Boosting Indigenous Investors in Nigeria: The Way Forward

Lagos, Nigeria - Analysts have recently advised policymakers in Nigeria to consider policies that would boost inflows from indigenous investors in the country. The suggestion comes as recent reports indicate a decline in local inflows by 60.6% month-on-month (m/m) to USD561.00 million in July, attributed to the slowdown across various local segments, including the CBN (-70.0% m/m), Individuals (-51.2% m/m), Non-bank corporates (-65.6% m/m), and Exporters (-63.9% m/m).

To address this issue, experts recommend that the fiscal and monetary authorities implement measures to strengthen the exchange rate of the Naira against other currencies. They emphasize the importance of a combination of low inflation, productivity growth, and economic and political stability for Nigeria's economic development.

One of the proposed strategies is the improvement of domestic economic activities and the reinforcement of the Central Bank of Nigeria's (CBN) limit on loans-to-deposits (LDR) ratio for deposit money banks. This is expected to drive commercial banks' willingness to create risky assets in the short term, stimulating economic growth and generating employment opportunities.

It is further suggested that both the fiscal and monetary authorities stimulate lending to the real sector to support economic growth. However, experts caution that foreign exchange liquidity conditions may remain frail in the near term due to ongoing reforms in the foreign exchange market. They anticipate weak foreign inflows as foreign investors adopt a wait-and-see approach, monitoring actions taken by the CBN to clear its FX backlogs and the direction of short-term interest rates in light of high inflation.

In a recent meeting with private sector leaders in Abuja, the Chief Executive Officer of Sustainable Energy for All, Damilola Ogunbiyi, and the World Bank President, Ajay Banga, discussed the mobilization of finance for African countries' energy, climate, and development goals. They highlighted the investment opportunities in grid-based and distributed renewable energy solutions in Nigeria and across Africa, underscoring the catalytic role of the Nigeria Energy Transition Plan (ETP) in attracting private sector investment to energy and infrastructure projects.

To realize the goal of inclusive energy access, a dedicated Energy Transition Office has been established, supported by Sustainable Energy for All (SEforALL) and the Global Energy Alliance for People and Planet (GEAPP). This office has secured substantial investment pipeline funding of $3.8 billion for Nigeria's energy transition initiatives.

Regarding the declining Foreign Portfolio Investment (FPI) and Foreign Direct Investment (FDI), analysts attribute the situation to poor macroeconomic conditions, Nigeria's foreign exchange crisis, and capital control measures implemented by the Central Bank of Nigeria (CBN). These factors have made Nigeria a less attractive investment destination compared to its peers.

The experts suggest that the CBN should encourage the financial sector to take more risks and lend to the real sector to stimulate economic growth. Additionally, they recommend that the Federal Government focuses on improving the ease of doing business in Nigeria to achieve internal balance and attract investments. They emphasize the need for a forceful and wide-ranging policy response, including measures to boost growth, strengthen macroeconomic frameworks, reduce financial vulnerabilities, support vulnerable population groups, and mitigate the long-term impacts of global shocks.

Adewale Oyerinde from the Nigeria Employers' Consultative Association (NECA) stresses the importance of the CBN addressing the higher inflationary environment. He suggests that the central bank should pursue unconventional monetary policies to inject liquidity into the economy and expand options for lending to the private sector and government.

Chief Tunde Adetunji, CEO of the Africa Heritage Foundation, emphasizes the need for diversification as a strategy for economic growth in Nigeria. He explains that diversification of production and trade structure is crucial to reduce vulnerability and shocks that hinder long-term economic growth. He highlights the opportunities in agriculture and real estate sectors, citing agriculture as a source of passive income due to the potential in the wholesale and retail segments of the value chain. Real estate investments in Abuja also offer promising returns.

Another recommendation is the reprioritization of public spending by the federal, state, and local governments. This would protect critical development expenditures, support economic activities, and enhance access to basic services, ultimately providing relief for the poor and vulnerable communities.

To boost revenue mobilization, analysts propose excise reforms, property tax reforms, and improvements in Value-Added Tax (VAT) administration. These measures have the potential to generate over N10 trillion annually.

In conclusion, Nigeria's policymakers need to prioritize boosting inflows from indigenous investors, strengthening the exchange rate, and addressing macroeconomic challenges to attract foreign investments. Diversification, improvement of the ease of doing business, and investment in sectors like renewable energy and agriculture are essential for sustainable economic growth. Reprioritizing public spending and implementing revenue mobilization measures will further support development and provide relief for vulnerable communities. Efforts should be made to stimulate lending to the real sector and create an enabling environment for investments in Nigeria.

Source of content: OOO News 2023-08-08 News

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