Investing in stronger currencies as Naira devaluation worsens

Sept. 14, 2022, 9:08 a.m.

Investing in stronger currencies as Naira devaluation worsens
The past week was coloured with news about Nigeria’s foreign exchange earnings and exchange rate.

First, it was news about the depletion of the Excess Crude Account, then the Naira crashing against other currencies, falling to a low of N710/$ in the outgone week. This resulted in panic buying which made the situation worse as many sellers hoarded the dollar in anticipation of further devaluation.

Why is the Naira Plunging?

Nigeria earns foreign exchange from oil exports, non-oil exports, foreign direct & portfolio investments, remittances, and grants. Oil exports account for over 90% of the country’s foreign exchange earnings. Though oil prices have been above $100 for the most part of 2022, Nigeria has not benefited from high oil prices. Ballooning oil subsidy and continuous oil theft limits Nigeria’s earnings. The economic impact of the pandemic has also significantly depleted foreign exchange earnings from investments and remittances. This together with elevated demand for the dollar accounts for the continuous devaluation of the Naira.

Should I Buy Dollars Now?

It is good to save in dollars but panic buying at an all-time high rate may not be such a great idea. Here are two reasons why:

  1. Panic buying implies you are probably buying dollars with equivalent funds you'll need short term; this means you might need to sell when you need cash. This is called over-saving. Over-saving is when you save more than you need to and find yourself needing to liquidate for short term emergencies. 
  2. The Naira exchange rate is currently quite volatile. When you 'panic buy' at a high rate, you might end up selling at a rate lower than the purchase rate when you need cash.

What Should I Do?

Rather than 'panic buy' at a high rate, it is best to plan how you invest or save in dollars regularly (daily/weekly/monthly). This way, you buy at low and high rates which will average out the risk. The devaluation of the Naira is not a new phenomenon, it’s been happening for years and will continue to happen until the Nigerian economy is fixed. 

It's best to consider how to invest in assets denominated in strong currencies that hedge against devaluation and inflation. 

One of such assets is real estate. 

Real estate is inflation-proof as its price moves in parallel with inflation. Investing in real estate opportunities in countries like the United Kingdom protects your investment portfolio, grow the value of your portfolio, and serves as a means of increasing your cash flow. 

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