Nigeria’s foreign reserves have reached $41 billion, the highest level in nearly four years, sparking cautious optimism about economic recovery.
Speaking in an interview with Arise News on Friday, Economist Paul Alaje attributed the growth to four key factors: crude oil sales, diaspora remittances, non-oil exports, and foreign loans.
He also explained that borrowed funds also form part of the reserves since the Central Bank converts foreign borrowings into naira equivalents for government spending.
According him, “Over 70 percent of our foreign earnings come from crude oil. But diaspora inflows, non-oil exports, and loans also contribute.
“The challenge with crude oil is volatility. We cannot predict the future because global crises could crash prices, ” he said.
Alaje however warned that the sustainability of the uptick dependent on reducing dependence on volatile oil revenues and foreign loans.
He noted that non-oil exports contributed to foreign reserves, but Nigeria still imports raw materials despite abundant natural resources.
He further said that borrowed funds formed part of reserves, but Alaje cautions against overreliance on portfolio investments.
Alaje stressed the importance of diversifying the economy, noting that Nigeria still imports raw materials despite abundant natural resources.
“Having natural resources is not the same as having raw materials. We must build capacity to process them so manufacturers are less dependent on imports.”
On remittances, Alaje highlighted the role of Nigerians abroad in boosting local investment, particularly in real estate.
“Thanks to diasporans, the real estate sector has improved. Many are investing because their foreign earnings exchange for more here,” he said.
While the $41 billion reserve marked a recovery from a low of $12 billion in recent years, Alaje cautioned against overreliance on portfolio investments such as bonds and treasury bills, which he described as “short-term and unpredictable.
“What authorities must ensure is that the reserves are built on sustainable sources non-oil exports and stable remittances,” he warned.
“Otherwise, we risk sudden outflows if investors pull out.”
He also linked long-term sustainability to government budget priorities.
He advised that subnational governments raise capital expenditure to at least 50 percent. “The higher your capital expenditure, the more you can translate reserves into real economic impact,” Alaje said.
He emphasised the need to diversify the economy and build capacity to process natural resources into raw materials.
He advised subnational governments to raise capital expenditure to at least 50 per cent to translate reserves into real economic impact.
Alaje acknowledged growing investor confidence under President Bola Tinubu’s administration, who has assured foreign investors that “your money is safe in Nigeria.”
He however, warns that confidence could quickly turn negative if reforms fail to yield desired results.
