How Nigeria can address investor concerns

Nigeria has faced a tumultuous period with the exit of several multinational companies in 2023, citing a challenging operating environment. This exodus coincided with a substantial 43.6% decline in capital importation in the third quarter of the same year. Victor Aluyi, Head of Investment at Sankore Global Investment, shed light on the lingering concerns of investors and the hurdles that need to be surmounted to regain confidence in the Nigerian market. Aluyi emphasized that foreign exchange (FX) challenges remain a critical issue that has been at the core of the departures witnessed in the past year. The unresolved and debilitating nature of the FX challenges have left investors apprehensive and cautious. Despite anticipations surrounding incoming funds to alleviate these pressures, the expected traction has been slow, further exacerbating investor uncertainties. The Nigerian equities space has shown some positive movement, with the All-Share Index approaching the 80,000 mark and recording a 45.9% gain year-to-date. However, Aluyi noted that the market's growth has primarily been fueled by local investors, rather than significant foreign portfolio investment. The FX volatility continues to deter seamless investor participation and remains a significant barrier to attracting foreign capital. Looking ahead to 2024, the economic and political landscape presents a myriad of challenges. The year is marked by 48 elections globally, including critical ones in Taiwan and the United States. Political instability coupled with external shocks has become a prevalent feature, intensifying the sector of political risk. The issue of FX stability is paramount for attracting foreign funds, as Aluyi highlighted that monetary conditions may ease but will not effectively drive investments without addressing the fundamental concerns surrounding the FX environment. The volatility of the Naira, which saw significant depreciation in 2023, further compounds the uncertainties surrounding the local currency's outlook. Inflation, hovering around 30%, remains a pressing concern, necessitating concerted efforts to stabilize prices and improve the overall economic climate. Aluyi underscored the importance of sustainable solutions to address the FX challenges, as it has a ripple effect on various economic indicators such as inflation and cost of living. Amid the fiscal strains and budgetary mismatches, concerns arise over the government's revenue projections and the strategies required to bridge the gap. Aluyi suggested ramping up food production as a viable option to bolster revenues, tapping into the potential of the agricultural sector to enhance economic output. While crude oil prices have been on an upward trajectory, security challenges have hampered Nigeria's ability to derive maximum benefits from its oil resources. Addressing these security issues and optimizing crude oil production could significantly boost government revenues and mitigate fiscal deficits. Ultimately, navigating Nigeria's economic landscape in 2024 demands bold and decisive actions from both fiscal and monetary authorities. The road ahead may be fraught with challenges, but the key lies in addressing the fundamental issues plaguing the economy, particularly the FX volatility, to instill confidence and spur sustainable growth.