Between 2019 and 2022, the value of foreign capital flowing into Nigeria increased from $23.9 billion to $5.32 billion. The decline was attributed to low investor confidence, the high cost of doing business, as well as the country’s high inflation rate. Nigeria “will endeavor to prevent the naira-to-dollar exchange rate from depreciating further” until crude oil and non-oil exports are boosted, an accountancy firm said.
The high cost of doing business in Nigeria
In his last report on the flow of foreign capital into Nigeria, accounting firm KPMG said the value of capital brought into the West African country rose from $23.9 billion recorded in 2019 to $5.32 billion in 2022. According to the report, the persistent decline in the amount of capital flowing into Nigeria can be attributed to “low investor confidence due to the ambiguous exchange rate regime”.
Difficulties encountered in seeking access to foreign exchange as well as Nigeria’s high rate of inflation and interest rates are listed as some of the factors that have contributed to the “precipitous decline” of foreign capital flowing into the country. In addition to the country’s current currency issues, the report says Nigeria’s inability to reduce the cost of doing business makes it a less than ideal destination for foreign investment.
“Beyond the rigidity and lack of clarity of the foreign exchange (FX) management system, other factors have discouraged foreign direct investment and capital inflows, in general, such as security concerns, the ease to do business, especially with regard to the infrastructure deficit, overly strict policies and bureaucratic bottlenecks in obtaining permits and a perceived weak legal framework, which make it expensive to do business in Nigeria, contribute to the reasons why foreign investors avoid bringing their capital into the country,” the report explains.
Widening currency supply gap
The report also suggested that the suspense created by the recently held national elections may have contributed to the decline in the value of foreign capital entering Nigeria. The slowdown in the value of capital entering Nigeria has contributed to widening the foreign exchange supply gap.
Meanwhile, the KPMG report ends by stating that Nigeria “will likely strive to prevent the exchange rate of the naira against the dollar from depreciating further” unless crude oil and non-oil exports do not. be stimulated.
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