April 16, 2024

Nigeria may struggle to attract foreign capital inflow for most of 2023 unless it boosts crude oil exports – KPMG warns


Oredola Adeola


KPMG has revealed that Nigeria may struggle to attract foreign capital inflow for most of 2023 and struggle to keep the foreign exchange rate from depreciating further unless it is able to boost its crude oil exports, especially now that oil prices are once again rising.


The firm made this known in its flashnotes themed: “Precipitous Decline in Foreign Capital in a Transition period “, released on Thursday and seen by EnergyDay.


KPMG Nigeria in the flashnotes date April 6, 2023, was reacting to the National Bureau of Statistics, NBS’ recent report that revealed that total capital importation figure into Nigeria showed a persistent decline from $23.9bn in 2019, $9.65bn in 2020, $6.70bn in 2021 and $5.32bn in 2022.


It further stated that substantial reforms by the incoming Nigeria’s President may yet be done to reverse the trend of declining foreign capital in the long term.


KPMG confirmed that the persistent decline in capital importation may be attributed to the rounds of global economic monetary tightening, since the COVID-19 pandemic and into the Russia/Ukraine war, low investor confidence due to ambiguous foreign exchange regime, challenges of accessing foreign exchange, high foreign exchange volatility, unflattering ratings by Moody’s and Standards and Poors’.


It also listed other contributory factors to the continuous security challenges, high cost of doing business, weak growth and high inflation and interest rates, fiscal and monetary constraints, and all in a period of tense political transition.


KPMG said, “The continuous decline in foreign capital inflows in the presence of dwindling crude oil sales and generally poor and unstable export earnings has slowed down foreign reserves accretion and widened the foreign exchange supply gap thereby putting pressure on the exchange rate which has depreciated for the most part since 2022.


“Russia-Ukraine war has shifted interest away from emerging and developing economies  like Nigeria and this is not expected to change anytime soon.


“Additionally, with respect to Nigeria, investor confidence, especially portfolio investors, has weakened in the presence of what foreign investors considered ambiguous,” KPMG revealed.


The professional Audit, Tax, and Advisory firm, therefore, emphasised that foreign investors will also be finding it difficult to make a certain investment decision in a year of political transition which has remained tense and typically will adopt a wait-and-see approach to investing in the country until Asiwaju Bola Tinubu’s administration settled in and give economic directions and priorities of his government.


Dr Yemi Kale,  Chief Economist & Head Research, KPMG Nigeria has however observed that while Nigeria may have to increase its crude oil exports, the country is still struggling to sell its crude to international buyer.

Bloomberg had earlier in the week reported that Nigeria is still struggling to find buyers for its oil as strikes at French refineries and seasonal maintenance at plants elsewhere in Europe curb demand.


Traders specializing in the West African market following the development confirmed that Nigerian crude traded last week, with more than 20 shipments for April loading still hunting for buyers.


The crisis is similar to 10 days ago, when 20 to 25 of the cargoes — holding 1 million barrels of oil each — were on the market.