Nigeria may not see significant foreign funds inflow this year because of its negative real interest rates resulting from inflation surpassing interest rates.
This is according to the latest economy report by PricewaterhouseCoopers (PwC) International Limited, titled “2025 Nigerian Budget and Economic Outlook.”
According to the report, Nigeria’s negative real interest rates remain a challenge, discouraging both local and international investors.
It noted that this is despite the aggressive interest rate hike by the Central Bank of Nigeria (CBN) in 2024.
“Declining interest rates in advanced economies are likely to lead to a reallocation of funds to more competitive markets offering higher real returns.
“However, Nigeria may not benefit significantly from this because its negative real interest rates…may discourage investors” PwC stated in the report.
Nigeria may witness capital outflow
Beyond the possible slowdown in foreign funds inflow, PwC also shared an insight on a scenario that may also lead to capital outflow from Nigeria.
“If inflation rises in advanced economies in 2025, their central banks may increase policy rates, leading to a shift of funds towards these markets offering positive real returns.
“This may exacerbate capital outflows from economies like Nigeria, where negative real interest rates diminish the appeal of local assets to international investors,” it projected.
- Capital flows are, however, projected to remain moderate in 2025 as investors remain cautious, despite CBN policy actions aimed at rebuilding investor confidence.
- The report noted that in Q2 2024, total capital importation in Nigeria grew by 152% to $2.6 billion, up from $1 billion in Q2 2023, driven by a rise in Foreign Portfolio Investments (FPIs) from $106.8 million to $1.2 billion and other investments (from $837 million to $1.12 billion), despite a 65% drop in FDI to $29.8 million.
- The growth in FPIs was supported by the CBN’s MPR hike, boosting demand for Nigerian money market instruments, while foreign loans and other claims drove the rise in other investments.
Diaspora remittances as the silver lining
PwC noted that diaspora remittances, a critical source of foreign exchange for Nigeria, have averaged $20 billion annually over the past decade.
However, inflows dipped slightly to $19.5 billion in 2023, attributed to slower economic growth in key remittance-sending countries like the United States and the United Kingdom.
For 2025, PwC projects an uptick in remittance inflows supported by:
- Improved Economic Conditions Abroad: As advanced economies lower policy rates and stabilize, Nigerians in these countries are likely to remit more funds.
- CBN Supportive Policies: Measures such as granting licenses to new International Money Transfer Operators (IMTOs), implementing a willing-buyer willing-seller model, and ensuring IMTOs have timely access to naira liquidity are expected to boost inflows.
- Increased Diaspora Engagement: The Nigerians in Diaspora Commission (NiDCOM) continues to foster stronger ties with Nigerians abroad, encouraging higher remittance volumes.
