Education

How Investment Clubs can redefine the future of Africa through collaboration

July 20, 2022, 10:37 a.m. | Updated At Aug. 15, 2022, 11:17 a.m.

How Investment Clubs can redefine the future of Africa through collaboration

The Story

From traditional assets like stocks to sophisticated assets such as like Non-Fungible Tokens (NFTs), the investment environment in Nigeria is brimming with multiple investment options. Technology trends and an increasing appetite for high yield stable assets have fueled an increase in investment options globally. Along with this, is an increase in financial education and ponzi schemes. It however hasn’t always been like this. This hasn’t always been the case but we’ve watched this trend unfold for the African millennial, specifically the Nigerian millennial for half a decade and are excited about what’s to come.

 

Let’s start from the not-so-far beginning

Before 2003, the stock market was the lone player in the Nigerian Capital Market. Savvy investors invested predominantly in 2 assets, stocks and real estate. Most people kept their monies in savings accounts with banks, while others depended on the thrift savings system (Ajo or Esusu).

In the year 2000, the Debt Management Office (DMO) was established to track the issue of government bonds and treasury bills and also generate domestic debt reports for internal & external stakeholders. By 2003, Nigeria issued its first debt/fixed income instrument.

This move, expanded the scope of the Nigerian capital market, increased the number of participants in the market and gave the government & corporates an avenue to raise funds for capital projects.

The launch of the Nigerian debt market and the privatization of a number of government agencies in the early 2000s, drew a lot of attention to the Nigerian capital market. Corporates and investors alike identified the opportunities in the market and came in, to position for profit in the market. This was the beginning of the journey to the crash of the Nigerian stock market in 2008.

Buoyant global financial markets, local listing of Nigerian banks and other corporates on the Nigerian Stock Exchange, and a burgeoning domestic debt market led to significant growth of the Nigerian capital market in the early 2000s. Between 2003 & 2007, market capitalization of the Nigerian stock market grew by 870%, moving from N1.3trillion to N13.2trillion.

These gains were however wiped away in 2008/2009, when the market due to the global financial crisis and the many imperfections of the Nigerian capital market, crashed. The heavy losses of 2008/2009 in the Nigerian stock market scarred a lot of investors and kept them away from the market. There has been a lot of restructuring of the market since the 2008/2009 downturn, but the market has not been the same. There hasn’t been a repeat of the year on year rallying of the market we had pre-market crash in 2008.

 

The emergence of the millennial investors – hard lessons learnt

Although the average age of investors in the Nigerian stock market is 56, when the market was buoyant, a couple of young people (undergraduates mostly) invested in the stock market. They also lost money when the market crashed.

These undergraduates or millennials soon became graduates, they got jobs with good salaries and started off their careers. Along with attractive salaries came the need to invest and these millennials were not going back to the capital market where they lost money. Some of these millennials also got handed stock portfolios from their parents that were worth very little after the market crash.

To test the investment waters, most millennials started off their investment journey by investing in treasury bills and money market mutual fund. Interest rates on treasury bills at the beginning of 2012 was about 14%-15% however, by the end of the year, the rates had dropped to 11%.

As time went on, millennials wanted more than traditional asset classes, their hunger for high returns led them to seek opportunities in alternative assets. In their quest for higher returns, some of them became victims of wonder banks and ponzi schemes.

 

Technology in the investment space

Financial assets are at the forefront of the digital evolution of the world. In the last 5 years, advancement in technology has enabled easy access to financial assets like stocks & bonds. A new type of currency (cryptocurrency) has emerged from the use of technology in finance.

In the Nigerian investment space, sectors like agriculture have taken advantage of technology to crowdfund agricultural projects and pay investors a return on their investment. Nigerian investors now access the US stock market through stock apps on their mobile devices.

These innovations haven’t come without some hitches. While some ponzi schemes have emerged from crowdfunding for agro projects, a number of crowdfunded agro projects have failed due to the riskiness of the agro business. Regulators have also wielded their big stick on the operations of some financial technology (fintech) companies. This we’ve seen happen with crypto exchanges and stock apps.

In the past decade, we’ve seen significant growth in the Information & Communications Technology (ICT) sector of the Nigerian economy. In the Q2 2021, the sector contributed 17.83% to Nigeria’s Gross Domestic Product (GDP), way more than the 7.42% contributed by the oil sector. This growth is despite the deteriorating economic situation in Nigeria.

The Nigerian Naira has been devalued by over 200% in the past 8 years, while inflation remains at double digit figures. In real terms, Nigerian millennials are poorer than their parents were at their age. The declining economic situation and the continuous loss of value of the Naira highlights the need for millennials to collaborate to afford investing in real assets.

 

Investing through Collaboration

For the average African young person (millennial or genZ), collaboration is a thing. Collaborating to invest is the activity of pooling resources together to take advantage of investment opportunities as a group which individuals might not be able to access due to low financial power or lack of access to information. This is the basis of the formation of most investment clubs and this what we do at TGI Club. It is the power of individual investors to create wealth by coming together as one body to invest.

There are many advantages of collaborating to invest, some of which include:

Financial Education: Members of investment groups/clubs get to learn about different assets classes and how to position for profit with each asset. They take investment decisions based on their financial capabilities and the stage of life in which they are in. They are informed and so they take informed investment decisions.

Due Diligence: Investment opportunities curated in investment clubs are taken through a due diligence process that ensures investors funds are invested in credible investment opportunities. Though there is no investment opportunity without risk, the risk exposure is limited when the opportunities are credible.


Democratizing Opportunities: There are investment opportunities accessible only by High Networth Individuals (HNIs). With the power of collaborative investments, retail investors are able to take advantage of these opportunities. This we’ve been able to achieve at the TGI Club by helping our members invest in Eurobonds, Venture Capital Funds and other investment opportunities that are usually available only to HNIs.

Curating investment opportunities that grow businesses

One of our core operations at the TGI Club involves curating investment opportunities. We do this with an understanding of the investment needs of members of TGI Club, the investing environment, and the needs of our investment partners.

Funding is a major challenge for most businesses in Nigeria and Africa at large. We see this as an opportunity and curate investment opportunities that enable members of TGI Club provide the necessary funding for businesses, while earning a return on their investment in these businesses.

This is our way of enabling businesses and growing the local economy. Some of the businesses we are in partnership with have been able to grow revenue significantly in the years we’ve partnered with them.

 

Beyond investing, building investment portfolios

At the TGI Club, we know that beyond investing, it is important that we help members of the club build diversified investment portfolios. We understand their preference for high yield investment opportunities, but we also see the importance of owning income generating assets.

We encourage members of TGI Club to not just invest in high yield debt instruments but also look to owning assets that increase their networth. This we do by curating investment opportunities that help members of the club build investment portfolios with a mix of different assets, taking into cognizance the investing environment.


Defining the future of Africa with the power of collaborative investment

Africa as a continent lag the rest of the world on a number of things. Most African countries in one way or the other depend on their colonial masters and the western world for survival as they are heavily indebted to them. Countries like Nigeria, Ghana and Kenya export rich natural resources to developed countries and buy these resources back as processed goods.

Collaborative investment groups can change the negative narrative around African. Pooling together resources to invest in Africa can help African countries break free from the leash of indebtedness that western countries use to hold them down.

With collaborative investment groups, we can invest in businesses that will produce exportable value add products, we can create infrastructure funds, that will cater to the infrastructure deficit in most African countries, we can influence government policies and shape the future of Africa.

As a collaborative investment group, in its 3+ years of existence and with over 2,000 members, the TGI Club has been able to mobilize over $20million (N8.2billion using the official exchange rate of N410/$) in investments in the capital market, consumer lending, agro financing, real estate and venture capital.

We’re currently taking applications from prospective members to join the TGI Club, send an email to Lola, hello@thegreeninvestmentclub.com.