25.5 C
Sofia
Saturday, October 14, 2023

KPMG: Naira faces further depreciation, FDIs to drop

Despite poor positioning against major international currencies, the naira is still at risk of further depreciation, according to global tax and audit advisory experts, KPMG Nigeria. The agency in an article titled ‘Precipitous Decline in Foreign Capital in a Transition Period,’ releasedyesterday, alsocautionedthatthecountry could find it difficult to attract foreign capital or foreign direct investments in 2023 unless crude oil and non-oil exports are increased. The firm, in the flash notes dated April 6, 2023, reacted to the National Bureau of Statistics, (NBS)’ recent report, which stated that the total capital importation figure into Nigeria persistently declined from$23.9billionin2019to$9.65 billion in 2020, to $6.70 billion in 2021 and to $5.32 billion in 2022.

The NBS had stated in its latest report that capital inflow intoNigeriareduced by 8.53per cent in the fourth quarter (Q4) of 2022 and that the value of total capital inflow into Nigeria in the fourth quarter of 2022 was $1.06 billion, indicating a reduction of $.10 billion from $1.16billioninthethirdquarter of 2022. It noted that the continuous decline in foreign capital inflows in the presence of dwindling crude oil sales and generally poor and unstable export earnings had reduced foreign reserves accretion and widened the foreign exchange supply gap and consequently put pressure on the exchange rate which has depreciated for the most part since 2022. KPMG advised that substantial reforms by the incoming administration in Nigeria were required to reverse the trend of declining foreign capital in the long term. Itsaid:“Capitalimportation figures have now shown a persistentdeclinefrom$ 23.9billion in2019, $9.65billionin2020, $6.70 billion in 2021, and $5.32 billion in 2022.

“The importance of capital inflows in a country where foreign exchange is in high demand to stimulate economic activity is very clear. “Accordingly, the continuous decline in foreign capital inflows in the presenceof dwindling crude oil sales and generally poor and unstable export earnings have slowed down foreign reserves accretion and widened the foreign exchange supply gap thereby putting pressure on the exchange rate which has depreciated for the most part since 2022. “Additionally, inadequate access to foreign exchange has constrained inputs for production leading to higher production costs, lower revenues and slower economic growth.

“Whilesubstantialreforms may yet be done to reverse the trend of declining foreign capital in the long term, we believe that in the meantime, the country will struggle to attract increasing foreign capital for most of 2023 and struggle to keep the exchange rate from depreciating further, unless it is able to boost its crude oil and non-oil exports, especially now that oil prices are once again rising.” The firm stated that the persistent decline in capital inflow could be a result of the rounds of global economic monetary tightening, sinceCOVID-19and into the Russia/Ukraine war. It also attributed it to low investor confidence due to ambiguous foreign exchange regimes, challenges of accessing foreign exchange, high foreign exchange volatility, and unflattering ratings by Moody’s and Standards and Poors. Other contributors, according to the firm, include fiscal and monetary constraints, high cost of doing business, continuous security challenges, weak growth and high inflation and interest rates, all in a period of tense political transition. It revealed that foreign investors would find it difficult to make a certain investment decision in a year of political transitionwhichhasremained tense.

It added that they would adopt a wait-and-see approach toinvestinginthecountryuntil the incoming administration settles in and gives economic directions and priorities of the administration. KPMG said: “The continuous decline in foreign capital inflows in the presence of dwindling crude oil sales and generallypoor andunstableexportearningshassloweddown foreign reserves accretion and widened the foreign exchange supply gap, thereby putting pressure on the exchange rate which has depreciated for the most part since 2022. “Russia-Ukraine war has shifted interest away from emerging and developing economies like Nigeria and this is not expected to change anytime soon.

James Mackreides
James Mackreides
'Mac' is a short tempered former helicopter pilot , now a writer based in Sofia, Bulgaria. Loves dogs, the outdoors and staying far away from the ocean.

Related Articles

LEAVE A REPLY

Please enter your comment!
Please enter your name here

Latest Articles