Nigeria Needs $50bn FDI To Achieve Single-Digit Inflation

Nigeria needs a minimum of $50 billion in foreign direct investment (FDI) to curb inflation to 5% by 2025, according to Ayo Teriba, a renowned economist and CEO of Economic Associates, Lagos. In an interview on Arise TV, Teriba emphasized that increasing the nation’s net reserves would be essential for stabilizing the economy and moderating macroeconomic conditions.

This statement comes amid President Bola Tinubu’s goal of reducing inflation to 15% by 2025, a target that some economists believe may be difficult to achieve due to rising food and fuel prices.

Teriba explained that with sufficient foreign capital inflows and expanded reserves, Nigeria could stabilize its exchange rate and drastically reduce inflation, which hit a 28-year high of 34.6% in November 2024.

He stressed that substantial reforms are crucial to attract FDI that could transform Nigeria’s economy, which is currently struggling with various challenges. Teriba pointed to Argentina’s success in stabilizing inflation as an example of what’s possible with the right policies.

To achieve this, Teriba proposed that the government focus on implementing tax and finance reforms alongside an investment act aimed at attracting $50 billion in FDI within the next year. This would help stabilize the exchange rate and push inflation to single-digit levels.

In the third quarter of 2024, FDI into Nigeria increased by 248%, reaching $103.82 million, but this figure remains insufficient to stimulate the growth needed for a major economic turnaround. FDI had hit a record low in the second quarter of 2024, standing at just $29.8 million.

Despite these challenges, Teriba argued that current economic policies, particularly those focused on debt servicing, are hindering the government’s ability to achieve its inflation goals. He criticized the practice of borrowing to pay off existing debt, noting that it doesn’t address Nigeria’s fundamental economic issues.

“The interest rates offered to Nigeria by international creditors are among the highest in the world, primarily because of the country’s low credit rating. This makes borrowing an inefficient and unsustainable strategy,” Teriba said.

He also urged a shift away from borrowing and recommended a move towards equity-based financing. Many countries with similar economies to Nigeria’s are able to borrow at significantly lower rates due to issuing higher-grade debt instruments.

Teriba pointed out that while Nigeria has pledged to reduce borrowing, it continues to rely on loans, which is not an effective solution to its fiscal challenges. He called for a shift towards more strategic borrowing, emphasizing that debt instruments’ quality is crucial to lowering borrowing costs.

“Many countries with economies comparable to ours borrow more than we do, but at a third of our rates. We should prioritize equity over debt to stabilize our finances,” he advised.

Teriba concluded by urging the government to focus on structural reforms and creating incentives that would attract foreign capital. Without these changes, he warned, inflation would remain a persistent issue, undermining economic stability.

“If we continue with high-interest borrowing and poor credit management, we’ll miss the opportunity to stabilize our economy. However, with bold reforms and attracting $50 billion in FDI, Nigeria could enter a new era of growth and stability,” he said.