The federal government needs to attract foreign direct investment (FDI) of at least $50 billion to rein in inflation to five per cent in 2025, according to Ayo Teriba, a well known economist and CEO of Lagos-based Economic Associates.
Teriba who featured on a programme on Arise TV Wednesday said the country’s net reserves needs to also expand after which the country’s macroeconomic conditions may begin to moderate.
The economist’s assertion comes against the backdrop of President Bola Tinubu’s target of lowering inflation to 15 percent next year. Many economists have doubted the feasibility, citing pressures from high food and petrol prices.
He explained that with enough capital inflows, large foreign reserves, exchange rate would be stabilised and inflation, which has climbed to a 28-year high, hitting 34.6 per cent in November, would slide drastically to a single digit.
The economist argued that the government must implement bold reforms aimed at attracting substantial FDI that would be transformative for the economy reeling from multiple woes.
”Five per cent inflation is possible next year. Look at what happened in Argentina. Economists don’t prophesy but make conditional statements,” Teriba said.
“If the president can complement the efforts on tax and finance reforms with an investment act to attract $50bn FDI within the next year, exchange rates will stabilise, and inflation will drop to single digits.”
Foreign Direct Investments (FDIs) into Nigeria rose by 248 per cent in the third quarter of 2024 to $103.82 million but this still remains too low to engender growth needed to turnaround the investment-starved economy.
FDI which consists of equity and capital needed for long term economic development declined to its lowest on record in Q2 to $29.8 million up from $119 million in the first three months of the year.
Teriba, however, said that the existing economic policies, particularly those focused on debt servicing, undermine the government’s ability to achieve this target.
He pointed out that borrowing to pay off previous debt is counterproductive and fails to address Nigeria’s underlying economic challenges.
“The interest rates offered to Nigeria by international creditors are among the highest globally, primarily due to the country’s poor credit rating. This makes borrowing inefficient and unsustainable as a long-term strategy,” Teriba said.
Teriba criticised the government’s current borrowing practices, urging a shift toward equity-based financing over debt.
He noted that many countries with economies comparable to Nigeria’s borrow at significantly lower rates because they issue higher-grade debt instruments.
“They said they were not going to borrow, but they have continued to borrow. There are right and wrong ways of borrowing, and efficient and inefficient methods.
“The foremost issue is the quality of the debt instruments you issue. Some countries of similar economic size borrow more heavily than we do but at a third of our rates,” he said.
He further argued that Nigeria’s continuous reliance on debt to fund fiscal deficits is unsustainable.
“We should not continue to fund deficits year in, year out with debt. A country with a well-structured balance sheet would prioritise equity over debt.”
Teriba called for the government to implement a robust investment strategy that prioritises structural reforms and incentives to attract foreign capital.
He warned that without such efforts, inflationary pressures would persist, undermining economic stability.
“If we remain on this trajectory of high-interest borrowing and poor credit management, we’ll miss the opportunity to stabilize our economy.
“However, if we adopt bold reforms and attract $50 billion FDI, Nigeria can transition to an era of growth and stability,” he said.
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