The Chairman of the Alliance for Economic Research and Ethics, Dele Oye, has warned that Nigeria’s economy remains vulnerable despite recording $10.37 billion in capital inflows, saying the heavy reliance on foreign portfolio investment could expose the country to external shocks.
Oye said the size of the inflows alone should not be viewed as proof that Nigeria was attracting enough long-term investment capable of expanding production and strengthening the economy.
Reacting to the United States Federal Reserve’s decision to raise interest rates for the first time in more than three years to 3.75–4.00 per cent, Oye said further increases could put additional pressure on Nigeria’s $54.61 billion foreign exchange reserves and the stability of the naira market.
He explained that portfolio funds were particularly sensitive to movements in global interest rates, exchange rates and investor sentiment, making them capable of leaving emerging markets rapidly when conditions change.
According to him, tighter monetary conditions in the US could affect countries such as Nigeria as international investors reassess the risks and returns of holding assets in emerging markets.
Oye said Nigeria’s capacity to retain foreign capital and sustain stability in the foreign exchange market would depend partly on the strength of its external reserves and investor confidence in the country’s economic reforms.
While describing the reserves as an important cushion against external pressures, he said the key issue was whether Nigeria could withstand renewed pressure on the naira without significantly running down its foreign exchange buffers.
He urged policymakers to closely track capital movements, demand for foreign exchange and developments in global interest rates, while ensuring that the country’s reserves were deployed strategically.
Oye also called for greater emphasis on non-oil exports and the attraction of more stable foreign direct investment to reduce the economy’s exposure to external shocks.
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He said Nigeria should prioritise building an economy that generates foreign exchange through domestic production and exports instead of depending heavily on volatile portfolio investments.
Speaking specifically on the $10.37 billion capital inflow, the AERE chairman said Nigeria needed to attract more FDI capable of establishing businesses, increasing production, creating employment and expanding the country’s productive base.
He noted that although the inflow was substantial, the more important consideration was the proportion directed towards productive sectors capable of delivering sustainable economic growth.
Oye said large capital inflows would have limited impact on broad-based development if they failed to translate into higher output, more jobs, improved infrastructure and better living standards.
He therefore urged the government to create conditions that would encourage long-term investors to commit funds to manufacturing, agriculture, technology, infrastructure and other productive areas.
He identified policy consistency, reliable infrastructure, regulatory certainty and lower operating costs as key requirements for attracting sustainable foreign direct investment.
Oye added that the success of Nigeria’s economic reforms should ultimately be judged by their effect on businesses and households, particularly through increased investment, job creation, higher output and stronger purchasing power.
He maintained that stronger FDI would offer a more durable foundation for economic expansion than heavy dependence on portfolio investments, which are more susceptible to changing market conditions.