By Milcah Tanimu
Professional services firm PwC has expressed confidence that interventions by the Central Bank of Nigeria (CBN) will stabilize the naira in the long term. This insight was shared in its latest Nigeria economic outlook report, “Navigating Economic Reforms.”
PwC stated, “Interventions by CBN may cause the naira to stabilize in the long-term. However, these interventions may become subdued in the absence of improved capital flows and export proceeds to the foreign reserves.”
The report highlighted a 6% increase in capital importation, rising to $1.1 billion in Q4 2023 from $1.0 billion in Q2 2023. This growth was driven by a 189% increase in Foreign Portfolio Investments (FPIs) and a 113.9% increase in Foreign Direct Investments (FDIs) between Q2 and Q4 2023. FPIs grew due to increased flows to money market instruments, while FDIs were bolstered by equity investments.
PwC added, “Capital importation may continue to improve in 2024 due to the policy actions by the CBN aimed at rebuilding investor confidence. Some of the actions implemented by the CBN include settling FX backlogs and increasing the Monetary Policy Rate (MPR) to 26.25% to maintain price stability.”
In May, the CBN’s Monetary Policy Committee (MPC) raised the benchmark lending rate to 26.25%, citing the need to control inflation. However, MPC members also expressed concerns about the illiquidity in the foreign exchange market, which had caused market volatility.
MPC member Emem Usoro, who voted to raise the MPR by 150 basis points to 26.25%, argued that tightening financial conditions would attract more capital inflows to stabilize the naira exchange rate. She said, “Sustaining a tight monetary policy stance potentially makes domestic yields more attractive for domestic and foreign investors, supports the naira, and accretion to the external reserves.”
Despite these measures, inflation and forex shortages remain pressing issues. Usoro added that while inflation is expected to remain high, it should begin to moderate in the second half of the year due to the tight monetary policy and base effects.
Meanwhile, the Chartered Institute of Directors (CIoD) has raised concerns over the exodus of multinational companies from Nigeria, attributing it to forex issues, inadequate power supply, and inconsistent government policies. In its “Position Paper on the Exodus of Multinationals from Nigeria,” CIoD suggested that the government adopt more flexible foreign exchange policies to make foreign currency more accessible, proposing a more transparent and market-driven exchange rate system.
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