Between 2019 and 2022, the value of foreign capital that flowed into 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 keep the naira to the dollar exchange rate from depreciating further” until both crude oil and non-oil exports are boosted, an accounting firm has asserted.
Nigeria’s High Cost of Doing Business
In its latest report on the flow of foreign capital into Nigeria, the accounting firm KPMG said the value of capital brought into the West African country fell 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 foreign exchange regime.”
The challenges encountered when seeking to access foreign exchange as well as Nigeria’s high inflation rate and interest rates are listed as some of the factors that contributed to the “precipitous decline” in foreign capital flowing into the country. Besides the country’s ongoing foreign exchange woes, the report said Nigeria’s failure to lower 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 capital inflow, in general, such as security challenges, ease of doing business issues particularly as it relates to the infrastructure deficit, overly stringent policies and bureaucratic bottlenecks for securing permits and a perceived weak legal framework, which make it expensive to do business in Nigeria are contributing to the reasons foreign investors are avoiding bringing their capital into the country,” the report explained.
Widening Forex Supply Gap
The report also suggested that the suspense created by the recently held national elections may have contributed to the drop in the value of foreign capital flowing into Nigeria. The slowdown in the value of capital flowing into Nigeria has contributed to the widening of the forex supply gap.
Meanwhile, the KPMG report ends by stating that Nigeria will likely “struggle to keep the naira to the dollar exchange rate from depreciating further” unless both crude oil and non-oil exports are boosted.
Register your email here to get a weekly update on African news sent to your inbox:
What are your thoughts on this story? Let us know what you think in the comments section below.
Image Credits: Shutterstock, Pixabay, Wiki Commons
Disclaimer: This article is for informational purposes only. It is not a direct offer or solicitation of an offer to buy or sell, or a recommendation or endorsement of any products, services, or companies. Bitcoin.com does not provide investment, tax, legal, or accounting advice. Neither the company nor the author is responsible, directly or indirectly, for any damage or loss caused or alleged to be caused by or in connection with the use of or reliance on any content, goods or services mentioned in this article.
