for the time being, I think the next step is scanning of QR codes at retailers and having the transaction automated from your wallet to the retailers digitally.

What is your most prized investment and why?

My mind. I believe that the work I have put into developing my mind, and continue to do so every day, is the number one investment that I have ever done. It allows me to look at things in a unique perspective as well as provides me with the tools to push boundaries and create new opportunities.

Money, success, fame? Which is most important to you?

I would have to say success… because it is most likely going to bring the other two as well, right? But success in the form of starting something and letting it grow and succeed and knowing that something new exists because of your efforts.

What do you spend your money on mostly?

Board games. I love board games and believe it’s a fantastic way to expand your mind as well as have fun with friends.

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Investment Guide

King Price CEO On Why He Invested On Insurance

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King Price Insurance’s CEO Gideon Galloway, who built an insurance company in South Africa worth over $226 million in six years, talks investments, industry trends and how self-driving cars will change the entire car insurance landscape.

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