In this interview, the Executive Director, Cordros Capital, Femi Ademola, speaks on investment decisions, fuel subsidy and foreign direct investments into Nigeria
Many low-income earners usually look for investment areas where they can get huge returns in a short time. Is this realistic?
What I have noticed with low-income earners is they are looking to invest small amounts of money and earn big returns. It is ludicrous to expect that I will be looking for huge returns and safety at the same time. Your preoccupation should be, what do I want? Is it safety of your money or huge returns? If you put your money in a safe investment, you may not get huge returns from it.
That is why when you go to the bank to put your money in a fixed deposit, because the bank must give you your money back when you ask for it, the rate will not be so high. If you are looking for the one that will double your money in three months, then you have to go somewhere else. That is why some people lose a lot of money because those that promised them such huge returns have collected billions of monies and disappeared because the promised returns are not feasible.
In recent years, the National Pension Commission has introduced four different funds and allowed workers to pick their preferred funds through their Pension Fund Administrators. Which of the funds is the most rewarding for workers?
The choice of those funds is not just generic. If you come to me asking me to help you manage your portfolio, I will ask you some questions to understand what your likes are, your objectives, your constraints and the kind of returns you are looking at. What risks can you take? In creation of the pension funds, fund one to fund four were created with regard to management of risks. Fund one is the riskiest of them and it is meant for young people who are just leaving school, who have more years to contribute in their Retirement Savings Accounts. They will add more equities to the investments of their RSAs or more assets with variable returns. The idea is that they have a long time such that if they lose money, they will recover in that long period. If you are already close to retirement, you don’t have that long time to be able to survive any serious crash; therefore, you are supposed to be progressing. As a young person, if you are in fund one, you can go to fund two and then later to fund three. When you are entering retirement, your money will be in fund four. As of that time, all the monies are tied in bonds and fixed income securities that pay regular amounts that can be used to pay your pensions. When you are getting due for retirement, the pension companies cannot risk any money. If you are less than 49, the default fund is fund two automatically. If you want fund one, you apply to them. If you are more than 49, the default is fund three. By that time, you are already nearer your retirement. Once you are retired, the fund goes to fund four. It is not about the economy but about your age and status.
Since PenCom opened the transfer window, many workers have transferred their RSAs to new PFAs. Do you think workers should consider transferring their funds to the PFAs that offer the highest returns on investment?
You have to ensure that the PFA is consistent in paying high returns on investment on the workers’ pension savings. This is because some companies can be lucky to have invested in one good instrument that gave some good returns.
Foreign Direct Investment in the country fell by $331m in 2021. What is responsible for this fall in investment capital into the country?
Many things are responsible. In the last two to three years, the COVID-19 pandemic has spoilt a lot of things. It is not only Nigeria that suffered that decline in FDI. When you check almost all developing countries, you will notice that they all had to start thinking of themselves first. Everybody is blaming COVID-19. When you have not fed yourself, you may not be thinking of how to go out there. When COVID-19 started in 2020, many firms started to panic. Some organisations would say, let us wait and see what could happen first before taking any action. So that happened to a lot of investors. Remember that when the investors bring a lot of money to Nigeria, they are going to change it into naira before they can do any investment. Now, we have been having some situations and I think it started mostly in 2020 when for some reasons, we did some policies that might not be favourable. What I found out was that a lot of times, the highest capital importation into the country have always been from portfolio investments. But you find out that so many times, the portfolio investment brings some direct investments with them. So portfolio investments will be like the front runner.
Again, things are happening. The exchange rate issue for those people can make them decide to wait and see how things are. The other thing has to do with interest rates. Largely speaking, when FDI comes into the country, the money is not usually 100 per cent that is needed to do business here. At times, the investors want to get money locally to support their investments. But when you find out that some of the monies that you find locally are quiet expensive, you are not able to get the money that you need. So, because of that, it makes a lot of people hold on like that. Also, sometimes some government and economic policies in the market may influence investors’ decisions.
I think that might be why we are seeing the drop in FDI, in addition to the fact that we are just coming out of COVID-19 and nobody is sure. Let COVID-19 disappear completely. I believe that this year, we will see the end of COVID-19 by the grace of God, and next year, we will be able to return to where we were before. It may be something temporary, and it may be because of some other local policies. Insecurity too will be chasing people away except they are very sure.
After the unfortunate Russian invasion of Ukraine, crude oil price climbed but this did not have any significant impact on the country. Are the massive oil theft and subsidy contributing to this?
The issue of oil theft is something that should be dealt with seriously. I believe that the country is stressed in terms of fighting insecurity. I think they are taking advantage of the stretched security apparatus in the country, which has to be dealt with. If we deal with that and we are able to sell fuel appropriately the way it should, we should see improvement in terms of what we collect from the sales.
Secondly, from the oil price, when Ukraine war started, we thought it would be short and nobody expected it would take this long. So when the fuel price spiked, it wasn’t so much of a big deal to me because much of the crude had already been sold on contract. We had already sold crude for the next one month, the next two months, so it did not have any significant effect on us naturally in that regard. That is why it is always funny when the government says that this is our benchmark price. When the price is different, you say, why are you shortening yourself? But because we have already signed some contracts, you know that the price is volatile. So why we are not feeling the impact is because of the already signed contracts.
The final thing is that when we produce our crude, we give substantial part of the crude to somebody who would refine it and give us finished products. When they bring it back to us, the landing cost of that is probably N500. Now, they decide that it is only N165 that people should pay, which means that we now have to subsidise that balance. This means that for the remaining half that we sold to earn money, we would use another half to pay for the subsidy. This reduces the amount of money that would have come to us. We have three refineries for the past 30 years that have not worked. Those three things will have to be dealt with. The theft is an issue on its own and we need to yank off the subsidy. If government is just honest, there is a way they can find a way to give things back to us. At the end of the day when you subsidise, it is the most elitist people that you are subsidising for, not the poor people.
What are the areas of specialisation of Cordros Capital?
Cordros Capital is a finance services group. We are a capital market operator and we have quite a number of businesses. When we started almost about 15 years ago, we started with the stock brokerage business, which was more about helping people to create wealth by investing in shares. We are one of the top 10 firms. After a number of years, we started the asset management business. We also started the investment banking business, which is more of capital issues, helping people to raise capital in the market. We also have the trustee business to help in international transfer of assets as well. A lot of prominent people have died in the country that their families are still contending their wills till now. It is the trust that will sort out who the main beneficiaries are. We also have registrar business. We also do insurance brokerage. The reason is just to get good rates for our clients.
Apart from offering services to large investors, do you also have investment products for low-income individuals?
In terms of products in our businesses, we have the asset management business that has different kinds of products. We have the products that are more fitted to the retail customers, which are like the money market funds. The money market funds are very safe investment and they are regulated by the Securities and Exchange Commission. The monies are put together to invest in short-term investments that are secure like treasury bills and commercial papers. The good thing is that the duration of the investment is not more than 90 days and every 90 days you have to pay your interest, except you want it to be reinvested. We also have a product which is like a lifestyle fund, where you can target and say, I want to save up to this to meet up this target in the next five years. We also have the Cordros Dollar Fund. It is available if you have access to foreign currencies and you want to preserve that exchange rate in the currency and want to invest in dollars. We also have the fixed income fund, where you can do longer-term bonds and get better yields. We also have the fund which is ethical. I won’t say it is for Muslims alone, it is for everybody. Yes, it is an Islamic fund but it is also ethical that anybody who is non-Muslim can invest in it. Pulling money together gives you access to instruments that you won’t be able to get on your own. In terms of affordability, yes, the retail products are affordable.