A number of finance and economic analysts have projected that foreign portfolio investment as well as Nigeria’s trade surplus will persist into the fourth quarter of 2024 and early 2025.

This outlook is supported by the weakened naira, which has made exports more competitive, alongside sustained global demand for crude oil. Despite global economic uncertainties, this offers a promising trajectory for Nigeria’s economy.

Nigeria’s high interest rate environment has produced mixed results, stabilising inflation and attracting foreign portfolio investments while stifling domestic investment and export competitiveness

According to analysts at Cowry Assets Management Limited, the improvement in Nigeria’s trade surplus reflects the naira’s devaluation, which has made Nigerian exports more attractive on the global stage. Additionally, the country’s ongoing economic diversification efforts are beginning to bear fruit, as evidenced by the increasing contributions of non-oil exports to total trade. The rise in exports of agricultural and manufactured goods further underscores the potential of these sectors to enhance Nigeria’s foreign trade.

Looking ahead, Nigeria’s export capacity is expected to grow with improved crude oil production and the anticipated commencement of operations at the Dangote Refinery and the revitalized Port Harcourt Refinery. A diversified economy, with a greater emphasis on non-oil exports, will be crucial for sustaining the positive momentum in trade surplus and strengthening Nigeria’s economic resilience.

Analysts at Afrinvest (West Africa) Limited observed that Nigeria recorded trade surpluses with Africa (N5.0 trillion), America (N5.5 trillion), Europe (N8.5 trillion), and Oceania (N37.4 billion). However, the country posted a trade deficit of N4.0 trillion with Asia. The substantial trade surpluses with the first four regions were largely driven by the weak naira, which made Nigeria’s non-crude exports more affordable globally.

Despite these gains, significant improvements in raw and value-added non-oil exports are needed to maximize foreign exchange inflows.

Analysts draw parallels with China’s success in leveraging its currency to attract global importers, suggesting that Nigeria could achieve similar results through strategic policy and investment in export-oriented sectors.

The Central Bank of Nigeria’s (CBN) decision to maintain high interest rates has been met with mixed reactions. While high interest rates help curb inflation and stabilize currency volatility, they also pose challenges for domestic investment and long-term economic growth.

In a recent adjustment, the CBN raised the Monetary Policy Rate (MPR) by 25 basis points to 27.50 percent, up from 27.25 percent. This decision aligns with efforts to address inflationary pressures, which reached 33.88 percent in October 2024, up from 32.7 percent in September, according to the National Bureau of Statistics (NBS).

High interest rates have successfully attracted foreign portfolio investments (FPIs). In the third quarter of 2024, Nigeria recorded $1.25 billion in capital inflows—a 91.35 percent increase compared to the same period in 2023. However, 82.81 percent of these inflows were directed toward the money market, as foreign investors took advantage of high-yield instruments like Treasury bills and bonds.

While these inflows bolster foreign exchange reserves, they are largely speculative and offer limited benefits to the real economy. In contrast, foreign direct investment (FDI), a more stable form of capital inflow, has stagnated. FDI totaled just $145.6 million in Q3 2024, representing a marginal 3.4 percent increase from the previous year. Analysts attribute this underperformance to high borrowing costs, inconsistent policies, and infrastructure deficits.

For domestic businesses, high interest rates have made borrowing prohibitively expensive. The average lending rate for commercial loans ranges from 22 to 30 percent, limiting access to credit for small and medium-sized enterprises (SMEs). Given that SMEs account for over 90 percent of Nigerian businesses and contribute nearly 48 percent to GDP, this credit crunch is a significant barrier to economic growth.

Data from the Manufacturers Association of Nigeria (MAN) shows that capacity utilisation in the manufacturing sector declined from 55 percent in Q3 2023 to 49 percent in Q3 2024. Similarly, private sector credit growth slowed to 4.1 percent in 2024, compared to 7.5 percent in 2023, according to CBN statistics.

The high cost of borrowing has also impacted the real estate sector, with mortgage rates rising to as high as 26 percent. This has made homeownership increasingly unattainable for many Nigerians and constrained property developers from financing new projects.

High interest rates have contributed to the naira’s appreciation, which rose by 9 percent between Q2 2023 and Q4 2024, trading at ₦745 per dollar as of December 2024. While a stronger naira reduces import costs, it also makes Nigerian exports less competitive.

The Nigeria Export Promotion Council (NEPC) reported a 6.2 percent decline in non-oil export revenue in Q3 2024 compared to the same period in 2023. Agricultural exports, such as cocoa and sesame seeds, were particularly affected as they became more expensive relative to products from competing countries.

The CBN faces a complex challenge in balancing high interest rates to attract foreign capital while mitigating their adverse effects on domestic investment. Moreover, global economic dynamics could further complicate Nigeria’s position. With the U.S. Federal Reserve considering a rate cut in 2025, Nigeria risks losing foreign investments to developed markets.

To address these challenges, analysts recommend several measures including: Gradual reductions in the MPR as inflation eases could make credit more accessible and stimulate investment; Enhancing power, transportation, and digital connectivity would lower production costs and attract investment; Transparent and stable regulatory policies are essential to building investor confidence; Expanding local equity and bond markets could reduce reliance on short-term foreign inflows and strengthening non-oil exports through subsidies, grants, and improved supply chains would support economic resilience.

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