Welcome to a new week and the midpoint of the month of February. I trust that those of us who celebrated Valentine’s Day, had a nice time yesterday.

Exactly a week ago, the International Monetary Fund (IMF) released its consultative report on the Nigerian economy for 2021. As we are aware, any investor needs to be mindful of 3 economies – the global, local (Nigeria in the case of many of us) and personal.

As such, we will be discussing highlights of this report in today’s newsletter as well as some of the implications for investors and the investment strategy can be used in times like this.

Not yet out of the woods – The IMF 2020 ARTICLE IV CONSULTATION REPORT

  • According to the report, the Nigerian economy is still at a critical stage, particularly given the fact that the pandemic has further strained an economy grappling with falling per capita income, declining revenue, double digit inflation and significant government vulnerabilities (using their exact words).
  • Of particular worry, is the fact that total consolidated government revenue to GDP ratio was 8% in 2019 and is projected to be 6% and 7% in 2020 and 2021 respectively.  As we can imagine, these ratios are amongst the worst not just in Africa but globally.
  • One of the recommendations proffered is exchange rate adjustment given the country’s limited ability to continue maintaining multiple exchange rates. The IMF also called for the merger of all exchange rates and suggested that rate management be switched to a more flexible and market determined regime.
  • Another recommendation, though on the medium term horizon, is the need for increased revenue mobilization through increased value added and excise rate taxes.
  • The call for more broad market reforms was reiterated noting the deregulation of the fuel prices as well as increase in electricity tariffs.


  • GDP growth is expected to be weak. The IMF projects that the economy contracted by 3.2% in 2020 and expects a minimal growth of 1.5% in 2021.
  • Government revenue is still under tremendous pressure, the recent oil price rally notwithstanding. As such, government borrowing will still continue. Last week, the DMO released its Medium Term Debt Management Strategy report for the period 2020 to 2023.

In it, the approved Debt/GDP ratio was increased from 25% to 40%. This was done to accommodate additional borrowings to fund budget deficits, government and other obligations during the period.  It also increased the portfolio mix of domestic borrowings to 70% and increased average tenor of debt to 10years.

By this, the government is signalling that it will borrow more locally this year and for longer tenor. This should be good news for institutional investors particularly as bond yields held steady last year unlike t-bill rates.

Currently, the DMO has announced that it will convert the N10 trillion ways and means loans obtained from the Central Bank into 30 year bonds.

Retail investors who prefer the certainty of bonds can also explore that option. At the same time, Treasury bill rates have slowing started inching up – at the auction of February 10, the yield of the 364 day increased from 2% to 4% per annum. Yields for the 90 and 180 day bills also increased to 1% & 2% from 0.55% and 1.3% per annum respectively.

  • Analysts expect that the Central Bank will still take steps to gradually allow the various rates converge during the course of the year. However the government and Central Bank also have announced that there are no plans to devalue the currency. Many people are adapting and wait and see stance on this.
  • The government both at federal and state levels will continue getting more creative with getting citizens to pay taxes either by way of levies or charges to augment revenue collection.

At times like this, where there are financial threats in either the economy or stock market; such as high inflation, recession and bear markets (when stock prices are on the downward trend); investors are advised to adopt a defensive investment strategy.

According to Investopedia, this is an investment strategy that entails regularly rebalancing one’s portfolio to maintain a certain asset allocation mix.

This is a conservative method of investing that is more concerned about reducing the risk of losing one’s principle sum. It is necessary to note that the focus here is first value preservation and secondly, growth which most times is mainly modest. 

In the context of the Nigerian economy; this can be achieved by:

  • Buying high quality, short maturity bonds either FGN bonds or Eurobonds
  • Buying blue chip stocks either locally or abroad. Stocks or shares that do well irrespective of the economy tend to be good buys in this instance.
  • Holding cash and cash equivalents.
  • Income generating assets

It is very important to note that no investment vehicle is risk free and timing always matters. This is critical for those that have either retired or are nearing retirement. It is also good to remember that defensive investing is not necessarily a long term strategy and should be relaxed or tapered off as the market or economic conditions improves or the needs of the individual changes.

Please be reminded that the COVID-19 virus is still spreading around the Nigeria especially in Lagos State and that more importantly, only 1 million vaccines have been purchased for 200 million citizens.

As such, we must continue to take personal responsibility for ensuring our safety and those of our family members.

Here’s wishing us all a wonderful week ahead.

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