Between 2019 and 2022, the value of foreign capital entering Nigeria dropped from $23.9 billion to $5.32 billion. The drop has been attributed to low investor confidence, the high cost of doing business, as well as the country’s high inflation rate. Nigeria will “struggle to prevent the naira’s exchange rate against the dollar from depreciating further” until crude oil and non-oil exports pick up, an accounting 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 inflowing into the West African country fell from $23.9 billion in 2019 to $5.32 billion in 2022. According to the report, the persistent decline in the amount of capital inflows into Nigeria can be attributed to “low investor confidence due to the ambiguous exchange rate regime.”
The challenges encountered when trying to access foreign exchange, as well as Nigeria’s high rate of inflation and interest rates are listed as some of the factors that contributed to the “precipitous decline” of foreign capital entering the country. Adding to the country’s ongoing currency problems, the report says Nigeria’s failure to reduce the cost of doing business makes it a less than ideal foreign investment destination.
“Beyond the rigidity and lack of clarity in the FX (foreign exchange) management system, other factors have discouraged Foreign Direct Investment and the inflow of capital, in general, such as security challenges, the ease of doing business, particularly in relation to the infrastructure deficit. Overly strict policies and bureaucratic permitting bottlenecks and a perceived weak legal framework, which make it expensive to do business in Nigeria, all contribute to the reasons why foreign investors avoid bringing their capital into the country,” he explains. The report.
Widening of the foreign exchange 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 flowing into Nigeria has contributed to the widening of the foreign exchange supply gap.
Meanwhile, the KPMG report ends by stating that Nigeria will likely “struggle to prevent the naira’s exchange rate against the dollar from depreciating further” unless crude oil and non-oil exports are boosted.
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