Nigeria is set to face challenges in attracting foreign investment in 2025, primarily due to its negative real interest rates, which result from inflation outpacing interest rates. This insight comes from PricewaterhouseCoopers (PwC) International Limited’s latest report, 2025 Nigerian Budget and Economic Outlook.
The report highlights that negative real interest rates continue to hinder investment flows, discouraging both domestic and international investors. This situation persists despite the Central Bank of Nigeria (CBN)’s aggressive rate hikes in 2024 aimed at controlling inflation and stabilizing the economy.
A Shift in Global Investment Dynamics
According to PwC, declining interest rates in advanced economies could shift funds away from Nigeria, where returns remain unattractive. Investors in global markets are likely to reallocate capital to regions offering higher real returns, making Nigeria less appealing.
“While Nigeria continues to implement policy measures, its negative real interest rates may deter both foreign and local investment,” PwC noted in the report.
Potential Capital Outflows
Beyond a slowdown in foreign fund inflows, PwC also projected a risk of capital outflows from Nigeria. If inflation rises in advanced economies in 2025, central banks in these regions could increase policy rates, driving funds to markets with positive real returns. This could exacerbate capital flight from countries like Nigeria, where the economic outlook remains clouded by negative real interest rates.
Despite these concerns, capital flows in 2025 are expected to remain moderate as investors take a cautious approach, influenced by the CBN’s efforts to restore investor confidence.
A Mixed Picture for Capital Importation
In the second quarter of 2024, Nigeria saw a significant surge in capital importation, which rose by 152% to $2.6 billion, compared to $1 billion in Q2 2023. This growth was driven by a rise in Foreign Portfolio Investments (FPIs), which increased from $106.8 million to $1.2 billion, and other investments, which rose from $837 million to $1.12 billion. However, Foreign Direct Investment (FDI) saw a 65% drop to $29.8 million, indicating a preference for short-term, less risky investments.
Diaspora Remittances: A Silver Lining
One bright spot identified in the report is diaspora remittances, which have averaged $20 billion annually over the last decade. However, in 2023, inflows dropped slightly to $19.5 billion, due to slower economic growth in major remittance-sending countries such as the United States and the United Kingdom.
PwC forecasts a potential uptick in remittances in 2025, driven by:
- Improved Economic Conditions Abroad: As advanced economies stabilize and policy rates decrease, Nigerians abroad are expected to increase remittances.
- CBN’s Supportive Measures: The CBN’s initiatives, such as granting licenses to new International Money Transfer Operators (IMTOs) and ensuring smoother access to naira liquidity, could foster increased inflows.
- Strengthened Diaspora Engagement: The Nigerian Diaspora Commission (NiDCOM) continues to build stronger connections with Nigerians abroad, encouraging greater remittance volumes.
Although challenges remain, PwC’s outlook on diaspora remittances offers a promising avenue for Nigeria’s foreign exchange reserves in 2025.
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