The flow of foreign capital into Nigeria has experienced a significant drop between 2019 and 2022, plunging from $23.9 billion to $5.32 billion. The decrease has been attributed to various factors, including a lack of investor confidence, the country’s high inflation rate, and the high cost of doing business. Nigeria will struggle to maintain its exchange rate between the naira and the dollar until crude oil and non-oil exports are boosted, according to a report by accounting firm KPMG.
KPMG’s latest report on the flow of foreign capital into Nigeria blames the drop on a “low investor confidence due to the ambiguous foreign exchange regime,” challenges in accessing forex, high inflation rates and interest rates, and the country’s failure to lower the cost of doing business, which makes Nigeria a less attractive foreign investment destination.
The report also suggested that Nigeria’s recent national elections may have contributed to the decline in the value of foreign capital flowing into the West African country. The downturn in the value of capital flowing into Nigeria has contributed to the widening of the forex supply gap.
Furthermore, the report foresees that Nigeria will find it difficult to keep the naira to the dollar exchange rate from declining further until non-oil and crude oil exports are increased.
The challenges listed in the report to Nigeria’s economic growth are familiar, with outside analysts demanding that the country reduce corruption and inefficiency, which generate a hostile environment for businesses.
Besides the stagnant environment, there is intense political turmoil between Nigeria’s various ethnic groups. The country is home to over 250 ethnic groups, each with their languages and distinct cultural values. Ethnic tensions have resulted in clashes and instances of violence throughout the country. This kind of climate scares away investors, making it troublesome for Nigeria’s economy to fulfill its potential.
Experts have suggested that Nigeria rapidly develops its infrastructure, both physical and technological, to become more appealing to foreign investors.
The Nigerian government and private firms could try to increase exports to improve the economy’s forex liquidity in the long run. The government could also engage foreign investors, mainly from China, who have, in recent times, taken an interest in investing in African countries, to provide loans or equipment for developing infrastructure projects.
In conclusion, Nigeria must take advantage of its natural resources and enhance its infrastructure to help achieve economic stability in the long term.
