The CEO, SFS Capital Nigeria Limited, Patrick Ilodianya, in this interview with Abolaji Adebayo, speaks on likely economic boom in Nigeria soon through foreign direct investment if the 2023 election provides a friendly atmosphere
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 is a very big event that would significantly affect the potential of all projected 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 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-richquick schemes are not exclusive to Nigeria alone. 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 optimize return and minimize risk. This is extremely important. 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 t o read widely on investments and consult registered experts. It’s a similar p r o c e s s with your h e a l t h . R e a d w i d e l y on the s u b j e c t and still consult a qualified i n v e s t – ment expert.
What are the risks in the getrich- quick schemes?
The truth is that it is not only Nigerians, actually, a lot of people usually fall for Ponzi schemes. I think it’s just general human nature. And the truth is that even I have been asking myself that question, why do people fall for the Ponzi schemes?
I think for a lot of human beings, Nigerians especially and younger ones particularly, there is this thing in them that they do not mind gambling. There is always a particular portion of people’s portfolio that every human being is okay to gamble with. Most of the time when the Ponzi schemes come, people just go and in their mind they just put a tiny amount that they’re willing to lose.
So many times, most people, even responsible feel okay to allocate one or two or three per cent of their money to gambling. I mean, gambling is one of the most successful businesses; three of the richest people in Nigeria are actually into gambling and sports betting.
So, the issue is that by the time you see gambling as investing, people start to get greedy. They did it the first time, it worked; they did it the second time it worked, and they forget that when you are gambling, you should use only a fraction of one per cent of your portfolio and they will now allocate 30 per cent of their portfolio then it becomes a problem.
Yes to all humans generally if you give them a return that is potentially high enough, they will gamble because human being like gambling. So, to answer your question, it is simply because human beings like to gamble. And you cannot stop human beings from trying to gamble. The problem is that a lot of people are not very disciplined, they don’t know when to stop. Some can even gamble with their children’s school fees. Notwithstanding, participating in any Ponzi scheme is wrong and reckless.
How is the baira 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% 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 the devaluation aggressively erodes any profit made when they attempt to repatriate their profit.
Most in general 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 Nigerians earning and spending in naira it is easier to achieve profitability despite devaluation.
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? And is the current dip in value going to affect investors’ enthusiasm going forward? Crypto currency 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 a 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 deep massively. But I also believe when regulation catches up and regulators become actively involved the abuses would reduce and the attractiveness would increase.
Technology has transformed the payment landscape, but the investment scene seems to be lagging. Why do you think this might be happening?
How can tech boost the investment landscape? Regulators find it a bit difficult to keep up with technology. Technology 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. Technology also makes investing easier. Industry players are encouraged to invest in understanding the merits and demerits of technology. There is no short-cut really.
The increase in the usage of smartphones, 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 digitalization agenda with the aim of bringing investment closer to our clients. So, we launched the web app, www.sfsfund.com. 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.
Hence, why we remain committed to including relevant updates – one that we can do 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 organization.
At SFS Capital we believe very deeply in keeping track of the latest changes in technology to enable us to make better investment decisions and improve the ease of Investing. In our drive to engage actively with technology we decided to launch a web app then a mobile app called sfsfund. com and sfsfund respectively. We hope to continue pushing the boundaries of what is available in the Nigerian regulated investment space.
Before now most of the Fintech revolutionary ideas have existed outside the highly regulated mutual fund industry, but we want to change that. With SFS Fund we have achieved a paperless and seamless investment and redemption process; digitally enabled KYC process; 24-hour withdrawal process instant investment as easy as doing a bank transfer and receiving instant value and constant interaction with our subscribers and many more exciting features We are also planning to make many more innovative features as technology evolves and is tested extensively. We intend to always be ahead.
How has your SFS Fund business thrived?
SFS Fund is the digital version of the multiple award-winning and AA+ Rated “SFS Fixed Income Fund”. The business has been very successful since inception in 2014 and constantly outperformed its benchmark and most of its peers. SFS Fixed Income Fund is registered and regulated by the Securities & Exchange Commission as a Mutual Fund/Collective Investment Scheme. The Fund has a dual listing on the FMDQ and NGX.
The Structure and Investment Committee of the Fund includes a Global Custodian which holds every dime that comes into the fund and the also holds and protects all subsequent investments made by the Fund Manager. In addition, the Fund has a regulated Trustee which is a joint signatory to all the accounts and ensures all the investment decisions are consistent with the Trust Deed. The Fund won the Best performing Fixed Income Fund three times in a row by BusinessDay newspapers Awards.
The Fund manager of SFS Fixed Income Fund is SFS Capital Nigeria Limited. The reason for the introduction of the Fund was that SFS felt that there was a gap in the investments available in the market at the time. At SFS we believe in moving boundaries. In 2008 we launched the very first Real Estate Investment Trust – SFS REIT because we felt there was a gap in the market. In 2014, we noticed another gap and launched the SFS Fixed Income Fund.
Our target was to introduce a product that would give High Yields by skillfully combining Fixed Income and Money Market securities while providing 24 hour liquidity and seamless investment journey. We are glad to say that we were very successful and achieved our aim. The next step was to digitize the SFS Fixed Income Fund by introducing a Web app and Mobile app using the latest ‘tested’ technology available.
The CBN has set a 95% financial inclusion target for 2024, do you think this is attainable?
How do you think the nation can achieve this? The 95 per cent Financial inclusion is attainable using Technology. The CBN is moving in the right direction with registering Telcos and mobile money agents. However, there is need for enhanced technology to drive the CBN policy to attain 95% financial inclusion in 2024. 2024 is already here but technology is so powerful that can fast track the policy. Already, the fintech has been growing in Nigeria due to the development of telecommunications.
Without Financial inclusion investing would be restricted to only the rich or those within the financial system. There would still be financial gap as many people may still be excluded in the financial ecosystem in the country. 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 program in 2023. In the second quarter of this year, we started looking into a campus drive where we intend to visit schools and educate the students on personal finance.