Foreign Direct Investment in Nigeria Shrinks, Even as Overall Capital Inflows Soar
Although total foreign capital entering Nigeria surged in 2025, long-term foreign direct investment (FDI) has failed to follow, a worrying sign for the country’s economic recovery.
Sharp Tilt Toward Portfolio Flows
Data from Central Bank of Nigeria (CBN) reveal a dramatic shift in the nature of foreign capital imported into the country. In the first eight months of 2025 (8M’25), total inflows rose by 118 percent, from US$6.83 billion in the same period last year to US$14.78 billion.
However, the bulk of this increase came from foreign portfolio investments (FPI), which jumped to US$12.76 billion. In contrast, FDI, the kind of investment that drives real-sector growth and job creation, amounted to just US$433 million, representing only 2.9 percent of total capital inflows. That’s down from 3.1 percent the prior year.
What’s Driving the Imbalance?
Economists say the pattern stems from fundamental differences between FPI and FDI. While FPIs are short-term, liquid assets that can be withdrawn at any moment, FDI involves long-term commitments in physical assets, businesses, and infrastructure.
According to Agusto & Co., FDI investors seek stable, long-term returns and tend to wait until it’s clear the macroeconomic and structural conditions are solid. By contrast, portfolio investors have been drawn in by improving foreign exchange liquidity, regulatory reforms, and short-term high yields.
Still, many foreign investors remain skeptical of committing for the long haul. Experts from Lagos Chamber of Commerce and Industry (LCCI) and other analysts point to structural deficiencies, regulatory unpredictability, infrastructure deficits, poor coordination among government agencies, and macroeconomic volatility — including concerns around currency stability and unclear capital-repatriation rules, as major deterrents.
Implications for Growth and Economic Stability
This heavy reliance on short-term foreign portfolio investment, rather than stable, long-term direct investment, raises concerns about the quality and sustainability of capital flowing into Nigeria. While portfolio inflows can boost liquidity and foreign-exchange reserves in the short term, they don’t necessarily translate into job creation, industrial growth, or structural economic development.
The downturn in FDI inflows comes at a time when external analyses show that developing economies globally are seeing a slump in long-term investment, a trend highlighted in a recent report by UN Conference on Trade and Development (UNCTAD).
Experts Urge Policy Reforms to Attract Real Capital
To reverse the trend and attract more FDI, analysts recommend that the federal government prioritise structural reforms: stabilise regulatory frameworks, ensure consistent fiscal and tax policies, improve infrastructure (power, transport, digital connectivity), strengthen ease-of-doing-business measures, and foster transparency in foreign exchange and capital repatriation processes.
Some believe that with sustained commitment, targeted incentives, and improvements in the business environment, Nigeria could gradually restore investor confidence, and shift the balance toward long-term capital that supports job creation, industrialisation, and sustainable growth.