Firm Urges FG To Address Inflation To Attract FDI, Sustain Growth

The Rating and Research firm, Agusto & co, has disclosed that Federal Government’s ability to tackle the nation’s rising inflation from demand pull-induced sources and attract sustained foreign investment that goes beyond familiar players is crucial to repositioning the country on a path of sustainable growth.

The agency, in its report titled’ Can Nigeria Turn the Tide’, expressed that it is impossible to achieve this goal without the active involvement of the fiscal authorities that need to take action to attract foreign direct investment (FDI).

It said, “Upon taking office, President Tinubu embarked on arguably the biggest economic shake-up in Nigerian history. He swiftly rolled out market reforms (reduced petrol subsidies and floated the naira) aimed at eliminating market distortions and propelling the Nigerian economy to an accelerated growth path.

“Nonetheless, given the context of already high inflation, the implementation was done hastily and haphazardly, triggering an acceleration of inflation to an almost three-decade high of 33.2 per cent in March 2024 (food inflation rose to a 19-year high of 40 per cent) and a sharp rise in the cost of living."

The agency also noted that establishing a truly transparent and functional foreign exchange market will also be vital. According to the firm, the naira depreciation since April 17 suggests that foreign investors, and speculators alike, are waiting for clearer signs of a comprehensive economic plan from the government to attract capital inflows and ensure sustained naira stability.

It said the IMF applauded the bold move by the CBN to curb inflation via steep hikes in the monetary policy rate (MPR), which it believes reflects a commitment to economic stability. The Fund now expects Nigeria’s inflation to drop significantly in the coming years, falling to 14.6 per cent by 2029.

However, the rating agency worried over the structural supply-side issues constraining output, including insecurity and high production costs, even as these factors continue to trigger inflation, limit the effectiveness of monetary policies and constrain the moderation of inflationary pressures.

It pointed out the need to ensure that the service sector which is an engine of Nigeria’s GDP growth sustains the trajectory.

The agency also stressed that the recent announcement by the Dangote Refinery regarding the availability of diesel and aviation fuel by the end of April, subject to regulatory approval, priced at ₦940/$ and ₦980/$, respectively, is a tangible sign of a positive shift in the country’s oil sector, noting that this aligns with its projections of double-digit expansion for oil refining output at the start of the year.

It said the IMF recent forecasts that Nigeria would fall to 4th position in terms of GDP size on the continent, surpassed by Algeria, Egypt, and South Africa was due to a significantly weaker naira and disruptions caused by policy reforms, like fuel subsidy removal.

“Nonetheless, we believe that a longer and perhaps more tortuous path could be a modest price to pay to lay and deepen the foundations for a more resilient economy that is set firmly on a path of sustainable and accelerated growth in the long-term.”