BY FESTUS OKOROMADU
KPMG Nigeria has said that the Naira may further depreciate in 2023 due to the dwindling inflow of foreign capital importation into the country.
The professional service firm stated this in an article titled ‘Precipitous Decline in Foreign Capital in a Transition Period’, released on Thursday.
KPMG predicted that the country may also struggle to attract foreign capital during the year unless crude oil and non-oil exports are increased.
KPMG, in its analysis, attributed the decline in capital importation to the rounds of global economies’ monetary tightening as well as low investor confidence due to the ambiguous foreign exchange regime.
Other factors listed by KPMG included challenges in accessing foreign exchange, high foreign exchange volatility, unflattering ratings by Moody’s and Standards and Poors’, continuous security challenges, high cost of doing business, weak growth and high inflation and interest rates, fiscal and monetary constraints.
It also said that investors may be finding it difficult to make certain investment decisions in a period of tense political transition.
“Capital importation figures have now shown a persistent decline from $23.9 billion in 2019, $9.65 billion in 2020, $6.70 billion in 2021, and $5.32 billion in 2022.
“The importance of capital inflows in a country where foreign exchange is in high demand to stimulate economic activity is very clear.
“Accordingly, 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.
“Additionally, inadequate access to foreign exchange has constrained inputs for production leading to higher production costs, lower revenues and slower economic growth,” KPMG said.
The firm said that Nigeria is currently experiencing an economic slowdown which suggested weakened consumer demand, hyperinflation, high interest rates and more volatile fiscal and monetary conditions.
“While substantial reforms may yet be done to reverse the trend of declining foreign capital in the long term, we believe that in the meantime, the country will struggle to attract increasing foreign capital for most of 2023 and struggle to keep the exchange rate from depreciating further, unless it is able to boost its crude oil and non-oil exports, especially now that oil prices are once again rising,” KPMG added.
