Last Updated: October 12, 2023
• Foreign exchange inflows to Nigeria dropped from $23.9 billion in 2019 to $5.32 billion in 2022 due to low investor confidence, high cost of doing business, and high inflation rate.
• The accounting firm KPMG attributed this decline to “low investor confidence due to the ambiguous foreign exchange regime” as well as other factors such as security challenges, ease of doing business issues, overly stringent policies and bureaucratic bottlenecks for securing permits, and a perceived weak legal framework.
• This has led to a widening forex supply gap and it will be difficult for the country to keep its naira-dollar exchange rate stable unless crude oil and non-oil exports are boosted.
This article discusses the drop in foreign capital that has flowed into Nigeria between 2019 and 2022. It was decreased from $23.9 billion to $5.32 billion which is attributed mainly to low investor confidence caused by an “ambiguous foreign exchange regime.” Other contributing factors include security challenges, high cost of doing business, overly stringent policies, bureaucratic bottlenecks for securing permits, a perceived weak legal framework and Nigeria’s high inflation rate. As a result of this decrease in foreign capital inflow there is now a widening forex supply gap in Nigeria which will be difficult for the country to address unless crude oil and non-oil exports are boosted.
Drop In Foreign Capital Flowing Into Nigeria
According to an accounting firm KPMG’s report on the flow of foreign capital into Nigeria, between 2019 and 2022 there was a decrease from $23.9 billion recorded in 2019 down to $5.32billion in 2022 . The drop has been attributed mainly towards low investor confidence created by an “ambiguous foreign exchange regime” as well as other factors such as security challenges, ease of doing business issues particularly infrastructure deficit , overly stringent policies , bureaucratic bottlenecks for securing permits ,and a perceived weak legal framework making it expensive to do business in Nigeria .
Impact Of Decrease In Foreign Capital Flow
The decrease in value of capital brought into Nigeria has contributed significantly towards increasing the forex supply gap in the country making it difficult for keeping up with its naira-dollar exchange rate stability without boosting both its crude oil or non-oil export sectors . Moreover ,recent national elections may have also added on top of decreasing levels of foreign capital flowing into Nigerian economy .
Solutions To Increase Foreign Investment
To increase investment both locally or internationally within Nigerian economy some solutions should be implemented . Firstly ,it is essential that government needs provide more clarity about its FX management system along with lower costs associated with doing businesses alongside developing better infrastructure which would all lead towards increased investor trust . Secondly , reducing interest rates can also create more opportunities attracting investors both domestically or globally leading towards improved economic growth .
In conclusion ,this article discussed how between 2019 -2022 there had been significant drop (from$23.9billion -$5.32 billion )in value of capital brought into Nigerian economy due largely caused by an ambiguous foreign exchange regime combined with various other factors such as security challenges ,high cost associated with Doing business etc .. Impacting upon decreasing levels offoreign investment resulting into widening forex supply gap within Nigerian economy until both crude oil & non-oil exports are improved upon leading towards recuperating back onto higher levels offoreign investment & stabilizing naira – dollar exchanges rates too !