CBN’s reforms put Nigeria on spotlight for investors

With inflation easing to 24.5% in January, rising Foreign Direct Investment (FDI) inflows, and an expanding Gross Domestic Product (GDP), Nigeria’s economy is recovering faster than many analysts anticipated.

Meanwhile, the Central Bank of Nigeria (CBN)-led Monetary Policy Committee’s decision to maintain interest rates at its last meeting has fueled a rally in Nigeria’s Eurobond market, reinforcing foreign investors’ confidence in the domestic economy.

Without doubt, the Nigerian economy has what it takes to attract and sustain foreign investors’ interest. With several macroeconomic indicators picking up, and expanded Gross Domestic Product (GDP) size, savvy investors are finding their way back to the country.

Read also: Court orders final forfeiture of $1.4m linked to Emefiele, former CBN governor

Investment report shows that Nigeria’s Eurobond market closed the month of February in positive territory, signaling sustained foreign investor confidence.

According to data from the Debt Management Office (DMO), the average yield on Nigeria’s Eurobonds closed at 8.80 per cent, 41 basis points down from 9.21 per cent at the beginning of February, a signal of strong investor appetite.

In the Sub-Saharan African Eurobond market, yields also fell by 27bps to an average of 8.4 percent, which means Nigeria outperformed the region.

Analysts at Afrinvest said that this was because the region continued to attract interest amid improving macroeconomic dynamics and lower interest rate pivots.

Analysts at CSL said that the drop in yield is largely influenced by global risk-off trends, geopolitical uncertainties, and key economic data releases.

Looking ahead, analysts at Afrinvest anticipate that the market will perform well, driven by strong liquidity inflows from coupon payment of N642.6 billion and maturities of N562.5 billion.

“Additionally, a dovish interest rate outlook should reinforce the bullish bias. In the Sub Saharan Africa market, the hunt for yield is likely to remain a dominant theme for sustained offshore interest in the region,” it said.

The decision of the CBN-led MPC to keep interest rate unchanged at it last meeting is also keeping global investors hooked to the domestic economy.

Rebased GDP signals new strength for economy

The economy also got a big boost with the National Bureau of Statistics (NBS) rebasing the economy after a nine year gap. The economy will now appear larger than previously reported due to the inclusion of new and fast-growing sectors like fintech, e-commerce, entertainment, and digital services.

There will also be a sectoral shift in economic contribution. Technology, telecommunications, and entertainment (e.g., Nollywood, digital startups) will have a greater share of GDP. Agriculture and oil & gas may have a reduced percentage contribution as newer sectors gain prominence.

According to Ayo Olodo, Abuja-based public commentator, informal sector activities, which are often underestimated, may be better captured. Changes in Economic Indicators are also likely to happen.

Read also: Invite firms with unresolved $2.4bn FX contracts, Muda Yusuf urges CBN

For example, Debt-to-GDP ratio may improve, making it seem like Nigeria has more fiscal space to borrow, although debt servicing costs remain a key concern.

Also, Per capita income may increase, though this won’t necessarily mean improved living standards if inflation remains high.

“The Implications for Policy and Investment are also worth mentioning here. Foreign investors may be attracted to newly highlighted sectors that were previously underreported. The government may adjust fiscal and monetary policies to better align with the rebased economy. Taxation policies may be reviewed, especially if certain high-growth sectors are found to be under-taxed,” he said.

Besides, if GDP grows significantly, Nigeria may move closer to upper-middle-income status, affecting eligibility for concessional loans and development aid.

Olusegun Alebiosu, chief executive officer, FirstBank Group, said the improving government revenues, improved revenue-to-debt service ratio at 68 percent and the growth in foreign reserve balances to over $40 billion represent positive indicators for the economy.

He further said: “Early signs such as the stability that characterised the forex market after the introduction of the electronic foreign exchange matching system in December 2024; the emergence of competition on the supply side of our nation’s downstream sector that is leading to falling prices in premium motor spirit (PMS) and the coming back on stream of the Port Harcourt & Warri refineries are indicative that there is, indeed, light at the end of the tunnel for us as a country”.

Alebiosu said the sheer timing of the emergence of these developments has strengthened optimism about the Nigerian economy, especially coming into the new year 2025.

Also, the government’s N54.99 trillion 2025 budget is expected to provide sufficient economic stimulus in view of the lower likelihood for poor budget implementation due to improving government’s revenue position, adding that the projected GDP growth rate of 3.68 per cent for 2025 is a very likely outcome.

He disclosed that due to the impacts of some of the “painful but necessary” reforms that the Government had pursued, inflationary pressures exerted considerable strain on household and corporate incomes in 2024, with the inflation rate reaching a three-decades high of 34.60 per cent in November 2024.

What the MPC did

Accordingly, the Committee voted to hold the MPR constant at 27.50 per cent and retain all other parameters – Cash Reserve Requirement (CRR) for Deposit Money Banks (DMBs) and Merchants Banks at 50 percent and 16 per cent, respectively; the asymmetric corridor around the MPR at +500bps/-100bps and the liquidity ratio at 30 per cent.

Nigeria’s annual inflation rate stood at 24.48 per cent in January, the National Bureau of Statistics (NBS) said. The figure is well down from the previous month’s figure after Nigeria’s Consumer Price Index (CPI) was rebased for the first time in more than a decade.

Olayemi Cardoso, the CBN governor, said the apex bank is now more than ever, consolidating market gains and ensuring sustained improvement is crucial.

“We will enhance collaboration with the fiscal sector by increasing the depth and regularity of our interactions to drive economic growth. With stabilising forex rates, strengthened price controls, and rising investor confidence, the economy shows strong signs of resilience and recovery,” he said.

Cardoso explained that ⁠following positive developments in the FX market, the CBN’s focus on boosting liquidity and maintaining transparency in forex operations is sacrosanct.

“Our Objectives have been and will continue to be, to achieve stability in the Foreign Exchange and the Financial markets. CBN will continue to embrace orthodoxy and stay the course. We remain vigilant and will not take anything for granted, inflation has been too high for too long, and our goal is to bring it down from double digits to single digits in the medium to long term,” he said.

Read also: How CBN is reinforcing oversight to strengthen financial system

The naira strengthened by 6.95 per cent to N1,510/$ in the parallel market in February, driven by exchange rate expectations, subdued forex demand, and sustained CBN intervention.

Businesses, especially real sector operators applauded the MPC decision to hold rates, so as to sustain naira rally and cut rising cost of borrowing.

These decisions were based on the fact that the Committee anticipates robust GDP growth in the medium term, driven by strong contributions from the non-oil sector. Additionally, the MPC noted the sustained rise in domestic crude oil production (1.74mb/d) and expects an improved contribution from the oil sector, further strengthening overall GDP growth.

The MPC acknowledged the rebasing of the CPI as well as the adjustments in the weights of items in the CPI basket, citing that the new methodology reflects current consumption patterns. Furthermore, the Committee expects inflationary pressures to moderate in the near future, helped by a relatively stable naira and gradual moderation in PMS prices.

The MPC highlighted the recent naira appreciation buoyed by improved FX liquidity. The Committee also acknowledged the current measures by the CBN to foster transparency and credibility in the FX market, including the implementation of the Electronic Foreign Exchange System (EFEMS) and the Nigerian Foreign Exchange Market (NFEM) FX Code.

The Committee expects the sustained policy initiatives to improve Foreign Direct and Portfolio investments as investors’ confidence increases. The MPC also highlighted that the increased domestic crude oil production is expected to improve the current account balance and support FX reserve accretion.

Boost in investment and remittances

Already, remittances through International Money Transfer Operators (IMTOs) rose 79.4 per cent to US$4.18 billion in the first three quarters of 2024, demonstrating the positive impact of FX reforms.

Additionally, the CBN lifted the 2015 restriction barring 41 items from accessing FX at the official market to enhance trade and investment.

These reforms and developments reflect the bank’s commitment to creating an enabling environment for inclusive economic development. However, achieving macroeconomic stability requires sustained vigilance and a proactive monetary policy stance.

“As we shift from unorthodox to orthodox monetary policy, the CBN remains committed to restoring confidence, strengthening policy credibility, and staying focused on its core mandate of price stability,” Cardoso reaffirmed.

To tackle the pressing challenge of inflation, the CBN acted decisively by raising the Monetary Policy Rate by 875 basis points to 27.5 per cent in 2024—an essential move to contain inflation and restore stability.

Analysts insist that these measures under Cardoso have not only lifted the forex market and entrenched long-lasting stability but laid the foundation for sustainable economic growth.

Very significantly, the resilience of the domestic economy, bolstered by a strong financial system with robust soundness indicators, instill confidence in the economic structure.

Major prudential ratios, such as capital adequacy, liquidity, and Non-Performing Loans ratios, were within prudential limits, reflecting proactive regulatory oversight and strong industry risk management practices. Significant credit was extended to growth-enhancing sectors such as agriculture, manufacturing and general commerce, as well as individuals and households.

The credit played a crucial role in stimulating economic activities and supporting output performance, emphasizing the role of financial institutions and sound regulation led by the Central Bank of Nigeria.

Read also: Meet the new CBN directors who will head key departments

Besides, the CBN has also taken strategic steps to tackle inflation. The apex bank recently hosted the Monetary Policy Forum 2025, featuring fiscal authorities, legislative, private sector, development partners, subject-matter experts, and scholars with the theme: “Managing the Disinflation Process”.

Cardoso explained that the apex bank’s focus is to sustain price stability, the planned transition to an inflation-targeting framework, and strategies to restore purchasing power and ease economic hardship.

The CBN is continuing its disciplined approach to monetary policy, aimed at curbing inflation and stabilising the economy.

“These actions have yielded measurable progress: relative stability in the FX market, narrowing exchange rate disparities, and a rise in external reserves to over $40 billion as of December 2024.

The CBN also focused on strengthening the banking sector, introducing new minimum capital requirements for banks (effective March 2026) to ensure resilience and position Nigeria’s banking industry for a $1 trillion economy,” he said.

To further enhance the functionality of the foreign exchange market, the apex bank introduced an Electronic Foreign Exchange Matching System which has proven effective in other markets.

The programme was meant to check forex market distortions, eliminate speculative activities and instill transparency. The EFEMS, which is commonplace in developed and developing markets offers real-time information on currency rates, trading volumes, and market activity.

For many stakeholders, these measures under Cardoso have not only lifted the forex market and entrenched long-lasting stability but laid a solid foundation for the economy and businesses to thrive.