Nigeria’s ability to attract substantial foreign funds in 2025 is likely to remain constrained due to persistent negative real interest rates.
Inflation continues to surpass interest rates, discouraging both local and international investors, according to PricewaterhouseCoopers (PwC)’s latest economic report, titled *2025 Nigerian Budget and Economic Outlook*.
Despite an aggressive interest rate hike by the Central Bank of Nigeria (CBN) in 2024, the negative real interest rates remain a major deterrent for investment. The report highlights that investors, both foreign and domestic, are likely to be dissuaded by the current economic conditions, making Nigeria less competitive in comparison to markets offering higher real returns.
“Declining interest rates in advanced economies may encourage funds to flow to markets with more attractive returns,” PwC noted. “Nigeria may not benefit from this shift due to its ongoing negative real interest rates, which further dampen investor confidence.”
Potential Capital Outflows Looming
PwC’s report also warned of the possibility of capital outflows from Nigeria. If inflation continues to rise in advanced economies, their central banks may increase interest rates. This would likely lead to a shift of funds to these markets, exacerbating capital flight from Nigeria, where negative real interest rates already diminish the appeal of local assets.
The report predicts that capital flows to Nigeria will remain cautious in 2025. Investors are expected to adopt a wait-and-see approach, despite the CBN’s efforts to restore investor confidence.
However, there was a notable increase in capital importation to Nigeria in Q2 2024, which grew by 152%, reaching $2.6 billion, compared to $1 billion in Q2 2023. This growth was primarily driven by Foreign Portfolio Investments (FPIs), which surged from $106.8 million to $1.2 billion, and other investments, which increased from $837 million to $1.12 billion. Despite this, Foreign Direct Investment (FDI) dropped by 65%, totaling just $29.8 million.
Diaspora Remittances Provide Hope
Amid these economic challenges, diaspora remittances remain a silver lining. For over a decade, Nigeria has averaged about $20 billion annually in remittance inflows, providing vital foreign exchange. However, these inflows dipped slightly to $19.5 billion in 2023, mainly due to slower economic growth in major remittance-sending countries such as the United States and the United Kingdom.
Looking ahead to 2025, PwC expects an increase in remittance inflows, buoyed by several factors. The report anticipates that as economic conditions improve in advanced economies, Nigerians abroad will be more inclined to send funds back home.
Additionally, the CBN’s supportive policies, such as granting licenses to new International Money Transfer Operators (IMTOs), are expected to enhance the ease of remittance transfers. The Nigerian government’s continued engagement with the diaspora, through the Nigerians in Diaspora Commission (NiDCOM), will also play a significant role in encouraging higher remittance volumes.
