Despite the Federal Government’s declaration that Nigeria’s economy has begun to stabilise and recover—based on selected macroeconomic indicators—recent trends in foreign investment inflows suggest that international investors remain unconvinced.
An analysis of the latest Central Bank of Nigeria (CBN) data for 2025 reveals that foreign portfolio investment (FPI) continues to dominate capital inflows, while foreign direct investment (FDI) has declined in proportional terms. FPIs, which are short-term and easily reversible, lack the long-term economic impact associated with FDIs, which typically involve physical assets, job creation, and sustained economic engagement.
According to the CBN, FPI accounted for 86 percent of total capital importation in the first eight months of 2025, up from 60 percent in 2024. Conversely, FDI fell to 2.9 percent from 3.1 percent during the same period. Total foreign capital inflows rose by 118 percent year-on-year, reaching $14.78 billion as of August 2025, compared to $6.83 billion in 2024. Of this amount, FPI constituted $12.76 billion, while FDI amounted to only $433 million, indicating investors’ reluctance to commit long-term capital to Nigeria.
Analysts from the World Bank, the Lagos Chamber of Commerce and Industry (LCCI), and other institutions attribute this imbalance to structural deficiencies, policy inconsistencies, and limited investor confidence in the Nigerian business environment. They argue that for FDI to grow, the Federal Government must enhance competitiveness and deepen structural reforms.
Analysts Explain Why FDI Remains Subdued
Ayokunle Olubunmi, Head of Financial Institutions Ratings at Agusto & Co., noted that the apparent decline in FDI share is a result of surging portfolio investments, driven by high yields and improved foreign-exchange liquidity. He stressed that FDI requires long-term certainty, whereas portfolio investors react quickly to short-term opportunities. Although Nigeria’s reforms have renewed foreign interest, long-term investors remain cautious.
Ayodele Akinwunmi, Chief Economist at United Capital Plc, acknowledged that improvements in macroeconomic conditions are gradually encouraging long-term investors to reassess Nigeria’s prospects. He expects greater inflows into sectors such as oil and gas, banking, real estate, manufacturing, and mining.
Dr. Chinyere Almona, Director-General of the LCCI, emphasised that the declining FDI share reflects persistent structural and operational risks, including policy unpredictability, regulatory inefficiencies, infrastructure gaps, and macroeconomic volatility. She noted that while capital inflows are rising, their composition remains skewed towards short-term investments, raising concerns about stability and developmental impact.
Government Silent on the Issue
Efforts to obtain comments from the Nigeria Investment Promotion Council (NIPC), the agency responsible for attracting foreign investment, were unsuccessful.
Structural and Policy Barriers
Analysts highlighted several obstacles hindering long-term foreign investment, including:
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Policy inconsistency, especially in taxation and regulatory directives
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Weak inter-agency coordination
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Poor infrastructure, notably power and transportation
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Foreign-exchange volatility and uncertainty regarding capital repatriation
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Sectoral concentration, with underinvestment in manufacturing, agribusiness, and renewable energy
World Bank Assessment
The World Bank’s Nigeria Development Update (October 2025) stated that FDI remains extremely low at 0.6 percent of GDP, underscoring the urgency of accelerating structural reforms to boost private investment. According to the Bank, persistent weaknesses in the business environment continue to deter long-term capital inflows.
Outlook for FDI Over the Next 12–24 Months
Projections for future FDI growth vary among analysts.
The World Bank forecasts that FDI will remain subdued, holding at 0.6 percent of GDP in 2025 and declining slightly to 0.5 percent in 2026 and 2027. It attributes this to enduring structural challenges despite Nigeria’s economic potential.
Olubunmi expressed caution, citing global uncertainties—including potential shifts in U.S. trade policy—and local factors such as upcoming elections and ongoing tax reforms.
Akinwunmi, however, anticipates sustained growth in capital importation, projecting a 5–10 percent increase over the next two years, with FDI gradually becoming more prominent.
Almona expects moderate short-term FDI growth of 15–25 percent within 12 months, potentially raising its share to 2.5–2.8 percent. Over a 12–24-month horizon, she estimates FDI could rise to 3–4 percent if key reforms are implemented.
Recommended Policy Measures
Analysts propose several actions to attract long-term capital:
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Modernisation and expansion of Special Economic Zones
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Strengthening the ease-of-doing-business framework
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Sector-specific incentives for manufacturing, agribusiness, technology, renewable energy, and entertainment
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Public-Private Partnerships (PPPs) to support infrastructure development
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Legislation mandating value-addition before raw material exports
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Enhanced collaboration with private-sector players to mobilise long-term capital