Nigeria’s investment recovery is being driven by short-term portfolio inflows rather than long-term foreign direct investment, raising fresh questions about the durability of the country’s economic rebound.
Foreign direct investment into Africa’s most populous nation more than doubled to $566.2 million in the first nine months of 2025, the highest level in four years.
Yet the improvement was eclipsed by $14.3 billion in portfolio inflows, nearly 25 times larger, reflecting investors’ preference for liquid, yield-driven assets over bricks-and-mortar commitments.
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The surge in foreign participation in local debt and money markets follows sweeping currency reforms and improved dollar liquidity that have helped stabilise the naira after a sharp devaluation in 2023.
Higher interest rates, which currently stand at 27 percent and a more market-determined exchange rate have made Nigerian assets attractive to offshore funds seeking returns in frontier markets.
But analysts say the composition of inflows matters more than the headline recovery.
“The true gauge of real investor confidence is foreign direct investment,” said Tunde Abidoye, head of equity research at Quest Merchant Bank, warning that insecurity remains the biggest hindrance to FDIs even as the government continues to pitch reform successes to investors across the globe.
“Portfolio flows can reverse quickly at the first sign of global volatility,” he added. “FDI is what creates jobs, builds factories and expands productive capacity. That remains weak relative to Nigeria’s size.”
At $566 million, FDI remains subdued for an economy valued at about $300 billion and home to over 230 million people. Before the oil-price crash of 2014 and subsequent currency controls, Nigeria routinely attracted several billions of dollars annually in direct investment, particularly into energy, telecoms and consumer sectors.
The dominance of portfolio inflows leaves the economy more exposed to shifts in global risk appetite and U.S. interest rate expectations. A reversal could put renewed pressure on the naira and complicate the central bank’s efforts to rebuild foreign-exchange reserves.
Recent data show reserves have risen to about $49 billion as capital inflows improved, giving policymakers more room to supply dollars to the official market.
The naira has also traded within a narrower band in recent months after a period of heightened volatility, helping to ease imported inflation pressures.
Still, structural constraints continue to weigh on long-term investment decisions. A recent central bank survey raised concerns ranging from policy uncertainty and infrastructure gaps to high energy costs and security risks deterring businesses.
“While FPI offers us that temporary succour in terms of liquidity, it also means that we are paying a huge price by keeping interest rates relatively high compared to other markets,” Samuel Oyekanmi, research and insight lead at Abuja-based consultancy Norrenberger, said.
Oyekanmi added that while structural bottlenecks are being addressed, insecurity, high costs and inconsistency in government policies continue to spook direct investments.
While reforms aimed at liberalising the foreign-exchange market have been welcomed by investors, many firms remain cautious about committing fresh capital until stability proves durable.
For the government, boosting FDI is central to lifting growth beyond its 3 to 4 percent rates and reducing unemployment. Short-term capital can support liquidity and stabilise financial markets, but it does little to expand industrial output or diversify exports.
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The tilt toward portfolio flows highlights both the progress and fragility of Nigeria’s recovery. Investor sentiment has improved markedly from the depths of the currency crisis, yet the foundation remains narrow.
Adeola Adenikinju, a professor of Economics and former president of the Nigerian Economic Society, said that as macroeconomic conditions continue to improve, Nigeria is expected to become increasingly attractive to long-term investors seeking stable and predictable returns.
“You can expect a gradual recovery in FDI inflows, driven by improving macroeconomic fundamentals, as recent policy reforms, stable exchange rate conditions, and concerted efforts to stabilise inflation are beginning to rebuild investor confidence,” Adenikinju said.
