Chairman of the Alliance for Economic Research and Ethics (AERE), Dele Oye, has said Nigeria’s economy remains under significant pressure despite recording $10.37 billion in capital inflows.
Oye warned that the size of the inflow alone should not be interpreted as evidence that the country is attracting enough long-term and productive investment. He said the composition of the funds was equally important, particularly because a significant portion was linked to foreign portfolio investment.
According to him, portfolio investments can move quickly in response to changes in global interest rates, exchange rates and investor confidence, making them less stable than long-term foreign direct investment.
Oye made the comments while reacting to the United States Federal Reserve’s decision to raise its interest rate to between 3.75 per cent and 4.00 per cent, describing the development as a potential test for emerging economies such as Nigeria.
He said another increase in US interest rates could place additional pressure on Nigeria’s $54.61 billion foreign exchange reserves and the stability of the naira market.
The economist explained that tighter monetary conditions in the United States could influence global capital flows as international investors reassess the risks and returns associated with holding assets in emerging markets.
He said Nigeria’s ability to retain foreign capital and maintain stability in its foreign exchange market would partly depend on the strength of its external reserves and the level of investor confidence in the country’s economic reforms.
According to Oye, Nigeria’s reserves provide an important cushion against external shocks, but the bigger question is whether the country can withstand renewed pressure on the naira without substantially exhausting those reserves.
He therefore urged policymakers to closely monitor movements in capital flows, foreign exchange demand and international interest rates while ensuring that the country’s external reserves are deployed strategically.
Oye also called for stronger non-oil exports and increased efforts to attract foreign direct investment (FDI), saying these would help reduce Nigeria’s exposure to external economic shocks.
He argued that the country should focus on developing an economy capable of generating foreign exchange through domestic production and exports instead of depending heavily on portfolio investments that can be affected by changes in global financial conditions.
On the $10.37 billion capital inflow recorded by Nigeria, Oye said the country needed to attract more FDI that would result in the establishment and expansion of businesses, increased production and job creation.
He acknowledged that the size of the capital inflow was significant but stressed that its economic value would depend on where the funds were invested and whether they contributed to sustainable productive activity.
Oye said large capital inflows would not automatically translate into broad-based economic growth if they failed to increase production, employment, infrastructure and household living standards.
The AERE chairman urged the government to create conditions that would encourage long-term investors to commit funds to manufacturing, agriculture, technology, infrastructure and other productive sectors.
He identified policy consistency, reliable infrastructure, regulatory certainty and lower operating costs as important factors that could make Nigeria more attractive to sustainable foreign investors.
Oye further said the success of Nigeria’s economic reforms should ultimately be reflected in their effects on businesses and households.
According to him, indicators such as increased investment, job creation, higher domestic production and improved purchasing power would provide a clearer measure of whether the reforms were delivering meaningful economic benefits.
He maintained that stronger FDI would provide a more stable foundation for Nigeria’s economic expansion than excessive reliance on portfolio investments, which are more sensitive to changes in global market conditions.
Source: AERE
