Nigeria may struggle to attract foreign funds in 2025, PwC warns

Nigeria’s economy may face challenges in attracting significant foreign funds in 2025 due to its negative real interest rates, according to the latest “2025 Nigerian Budget and Economic Outlook” report by PricewaterhouseCoopers (PwC) International Limited.

The report highlights inflation consistently outpacing interest rates as a key deterrent for both local and foreign investors, even amidst aggressive monetary tightening by the Central Bank of Nigeria (CBN).

Despite the CBN’s significant interest rate hikes in 2024, Nigeria’s real interest rates remain in negative territory.

PwC emphasized that this situation undermines investor confidence, as local assets offer little or no real returns when adjusted for inflation.

“Declining interest rates in advanced economies could trigger a reallocation of funds to markets offering higher real returns,” PwC noted.

“However, Nigeria is unlikely to benefit due to its persistently negative real interest rates, which diminish the appeal of its financial instruments to global investors.”

Economist Dr. Tolu Akinlade shared similar sentiments, stating, “Negative real interest rates not only deter foreign investment but also erode local savings, as individuals and businesses seek alternative markets with better returns. Without addressing inflation and boosting real returns, Nigeria may struggle to attract capital inflows.”

PwC warned of a potential scenario that could exacerbate capital outflows. If inflation rates rise in advanced economies in 2025, central banks in those regions may increase their policy rates. This would likely redirect funds to those markets, further diminishing Nigeria’s share of global capital flows.

“Nigeria’s policy measures must be proactive,” noted financial analyst Bode Oladipo. “If advanced economies tighten monetary policies, Nigeria risks heightened capital flight, which could further weaken the naira and strain foreign reserves.”

The report noted a sharp rise in capital importation in the second quarter of 2024, with inflows growing by 152 per cent to $2.6 billion, up from $1 billion in the second quarter of 2023.

This growth was driven primarily by a surge in Foreign Portfolio Investments (FPIs), which jumped from $106.8 million to $1.2 billion, and other investments, which rose from $837 million to $1.12 billion.

However, Foreign Direct Investment (FDI) saw a significant decline, dropping by 65 per cent to $29.8 million in the same period. PwC attributed the growth in FPIs to the CBN’s Monetary Policy Rate (MPR) hikes, which bolstered demand for Nigerian money market instruments.

“The rise in FPIs reflects short-term confidence in Nigerian financial instruments, but the decline in FDI is concerning,” explained investment strategist Amaka Eze. “FDI is more sustainable and critical for long-term economic growth.”

Diaspora remittances, which have averaged $20 billion annually over the past decade, remain a crucial source of foreign exchange for Nigeria.

However, inflows dipped slightly to $19.5 billion in 2023, attributed to slower economic growth in key remittance-sending countries like the United States and the United Kingdom.

Dr. Funmi Adebayo, an expert in diaspora economics, remarked, “Remittances are a lifeline for many families in Nigeria and a vital source of foreign exchange for the economy. Policies that support seamless remittance flows will be crucial in maintaining this revenue stream.”