Investor confidence is back in Nigeria on the back of the Central Bank of Nigeria (CBN)’s clearance of foreign exchange backlog.
On March 20, 2023, Olayemi Cardoso, CBN governor, announced the clearance of a $7 billion foreign exchange backlog as part of the bank’s overall strategy to stabilise the exchange rate and curb imported inflation, spurring confidence in the banking system and the economy.
The singular step helped to raise foreign investments into the country to $3.38 billion in the first quarter (Q1) of 2024, from $1.09 billion reported in the previous quarter, according to the latest capital importation report by the National Bureau of Statistics (NBS).
Portfolio investment ranked top with $2.08 billion, accounting for 61.5 percent of the investment.
Nigeria’s external reserves also rose to $35.05 billion on July 8 — the highest since May 30, 2023.
“When we looked at the backlog clearance, we saw that this CBN governor wanted a change, an outlook that tells investors that the investment climate has changed,” said Ike Ibeabuchi, an investor in Nigeria, Canada and the UK.
“A team of investors that I know are thinking of setting up here by October this year, and I have also increased my portfolio investments by 35 percent between April and June this year,” he added.
Muda Yusuf, chief executive officer of the Centre for the Promotion of Private Enterprise, said the clearance “is a very significant thing that needs to happen. There will be more stability. It is a good development, and will boost investors’ confidence.”
At the BusinessDay CEO Forum in Lagos on Thursday, Cardoso stressed that the $7 billion backlog helped to restore investor confidence in Africa’s most populous nation.
Cardoso disclosed this during his fireside chat with Frank Aigbogun, publisher/CEO of BusinessDay, noting that there was a total loss of confidence in the CBN when he assumed office, but the steps he took sent a clear message to investors that Nigeria is a destination to beat.
International airlines had protested trapped funds in various banks and their inability to repatriate them. The International Air Transport Association (IATA) had, in August 2022, criticised Nigeria and other African countries for not allowing international airlines to repatriate their profits. But that is now in the past, said Cardoso.
“Nigeria was in a state where there was a loss of confidence. So, clearing the backlog was a major step in building credibility.”
Cardoso said there was a lot of distortion in the system before he came on board.
“People were not abiding by the rules, and it was very important that we addressed this so the market could function properly. There was pushback because there were those who were used to a certain way. A portion of the volatility was because of pushback. With time, stakeholders became more comfortable with how the market was operating. A good number of portfolio investors came in, left, and came in again.”
He noted that the market is witnessing relative calmness through various reforms deployed by the apex monetary policy.
Part of the CBN’s policy to boost foreign exchange inflow into the country includes allowing oil companies to spend the remaining 50 percent of their repatriated export proceeds on financial obligations. “It is a work in progress, but I see that it is gradually getting to a place where the sorts of contributions that one would expect for that sector will definitely improve.” According to the CBN governor, the bank is interested in the growth of the economy, and recent rate hikes are meant to curb inflation.
He noted that these rate hikes have led to the decline in month-on-month inflation. “Between February and now, the month-to-month inflation has decreased by 50 percent. I’m confident, in a not-too-distant future, things will begin to moderate,” he stated.
Since Cardoso became governor, the CBN has raised the Monetary Policy Rate (MPR) by 750 basis points to 26.25 percent in May 2024 from 18.75 percent in July 2023. Cardoso stressed that the MPR hikes were timely, as monthly inflation declined by 50 percent between February and May.
“It was also a timely issue. It’s not something that I expect will remain with us forever. The ability to soak up the excess liquidity over time is important to the MPC.”
According to Cardoso, the N27 trillion Ways and Means and N10 trillion intervention were wasted and upended the economy.
Ayotunde Coker, chief executive officer of Open Access Data Centres Limited, is betting on Lagos as the hub of digital infrastructure in Africa and a viable investment destination.
“This is because Lagos is well served with a feasible capacity with the fibre ducts being installed in various locations for connectivity to serve the growing population,” he said.
But Sam Abu, country senior partner at PwC Nigeria and regional senior partner in West Africa, said businesses are hard-hit by current economic realities.
“Sixty-five percent of CEOs are adapting new technology to boost their various businesses and make them more competitive. Forming new business strategies and new pricing models plays a crucial role in new business,” he said.
According to Juliet Ehimuan, executive in Residence at the Lagos Business School, businesses are adapting strategies to scale through the country’s economic challenges. These strategies include: cost optimisation, adaptability and agility, digital transformation, among others.
With the current challenge facing Nigeria, Catherine Duggan, director, University of Cape Town Graduate School of Business, said the country must focus on building more manufacturing companies to boost its economy like China.
She stated that Nigeria needs to harness its youth population assets as “new markets, new ideas come from young people.”
Patrick Njoroge, former governor of the Central Bank of Kenya, disclosed that Africa must create sufficient quality jobs to cater to its surging youth population.
Yomi Ademola, managing director, Alaro City, stressed the importance of businesses driving value in a challenging economy like Nigeria.
Lagos, Kano, and Jigawa disclosed at BusinessDay’s event that they were employing strategies to enhance the ease of doing business and promote economic development within their respective states.
Femi Hamzat, deputy governor of Lagos State representing Babajide Sanwo-Olu, governor of Lagos State, said, “The number one thing for us is how do we make it easier for people to do business.
“For Lagos, the deputy governor working with my colleagues, look at how we can tweak our policy and make it easier for our businesses and also to make transportation easy.”
Abba Kabir Yusuf, the governor of Kano, who was represented by Abduljabbbar Umar, commissioner of lands and physical planning, said his administration is breaking barriers to make doing business easy in the state.
He highlighted that the state government has a wide view of the regulatory environment through the Kano Investment Promotion Agency (KANINVEST) and noted where the bottlenecks are.
Noting that Kano is the country’s centre of commerce, Yusuf said many multinationals and small and medium businesses operate and thrive in the state.
In Jigawa, the governor’s representative noted that the government is ensuring that the regulatory space is opened up through the signing of various executive orders or pushing for bills at the state assembly.
“With almost 60 percent of the population being youths, the government will try to see how we can improve the citizens’ lives more efficiently than youths in particular,” he said.
