Adebajo: Nigeria Needs Clear, Credible Policies to Attract FDIs

Chief Executive Officer of CFG Advisory, Tilewa Adebajo, in this conversation discusses Nigeria’s economic outlook, developments in the banking sector, monetary policy and fiscal management. He highlights key risks to growth, questions the realism of current budget assumptions and the $1 trillion economy ambition. Nume Ekeghe presents the excerpts: 

How would you assess the current state of the banking sector?

The Nigerian banking sector is very robust. With the ongoing recapitalisation, the sector is on track to remain stable, even in a very tight monetary environment. Cash Reserve Ratio (CRR) is close to 50 per cent, yet banks are still posting bumper profits. That tells you a lot about their strength and capitalisation. I do not see recapitalisation as a problem at all. I believe all banks will meet their capital requirements in whichever format they choose. I also do not foresee widespread mergers and acquisitions. Any smaller banks that may face challenges are already under the control of the Central Bank of Nigeria (CBN), which can continue to manage them on a temporary basis if needed.

Overall, the sector is robust, and the guidelines in place are designed to further strengthen it.

Are there any risks you see in the banking sector?

The main risk is a potential rise in non-performing loans (NPLs) driven by interest rates that are close to 30 per cent. We will definitely see some increase in NPLs. That said, the major banks are already making significant provisions for loan losses, which shows prudence. The issue of regulatory forbearance has largely been resolved, meaning that by 2026, banks should be cleaner, stronger and better capitalised.

Despite the economic downturn, the banking sector is performing very well, and their profitability reflects that.

Turning to the broader economy, what was the biggest challenge in 2025?

The biggest challenge, and the clear and present danger to the Nigerian economy was on the fiscal side. Nigeria is facing severe fiscal stress.

We consistently make revenue projections that we fail to meet. More importantly, even when we project revenues, we budget as if we will achieve 100 per cent of those targets, which is unrealistic. There must be a discount factor. The budgets of the last two years have been unrealistic, and this has pushed us into a mini fiscal crisis. The deficit financing requirement for next year is about N23 trillion. The key questions are: where will that funding come from, and at what cost? Although Nigeria’s debt service-to-revenue ratio declined at some point, by the end of this year it could rise again to between 70 and 80 per cent. This is unsustainable. Nigeria must revisit its balance sheet. One option is divestment, especially in the oil and gas sector. If the government can raise between $30 billion and $40 billion through asset sales, privatisation or concessions, it can restructure its balance sheet and inject equity. Our debt profile is now around N152 trillion, and likely higher by year-end. Foreign debt alone could approach $50 billion, which is concerning. While Nigeria has assets estimated at close to N280 trillion, the debt-to-asset ratio is becoming too high. Some assets must be sold to pay down debt. The biggest risk is that we lose the gains from the painful reforms of the last two years. That is my greatest fear.  Nigeria saved about $15 billion annually from fuel subsidy removal. Where is that money? It should be funding social and critical infrastructure, but most of it is going into debt service. That is not productive. In 2024, the government could not fully finance its capital budget. If you cannot fund capital expenditure, how do you grow the economy.

What does this mean for the government’s $1 trillion economy ambition?

 Frankly, it is a mirage. The economy is not growing at 4 per cent. The unemployment data is distorted, but real unemployment is closer to 40 per cent. Budgets are not realistic. There was a 56 per cent year-on-year increase in the budget, yet it was still not funded. Increasing it again without fixing revenue realism is not possible. This is the biggest threat to the economy today.

 How do you assess monetary policy this year?

On the monetary side, policy has been orthodox. The Central Bank is reacting to fiscal weaknesses. The policy rate is at 27 per cent, while reported inflation is around 14 per cent. The Monetary Policy Committee clearly does not trust the inflation numbers, which is why rates have not been cut. There is a disconnect. If rates are not cut, the economy cannot grow.

 What about trade, industrial and investment policy?

Trade, industrial, and investment policies are critical. If we want growth, people must trade, invest, and create jobs. This year, Nigeria recorded strong foreign portfolio inflows of over $20 billion by October, potentially reaching $25 billion by year-end. However, most of this money went into money market instruments and bonds, not equities. Foreign investors have largely lost confidence in the stock market, despite strong headline returns. Foreign direct investment is the real concern. FDI is only around $500 million this year is far too low. Nigeria needs a clear, credible industrial policy. Where are our big local investors putting their money? What are Dangote, Abdul Samad Rabiu, Wale Tinubu, and the fintech entrepreneurs building next? What about Chinese companies, given that China is Nigeria’s largest trading partner at about $25 billion annually? Why are we not localising the production of what we import? For example, Nigeria has sugar refineries owned by Dangote, BUA and Flour Mills, yet they still import raw sugar.

Why are Nigerian farmlands not being used to supply these refineries?

This is how you build a $1 trillion economy through deliberate industrial strategy.

Looking ahead, what is the outlook and key risk for 2026?

The outlook is complicated by external and security risks. Nigeria now faces a situation where a global superpower has intervened in an internal security matter. This is unprecedented and has serious implications for investment confidence, reform credibility and overall uncertainty. Will this deter foreign direct investment? Will it affect Nigeria’s reform momentum? These are serious questions. Because of this, it is even more important for the government to fix the fiscal side urgently. If fiscal issues persist, monetary policy will not ease. Interest rates cannot remain at 27 per cent for another year without stalling growth. The government must show leadership and coordination. The Minister of Finance and Coordinating Minister of the Economy needs to be fully empowered. There is currently a disconnect; the Ministry of Finance, the Central Bank, and trade and investment agencies are all working efficiently, but in silos. Someone must join the dots. Without coordination, Nigeria will struggle to make meaningful progress. As it stands, the current budget is not workable.