Nigeria’s funding restoration is being pushed by short-term portfolio inflows somewhat than long-term overseas direct funding, elevating contemporary questions in regards to the sturdiness of the nation’s financial rebound.
Overseas direct funding into Africa’s most populous nation greater than doubled to $566.2 million within the first 9 months of 2025, the very best stage in 4 years.
But the development was eclipsed by $14.3 billion in portfolio inflows, almost 25 occasions bigger, reflecting buyers’ desire for liquid, yield-driven belongings over bricks-and-mortar commitments.
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The surge in overseas participation in native debt and cash markets follows sweeping foreign money reforms and improved greenback liquidity which have helped stabilise the naira after a pointy devaluation in 2023.
Increased rates of interest, which presently stand at 27 p.c and a extra market-determined trade charge have made Nigerian belongings enticing to offshore funds in search of returns in frontier markets.
However analysts say the composition of inflows issues greater than the headline restoration.
“The true gauge of actual investor confidence is overseas direct funding,” mentioned Tunde Abidoye, head of fairness analysis at Quest Service provider Financial institution, warning that insecurity stays the most important hindrance to FDIs whilst the federal government continues to pitch reform successes to buyers throughout the globe.
“Portfolio flows can reverse shortly on the first signal of world volatility,” he added. “FDI is what creates jobs, builds factories and expands productive capability. That continues to be weak relative to Nigeria’s dimension.”
At $566 million, FDI stays subdued for an financial system valued at about $300 billion and residential to over 230 million folks. Earlier than the oil-price crash of 2014 and subsequent foreign money controls, Nigeria routinely attracted a number of billions of {dollars} yearly in direct funding, notably into vitality, telecoms and client sectors.
The dominance of portfolio inflows leaves the financial system extra uncovered to shifts in world danger urge for food and U.S. rate of interest expectations. A reversal might put renewed stress on the naira and complicate the central financial institution’s efforts to rebuild foreign-exchange reserves.
Current information present reserves have risen to about $49 billion as capital inflows improved, giving policymakers extra room to produce {dollars} to the official market.
The naira has additionally traded inside a narrower band in current months after a interval of heightened volatility, serving to to ease imported inflation pressures.
Nonetheless, structural constraints proceed to weigh on long-term funding choices. A current central financial institution survey raised considerations starting from coverage uncertainty and infrastructure gaps to excessive vitality prices and safety dangers deterring companies.
“Whereas FPI gives us that short-term succour when it comes to liquidity, it additionally signifies that we’re paying an enormous worth by conserving rates of interest comparatively excessive in comparison with different markets,” Samuel Oyekanmi, analysis and perception lead at Abuja-based consultancy Norrenberger, mentioned.
Oyekanmi added that whereas structural bottlenecks are being addressed, insecurity, excessive prices and inconsistency in authorities insurance policies proceed to spook direct investments.
Whereas reforms geared toward liberalising the foreign-exchange market have been welcomed by buyers, many companies stay cautious about committing contemporary capital till stability proves sturdy.
For the federal government, boosting FDI is central to lifting development past its 3 to 4 p.c charges and decreasing unemployment. Quick-term capital can help liquidity and stabilise monetary markets, nevertheless it does little to broaden industrial output or diversify exports.
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The lean towards portfolio flows highlights each the progress and fragility of Nigeria’s restoration. Investor sentiment has improved markedly from the depths of the foreign money disaster, but the inspiration stays slender.
Adeola Adenikinju, a professor of Economics and former president of the Nigerian Financial Society, mentioned that as macroeconomic circumstances proceed to enhance, Nigeria is anticipated to turn into more and more enticing to long-term buyers in search of secure and predictable returns.
“You possibly can count on a gradual restoration in FDI inflows, pushed by bettering macroeconomic fundamentals, as current coverage reforms, secure trade charge circumstances, and concerted efforts to stabilise inflation are starting to rebuild investor confidence,” Adenikinju mentioned.
