CBN REFORMS: How policy shift has triggered foreign capital inflows

The Federal Government’s economic policy reforms being implemented by its various organs, especially the Central Bank of Nigeria (CBN), have attracted rising foreign capital inflows, signalling growing confidence in its execution, writes JOSEPH INOKOTONG.

 NIGERIA’S economic managers have continued to take steps meant to boost foreign capital inflows to the economy. Already, the Central Bank of Nigeria (CBN’s) policies, including the exchange rate unification, have led to significant foreign capital inflows to the economy while reducing its intervention in the forex market. The CBN’s economic reforms have continued to enhance Nigeria’s position as an attractive investment destination.

Already, the economy attracted higher foreign portfolio investment inflows totaled $3.48 billion in six months of reforms, compared with $756.1 million in pre-reforms era. This trend reflects growing investor confidence in the CBN’s ability to manage the financial system and economy, and constitute a positive signal for global investors.

The floatation of the naira and the clearing of over $7 billion FX backlog improved the country’s outlook with foreign investors as well as multilateral organisations, like the World Bank describing it as bold intervention to improve the economy’s sustainability in the long run.

CBN Governor, Olayemi Cardoso, disclosed that upon assuming office, his leadership prioritised rebuilding Nigeria’s economic buffers and strengthening resilience.

Inflation, which had surged to 27 percent, was one of the most pressing challenges, partly driven by excessive money supply growth. While the GDP growth had stagnated at a meagre 1.8 percent over the previous eight years, money supply expanded rapidly, averaging about 13 percent growth annually. This imbalance not only fueled inflation but also contributed to a significant depreciation of the naira. He explained that inflation creates uncertainty for households and businesses, acting as a silent tax by eroding purchasing power and driving up living costs.

The nation was also grappling with a fiscal crisis, marked by unsustainable deficit financing through the Central Bank’s Ways and Means advances, which had reached an unprecedented ₦22.7 trillion by 2023 —equivalent to almost 11 percent of the GDP. In addition, quasi-fiscal interventions by the CBN, totaling over ₦10 trillion, undermined market confidence and weakened the effectiveness of its policy tools.

Against these odds, the CBN under Cardoso has brought new hopes in the management of the financial system and economy. The current macroeconomic stabilization efforts support Nigeria’s ability to attract foreign investors to its markets.

For instance, at the end of 2024, Nigeria leveraged its improved economic fundamentals to re-enter the Eurobond market, seeking to address its fiscal deficit. The move marked the country’s return to the international debt market in November after a two-year absence. In a dual-tranche Eurobond issuance, investor demand surged, with subscriptions exceeding $9 billion.

In spite of the strong interest, the government chose to raise $2.2 billion. The issuance included $700 million in 6.5-year bonds set to mature in 2031, carrying a 9.625% coupon rate, and $1.5 billion in 10-year bonds with a coupon rate of 10.375%.

The high-interest rate environment also attracted higher foreign portfolio investment inflows, which totaled $3.48 billion in the first half of 2024 compared to $756.1 million during the same period in 2023. This trend reflects growing investor confidence in the country’s ability to manage its external debt burden, a positive signal for Nigeria’s Eurobonds.

Although inflation remains a significant challenge, with consumer prices reaching 34.80 percent in December, CBN’s aggressive tightening, which raised the monetary policy rate (MPR) by a cumulative 875 basis points to 27.50% in 2024, was a move to anchor inflation expectations.

The high policy rate, which is expected to extend through 2025, albeit some rates cut within H1 of the year, could attract more foreign portfolio investors to the country’s fixed-income market, which offers juicy yields. While inflationary pressures persist, especially from fuel price deregulation and exchange rate adjustments, the overall trajectory suggests potential gradual improvement.

In the midst of these developments, Cardoso announced during the last Banker’s Night in Lagos: “I want to assure you that at the Central Bank, every decision we make is driven by a commitment to serving the best interests of the people. This is why we will continue strengthening our internal capacity and processes to ensure our decisions remain firmly rooted in evidence-based analysis”.

Head of Investment Research – Global Macro Strategist, at Commercio Partners, Ifeanyi Ubah, said the government will continue to meet its obligations through a mix of multilateral loans, syndicated facilities, and potentially new Eurobond issuances.

In a report, “Nigeria’s Eurobond Outlook: Resilience Amid Global Uncertainty” he explained that the country’s Eurobond performance in 2025 will hinge on a delicate balance between domestic improvements and global monetary conditions.

“The country’s strengthening foreign reserves, improving fiscal revenues, and progress in structural reforms provide a robust foundation for managing its external debt. However, global headwinds, particularly a potentially hawkish Federal Reserve amid rising U.S. inflation, could weigh on market sentiment,” he said.

Ubah explained that if the Fed maintains restrictive rates, investor appetite for emerging market assets, including Nigeria’s Eurobonds, may weaken, pushing yields higher. He added that continued reform momentum and effective management of external liquidity risks could offset some of these pressures, ensuring that Nigeria’s Eurobonds remain a relatively attractive option within the SSA space.

According to him, for now, the outlook is cautiously optimistic, contingent on both domestic policy coherence and external economic developments.

“While there are uncertainties over the size of net reserves—owing to FX swaps with local banks—the Nigeria’s gross reserves provide an estimated nine months of imports, well above the median for peers in the ‘B’ rating category. The country’s ongoing security challenges, particularly in oil-producing regions, could undermine efforts to boost crude production, which could average 1.4mn barrels per day in 2025—still below pre-pandemic levels,” he stated.

Multiple FX flow channels activated

Global oil prices fell sharply, currently trading slightly above $60 per barrel. For an oil dependent economy like Nigeria, the ongoing decline in crude oil prices is never a cheering news.

With the pessimistic projection of The Wall Street Journal that Brent could end 2025 below $50 per barrel, Nigerian policymakers have their work cut out for them. At $50 per barrel and a production level of 1.5 million barrel per day (mbpd), Nigeria’s oil revenue will be 10 percent below its fiscal breakeven point. The fiscal deficit could rise to six to seven percent of Gross Domestic Product (GDP), with a knock-on effect on inflation.

Cardoso has through foresight, activated countermeasures that will ensure that the impact of the oil-crisis does not hurt the domestic economy. The apex bank is taking measures to improve Nigeria’s export potential, promoting backward integration principles to reduce import of items that can be produced locally and simplifying dollar remittances to domestic economy for Nigerians in diaspora.

Drawing from China’s economic strategy, the apex bank said Nigeria’s competitive exchange rate can drive export-led growth. To harness this potential, businesses are expected to adopt export-oriented strategies by targeting sectors with strong export potential such as agriculture, manufacturing and creative industries; implement import-substitution models by strengthening domestic production capabilities and reducing reliance on costly imports, and focus on value addition by shifting from exporting raw materials to processed goods, thereby boosting foreign exchange earnings.

Cardoso said Nigeria’s creative sector has potential to attract $25 billion annually to the economy, highlighting the untapped opportunities in Nigeria’s expanding creative sector, including music, film, crafts, and digital exports. He urged businesses to explore international markets, digital platforms, and global tours to increase dollar revenue inflows.

Also recently, Cardoso advised telecom companies to reduce their dependence on foreign imports by producing key components of their inputs locally. The backward integration proposal for the telecom industry comes at a time the real sector is in dire need of sustainable growth. The CBN boss gave insights on what the economy stands to gain from backward integration in the telecoms sector.

He spoke in Abuja during a visit by Airtel Africa’s management team, led by Group CEO Sunil Taldar. Cardoso stressed that local production would help reduce pressure on the dollar, create jobs, and boost Nigeria’s economy, and noted that massive production of key inputs, that are currently being imported, like SIM cards, cables, and towers is essential. He said over the past 16 months, the CBN worked to stabilize the foreign exchange (forex) market, strengthen the Naira, and attract investors. With these improvements, he urged telecom firms to embrace backward integration.

In response, Airtel Africa’s CEO, Sunil Taldar, praised the CBN’s reforms and expressed support for local production, saying it would benefit telecom companies in the long run. He also reaffirmed Airtel’s commitment to expanding financial inclusion through technology.

Other analysts also mentioned the renewed interest of Foreign Portfolio Investors (FPIs) in the FX market—driven by improved market confidence, a more efficient FX framework, and strengthening macroeconomic conditions—alongside the CBN’s sustained market interventions, is expected to continually support naira stability.

Fight against inflation continues

Although headline inflation eased slightly from 24.23 percent in March to 23.71 percent in April, the decline remains too modest to justify monetary loosening—especially in a context where foreign portfolio inflows remain highly sensitive to interest rate differentials.

Cardoso said: “We recognize that inflation remains the most disruptive force to the economic welfare of Nigerians. Our policy stance is firmly focused on bringing inflation down to single digits in a sustainable manner over the medium term. Our goal is to restore price stability, protect household purchasing power, and lay the foundation for long-term investment”.

Other analysts said Nigeria is targeting seven percent economic growth, which represents a strong growth projection, under which poverty will be substantially reduced and lives of Nigerians significantly improved.

The World Bank expects Nigeria’s economy to grow 3.6 percent this year. World Bank’s lead economist for Nigeria, Alex Sienaert commended the Nigerian government for implementing macroeconomic reforms that have stabilized the economy.

However, he pointed out that more efforts are needed to ensure that this growth is inclusive, particularly through expanding cash transfer programmes for the vulnerable populations in the country. Sienaert added that international experience shows that the public sector alone cannot generate sustainable economic growth and jobs. He stressed that public resources remain limited and that a successful strategy for Nigeria would involve positioning the public sector to both provide essential services—such as human capital development and infrastructure—and create an enabling environment for the private sector to thrive.

“Nigeria is no exception, particularly since public resources remain constrained. A useful strategy is to position the public sector to play a dual role as a provider of essential public services, especially to build human capital and infrastructure, and as an enabler for the private sector to invest, innovate, and grow the economy,” Sienaert added. The World Bank also said Nigeria’s economy needs to grow at a rate five times faster than its current pace to achieve the $1 trillion target by 2030 as well as address the country’s rising poverty levels.

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