Will the CBN's new exchange rate policies attract foreign investments?

Jun 19, 2023|Gbemisola Alonge

Key questions this article answers:

The CBN recently announced reforms to the foreign exchange market. What implications will these have on Nigeria’s reputation and the economy?
Is this policy sufficient to attract foreign investment back into the country, or should the government do more to attract foreign investment?

Last week, the Central Bank of Nigeria (CBN) issued a circular highlighting new foreign exchange (FX) operations guidelines for the country, and I discussed the changes in Friday’s article.

Essentially, the CBN changed the trading structure to make it more market-led and liberal. This means that individuals and investors (through authorised dealers—mostly banks) should be able to access FX for eligible transactions freely.

While these policies aimed at increasing FX liquidity in the market, this is not the ultimate goal of the CBN—and the federal government. It is simply a means to an end. The end, however, is an enabling environment for foreign investment, which puts Nigeria in a position to attract sufficient capital flows that eventually induce growth.

The exchange rate reforms are one step towards improving Nigeria’s attractiveness, and that’s the focus of this article. What does the new policy mean for Nigeria’s reputation (especially externally) and the economy as a whole?

Reputation is so critical to the growth of a country. This perception ranges from diplomatic, political and economic. For this article, I’ll stick to my domain expertise and focus on the economic aspect. The external economic reputation here refers to how investors, rating agencies and multilateral institutions perceive how a country can borrow, trade and receive investment inflows.

When a country seems unstable and untrustworthy, capital inflows become low and far between, borrowing becomes more expensive, and trade may be affected.