Moreover, hoarding of the foreign exchange by politicians in preparation for the forthcoming 2023 general elections has further dented the FX market in terms of liquidity and supply, especially on the official exchange platform.
As a result, there remains a large premium between the official and parallel foreign exchange rates and every effort to unify these windows have proved ineffective. Also, the CBN’s resolve to halt dollar sales to accredited foreign exchange operators further contributes to the distortions experienced in the FX market. Already, this sale halt has cost the market billions of dollars a year of supply.
Despite the boom in the global oil market, Nigeria’s foreign exchange reserve has been on a steady decline. As of September 29, 2022, Nigeria’s foreign reserves declined by 5.47 percent to $38.28 billion from $40.50 billion at the end of last year, according to data obtained from the CBN. This might be as a result of a Special Drawing Rights (SDR) allocation and Eurobond issuance.
This embarrassing turn of events in the country’s power sector has made investors very sceptical of funding profitable projects in the country
Sustained insecurity in the larger north and semi-south have also contributed to a volatile business environment for which foreign investors have shown dire averseness. Frequent attacks by Boko Haram terrorists, herdsmen clashes, kidnapping by bandits, and other heinous activities carried out by unknown gunmen and other political separatist movements have cost the Nigerian economy so much in foreign investments that have been hitherto diverted to neighbouring countries with relatively less favourable potentials when compared with Nigeria.
Poor infrastructure and political and institutional defaults have rendered Nigeria a no-go zone for many investors who would have favoured the country’s business atmosphere over other African nations. From March 2022 till date, for instance, the national power grid has suffered several collapses, with partial failures of over 100 times since 2010.
Just in September, Nigeria’s fragile national electricity grid suffered its seventh collapse in 2022, temporarily throwing the entire country into another total blackout. This embarrassing turn of events in the country’s power sector has made investors very sceptical of funding profitable projects in the country.
Also, Nigeria’s oil sector has been characterised by a heavy production cost burden and unchecked impunity. This, coupled with the increasing cost of power generation and distribution, has made the nation’s price environment heated beyond expectations.
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Equally disturbing is the state of the nation’s political and institutional setting, which usually upsets the temperature of the country’s business ecosystem. As the 2023 general elections draw nearer, the degree of unpredictability of the country’s business environment becomes more severe. Already, many political loyalists have become broadly divided along party lines, while many others have resorted to ethno-religious face-offs among themselves to support their choice candidate for the number one position in the country.
Sadly, security forces seem to have been bought over by the highest bidding political pockets, and numerous unemployed thugs are being prepared to take risky orders in favour of their preferred candidates.
Within the legal system, the leadership challenges owing to corruption allegations, among other woeful discoveries within the system, have made the entire legal body an unreliable entity. For these reasons, investors would rather hold and watch the turn of events as the 2023 elections unfold.
Investors know that the volatilities that come with election periods are usually expressed in elevated prices, foreign exchange shortcomings, institutional breakdowns, outbreaks/breakdowns in law and order, and financial market squeezes.
For these reasons, the tense nature of pre, during, and post-election periods usually disallows investors from dabbling into the business environment.
While Nigeria’s journey towards a fully financially independent and capital-abundant nation remains a long-term possibility, the country needs to reposition itself toward becoming a more attractive destination to foreign investors in the short to medium term. This can be made possible by fixing the structural issues that characterise the macro-economy on one hand, while focusing on strengthening the quality of institutions and recovering public trust in government on the other hand.
