Innovative financing required to drive real estate, other sectors’ growth ­­­‑ Yinkere

Pabina Yinkere is an investment expert and Business Head, Asset Management, at Norrenberger Financial Group. In this interview with Daily Trust, he highlights the need for innovative financing in growing gross domestic product contributions of real estate, manufacturing and other key sectors of Nigeria’s economy.   Real estate investment is one of the most viable […]

Pabina Yinkere is an investment expert and Business Head, Asset Management, at Norrenberger Financial Group. In this interview with Daily Trust, he highlights the need for innovative financing in growing gross domestic product contributions of real estate, manufacturing and other key sectors of Nigeria’s economy.

 

Real estate investment is one of the most viable ventures with high returns. But the high cost of building materials and exchange rate are becoming more challenging for the sector to thrive. How can this be tackled?

Real estate investment indeed remains one of the most attractive and viable investment options due to its potential for high returns on investment (ROI).

However, the sector currently faces significant challenges, primarily due to the rising cost of building materials and the volatility of exchange rates. These issues have made it increasingly difficult for the sector to maintain its growth trajectory and profitability.

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The real estate sector grew by a marginal 0.84% in Q1 2024, slower than the 1.34% and 1.7% growth recorded in Q4 and Q1 2023 respectively.

However, government at both national and sub-national levels, as part of efforts to drive the sector’s growth, can adopt the following policies including local sourcing of raw materials, innovative financing solutions, government incentives and support, public-private partnerships, as well as technological advancements.

Innovative financing is very critical as well as local sourcing of building materials as that will significantly reduce the high cost of materials. Majority of building items are imported and the forex market is relatively unstable.

There are calls for alternative mortgage financing for low-income earners. How can Nigeria get it right in that critical area?

Addressing the challenge of providing adequate mortgage financing for low-income earners requires innovative and multifaceted solutions. While the Pension Commission (PenCom) has allowed the use of 25% of the Retirement Savings Account (RSA) balance for mortgage purposes, this measure alone may not suffice to bridge the gap.

Therefore, to effectively address this critical issue, a combination of policy adjustments, financial innovations, and supportive infrastructure is necessary.

These could include Private Public Partnerships (PPPs), subsidised housing programmes such as the state-owned Family Homes Fund and Federal Mortgage Bank are currently pursuing, micro mortgages, housing cooperatives, tax relief and subsidies, and streamlining mortgage processes.

Subsequently, in implementing these strategies, Nigeria can create a more inclusive and supportive environment for low-income earners to access mortgage financing and achieve home ownership.

This comprehensive approach will not only address the immediate needs of low-income households but also contribute to long-term economic stability and growth.

Norrenberger Economic Outlook made some key economic projections for critical sectors of the economy. Run us through the barometers used in these projections?

In our economic outlook report, we have provided detailed projections for four key economic indicators: inflation, GDP growth, exchange rate and external reserves. Our analysis indicates that headline inflation will moderate gradually in the second half of the year, reaching 32.26% by December 2024. We project that real GDP will grow by 3.1% in 2024, signalling a steady economic recovery.

The naira is expected to average around N1,450 per US dollar, reflecting ongoing foreign exchange market dynamics. Additionally, we estimate that external reserves will close the year at approximately $36.1 billion.

To ensure the accuracy and reliability of our forecasts, we utilised a comprehensive blended econometric model, particularly the auto-regressive integrated moving average (ARIMA) model.

This model integrates historical data trends, current economic developments and anticipated events and developments from major drivers in the latter half of the year. By combining these elements, our projections offer a robust analysis that reflects both past performance and future expectations.

This approach allows us to provide a nuanced and forward-looking perspective on the Nigerian economy, helping stakeholders make informed decisions in a rapidly changing economic environment.

The CBN has continued to tighten rates to tame inflation which has affected real estate, manufacturing and other businesses negatively. What do you think can be done better?

The Central Bank of Nigeria (CBN) has adopted a hawkish monetary stance to address inflationary pressures and stabilise the foreign exchange (FX) market. This has included raising the monetary policy rate (MPR) by a cumulative 800 basis points year to date.

While these multiple rate hikes have had some impact, as evidenced by the gradual moderation in the month-on-month inflation rate, their overall effectiveness in tackling inflation has been limited.

We believe that a more coordinated approach, involving both the CBN and fiscal authorities, would yield a more significant impact on reducing inflation. This coordinated strategy could encompass a range of policies, including the adoption of diversified monetary policy tools, such as open market operations and reserve requirements, to manage liquidity more effectively.

Additionally, supply-side government interventions are crucial. These could involve investments in infrastructure, support for agricultural productivity, and efforts to eliminate bottlenecks in key sectors, thereby addressing the root causes of inflation.

Effective FX management is also essential; adopting a more flexible exchange rate regime while strategically intervening to prevent excessive volatility can help stabilise prices.

Inflation and exchange rates particularly have taken a big toll on the manufacturing and property sectors. What can be done to salvage the situation?

One effective approach is to diversify export markets. By expanding into new international markets, businesses can earn foreign currency, which can be used to meet import obligations and reduce dependence on a single market.

This diversification not only spreads risk but also opens up new revenue streams and growth opportunities. Additionally, businesses can employ various FX hedging strategies such as forward contracts, currency swaps, strategic pricing amongst others to mitigate the risks associated with currency fluctuations.

Lastly, what is your perspective on Nigeria’s investments landscape and efforts by government to boost the environment?

Nigeria boasts significant natural resources, a large and youthful population, and a strategic geographical location. However, factors such as inadequate infrastructure, lack of political will, and regulatory uncertainties have historically hindered the full realisation of its investment potential.

Thus, a need for continued focus on improving infrastructure, streamlining regulations, promoting economic diversification, along with addressing security and corruption issues, will be key to unlocking Nigeria’s full investment potential and fostering sustainable economic growth.