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Nigeria is beginning to see renewed investor confidence, with capital inflows rising to $5.6 billion in Q1 2025, according to the National Bureau of Statistics (NBS). Behind these numbers are clear signs that businesses and investors are responding positively to the Central Bank of Nigeria’s (CBN) reforms and an increasingly stable macroeconomic environment.
The International Monetary Fund (IMF) highlights that foreign direct investment (FDI) is shaped by factors such as market size, macroeconomic stability, political climate, and the ease of profit repatriation. For Nigeria, its large domestic market, improving stability, and CBN-led reforms under Governor Olayemi Cardoso have emerged as strong incentives for investors.
CBN Reforms Driving Confidence
Since assuming office in October 2023, the CBN has rolled out reforms aimed at rebuilding economic buffers. These include:
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Unification of exchange rates and clearing of a $7 billion FX backlog, which boosted confidence in Nigeria’s financial system.
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Reduced intervention in the forex market, enabling greater transparency.
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Policies allowing easier profit repatriation, seen by investors as a critical factor.
The impact has been significant. Nigeria’s sovereign risk spread has fallen to its lowest level since January 2020, and multilateral institutions such as the World Bank have lauded the reforms as bold steps towards long-term sustainability.
Capital Inflows at a Five-Year High
The NBS report shows Q1 2025 inflows represented a 67.1% year-on-year increase compared to Q1 2024 and a 10.9% rise from Q4 2024. Portfolio investments dominated with $5.2 billion (92.2%), followed by other investments at $311 million (5.5%), while FDI accounted for just $126 million (2.2%).
The banking sector attracted the largest inflows at $3.1 billion (55.4%), followed by financing ($2.1 billion) and manufacturing ($129.9 million). The United Kingdom was the leading source, accounting for 65% of total inflows.
Analysts at Afrinvest noted that while inflows are encouraging, much of it is short-term portfolio investment attracted by high-yield instruments like Treasury Bills and Bonds. They cautioned that long-term growth depends on stronger FDI into non-financial sectors such as manufacturing, ICT, and infrastructure.
The Bigger Picture: Beyond Hot Money
Experts warn that while increased inflows may support currency stability in the short term, dependence on speculative “hot money” leaves Nigeria vulnerable to global shocks. Structural issues such as insecurity, weak institutions, and bureaucratic inefficiencies continue to weigh on investor sentiment.
Portfolio manager Emre Akcakmak of East Capital remarked that reforms have created renewed optimism:
“Nigeria appears to be back in business as long-awaited economic reforms take shape. Improved liquidity, stable currency, and investor profit repatriation are key to sustaining this momentum.”
Banking Sector and the $1 Trillion GDP Goal
Governor Cardoso has called for a new round of bank recapitalisation to align with President Bola Tinubu’s ambition of achieving a $1 trillion GDP by 2030. He stressed that banks must expand capacity to fund large-scale projects and attract foreign investments to sustain growth.
GDP Rebasing: A Clearer Economic Picture
Economists also highlight the importance of GDP rebasing to capture emerging sectors such as entertainment and digital services. Experts like Aliyu Ilias and Seun Onigbinde note that rebasing offers better visibility of Nigeria’s true economic potential, guiding fiscal planning and policy interventions.
However, they caution that statistical adjustments alone are not enough. As economist Nelson Adedeji put it:
“Genuine growth requires addressing infrastructure gaps, insecurity, agricultural productivity, and ease of doing business. Only then will reforms translate into better living standards for Nigerians.”
Outlook
Nigeria’s improved investment outlook reflects the synergy between reforms, stability, and market opportunities. While portfolio inflows have surged, the real test lies in attracting sustainable FDI into productive sectors that can create jobs, diversify the economy, and deliver long-term growth.
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