Key questions this article answers:
1. Last year, JP Morgan reclassified Nigeria’s bonds. This year, Moody’s downgraded the country’s credit to near junk status, indicating that Nigeria is a risky economy. What are the risks involved?
2. Taking risks is a big part of investing. Investors know this, so they keep their eyes on events like credit rating downgrades. How will investors respond to the risks affecting Nigeria?
We all take risks, no matter how small.
But you see, investors take even bigger risks by investing not only in businesses (think funding start-ups and stock buying) but emerging countries like Nigeria.
For instance, Moody’s—a credit rating agency—just downgraded Nigeria from B3 to Caa1, highlighting a substantially risky economy due to rising debt, low revenues, high inflation, and political instability. Still, if investors decide to invest despite the risks involved, they expect interests often too high for the said country to afford.
But what exactly are the risks involved in investing in Nigeria? This is the question today’s article will answer using qualitative data from the World Economic Forum’s (WEF) global risks report for 2023.
The WEF highlighted five major risks to affect Nigeria in the next two years. However, in this article, we’ll only analyse the first three: terrorist attacks (insecurity), debt crises and cost of living crises. We’ll unpack what’s happening with each risk and how it influences investor behaviour.
