Local Investments Are Not Enough
Since 2015, the Nigerian economy has been in decline, which has left domestic investors fidgety. In mid-2018, a report by The World Poverty Clock showed that Nigeria had attained the highest rate of extreme poverty in the world. By other comparisons, the GDP per capita for Nigeria is $1,555.41, ranking 133rd in the world, while the U.S. has a GDP per capita of $49,965.27, ranking 10th in the world.
In addition to these, Nigerian workers often earn low salaries and the value of the Naira keeps deflating, meaning N1000 invested last year is worth less than N1000 his year. Lastly, an unpredictable political environment makes it challenging to invest reasonably in Nigerian assets.
Nigeria’s inflation rate and projected inflation rate 2004-2024. Source: Statista via Nigerian Bureau of Statistics.
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Nigeria’s inflation rate and projected inflation rate 2004-2024. Source: Statista via Nigerian Bureau of Statistics.[/caption]
Let's take a look at the bank savings account. The typical savings account returns 4% interest per annum. While this seems reasonable, Inflation in Nigeria currently sits at around 11%, effectively returning -7% for anyone who saves with a bank.
For individual investors looking outside bank savings, opportunities to grow wealth are shrinking. In late 2019, the government shut out domestic investors from the treasury bills market. The stock market should be a viable option but the market crashes of 2008, 2012, 2015 and 2018 have compounded this problem and made young investors wary of the Nigerian Stock Exchange.
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Nigerian Stock Exchange Main-board index, 2015-2020. Source: Bloomberg[/caption]
Here's where the progress of fintech has helped through scale and access. Companies like Piggyvest and Cowrywise have built products that give thousands of Nigerian millennials access to save, invest and create wealth. Consumers want access to a variety of investment options which have been available exclusively to the Nigerian elite. Starting from N100($0.28), anyone can invest. Though these services have given more Nigerians access to investments, they are not enough.
The economic realities of Nigeria have made investors seek opportunities outside the country. Even Africa's richest man Aliko Dangote understands the need to diversify his portfolio away from Africa. In August 2017, he announced that Beginning in 2020, 60 per cent of his future investments will be outside Africa, so they can have a balance. Dangote Group will consider investments in Asia and Mexico but will focus mainly on the U.S. and Europe.
Nigerians want what Dangote has, and Yanmo Omorogbe and Richmond Bassey have a solution called Bamboo. Richmond has extensive experience in leading and managing technology projects for companies like Mastercard, Babybliss, L5 Labs and the office of the President of Nigeria while Yanmo, Director of Growth, brings experience working in the investment and public sector at African Infrastructure Investment Managers and the Nigerian ministry of power, works and housing. Together they bring a combined experience of 12 years in business and technology into founding Bamboo - an app that gives Nigerians unrestricted access to over 3,000 stocks listed on the Nigerian stock exchange and U.S. stock exchanges. Bamboo curates top stocks, exchange-traded funds (ETFs) and American depositary receipts (ADRs) in the United States.
How Does Bamboo Work?
With Bamboo, users can explore and choose from hundreds of Nigerian and United States stocks. The company has developed Android and iOS apps that allow users to discover the best local and global companies for investment. Millennials in Nigeria can now purchase shares in their favourite U.S. companies like Tesla, Facebook and PayPal.
For novice investors looking for the right stock, the app showcases the most purchased shares by all of its users. In contrast, an experienced investor interested in specific sectors can find stocks classified by eight categories like technology, retail, entertainment, finance and transport.
A partnership ensures that accounts in Bamboo are under the regulation of the Nigerian and United States securities regulatory agencies. Its U.S. brokerage partner is a member of the United States SIPC, ensuring user insurance up to $500,000.
What's the outlook?
Financial technology in Nigeria has come a long way since the early 2000s and the country's cashless revolution. The first wave of innovation in the financial sector solved the problem of moving money digitally. It provided a better experience in spending, making it easier for consumers to make payments electronically. However, Legacy finance companies in Nigeria, such as banks and investment houses, have been gatekeepers. Out of about 77 million banked Nigerians, only 400,000 of them own financial assets through mutual funds. The gatekeepers have limited a majority of Nigerians to purchasing and owning investment assets which are getting less desirable due to several factors. Over the next decade, we expect to see a more in-depth focus on the savings and investment elements of financial technology.
Yanmo and Richmond are hoping to capture the opportunity in an estimated $100 billion - $250 billion market. Nigeria has a $115 billion equities and debt market with 500 wealth managers accountable for $250 billion in assets. These managers have not scratched the surface - there are about 30-50 million Nigerians with investible income and only about 400,000 of them invest in mutual funds.
Bamboo's founders say their target is anyone above 18 with at least $20 investible income. With the growing youth population across Africa and large non-consumption in terms of investment assets, the company could scale its product offerings to other African countries like Kenya, Ghana and Egypt - where the growing middle class is locked out of wealth creation by legacy finance companies.
Scale is only possible if Bamboo can successfully convince young Africans to begin to invest. Currently, its users are allowed to make whatever investment decisions they choose. While options are great, studies show that inexperienced investors are risk-averse and tend to think short-term. Thus, bad investment decisions will lead to losses and make young investors wary. Richmond, Yanmo and the Bamboo team will have to educate the market and refine its product on the right path to create wealth. With the right mix of technology, design and education, the company could help millions of Nigerians create truly global wealth right from their living room.
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