Nigeria’s High-Yield Market Lures Record Foreign Portfolio Inflows, but FDI Remains Weak
The National Bureau of Statistics (NBS) has reported that Nigeria attracted $5.64 billion in capital inflows in Q1 2025, marking the highest quarterly figure in 20 quarters and the largest since Q1 2020. This represents a 10.9% increase quarter-on-quarter and a 67.1% jump year-on-year, fueled primarily by strong foreign appetite for naira-denominated assets amid relative price and currency stability. Analysts note that the country’s macroeconomic environment remains favourable to foreign portfolio investors (FPIs), with expectations of even higher inflows in 2025.
Afrinvest analysis showed that portfolio investments dominated the capital importation landscape, surging 30.1% q/q and 150.8% y/y to $5.2 billion, accounting for 92.2% of total inflows. The bulk of these funds went into money market instruments, which saw a 162.2% rise to $4.2 billion, followed by bonds at $877.4 million and equities at $117.3 million. The firm projects total capital importation for 2025 to hit $19.3 billion, a 56.1% annual increase, supported by high domestic interest rates, currency stability, and potential global shifts such as a U.S. rate cut.
The surge in portfolio inflows is being driven by yields above 20% on Treasury Bills, Bonds, and OMO bills, making Nigeria’s short-term fixed-income market particularly attractive. However, analysts caution that these “hot money” flows are highly sensitive to domestic monetary policy shifts, global risk sentiment, and macroeconomic shocks. Any pivot by the Central Bank of Nigeria (CBN) towards lower interest rates could trigger an outflow of these funds.
In contrast, more stable and growth-oriented foreign direct investment (FDI) remains weak. FDI rose by just 6% year-on-year to $126.3 million but fell sharply by 70.1% quarter-on-quarter, representing only 2.2% of total inflows compared with 3.5% a year earlier. Afrinvest attributes this underperformance to persistent challenges such as insecurity, weak institutions, bureaucratic bottlenecks, and high corruption perception, which dampen investor confidence in long-term ventures.
Sectoral data revealed that financial services—particularly banking and financing—absorbed over 92% of inflows, while manufacturing, telecommunications, and other sectors received marginal interest. Geographically, Lagos and Abuja captured almost all capital inflows (99.7%), exposing a lack of competitiveness in other Nigerian states. Meristem Research echoed the strong short-term outlook for portfolio inflows but stressed that without structural reforms to diversify sectors and locations, Nigeria risks remaining dependent on volatile capital rather than attracting sustainable, long-term investments.
Source: This day