Foreign Direct Investment made up just 3.3% of Nigeria’s $16.78 billion capital inflows in the first nine months of 2025, underscoring the economy’s continued reliance on short-term portfolio funds.
Nigeria recorded $565.21 million in Foreign Direct Investment (FDI) between January and September 2025, even as total capital importation surged to $16.78 billion, according to the latest data from the National Bureau of Statistics.
The contrast between the strong headline inflows and the limited scale of long-term investment highlights a structural imbalance in the country’s capital profile. While Nigeria is attracting foreign money at levels that already exceed the $12.32 billion recorded in the whole of 2024, most of that capital remains short-term and yield-driven.
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Quarterly capital importation remained robust throughout 2025. The first quarter delivered $5.64 billion, followed by $5.12 billion in the second quarter and a stronger $6.01 billion in the third quarter. The Q3 figure marked the highest quarterly inflow in three years.
Yet FDI — widely regarded as the most stable and development-oriented form of foreign capital — accounted for only a small fraction of that total. FDI rose gradually from $126.29 million in Q1 to $142.67 million in Q2 before increasing to $296.25 million in Q3. The third-quarter improvement signals some recovery, but the cumulative figure remains modest in absolute terms and small relative to total inflows.
Portfolio investment exceeded $14 billion during the same nine-month period, reinforcing the dominance of financial market-driven flows.
This imbalance matters because FDI typically supports factory construction, infrastructure projects, technology transfer, and employment generation. Portfolio inflows, by contrast, are primarily invested in treasury bills, bonds, and other financial instruments.
The Yield Effect and Monetary Policy Transmission
The surge in portfolio flows aligns with Nigeria’s elevated domestic interest rate environment. Tight monetary policy and high fixed-income yields have positioned Nigeria as an attractive destination for foreign investors seeking carry trade opportunities.
Higher returns on naira-denominated assets have pulled in foreign capital into banking and financing sectors, which continue to absorb the majority of inflows. In Q3 alone, banking attracted more than $3.14 billion, while the financing sector accounted for $1.86 billion. By comparison, manufacturing received just $261.35 million.
This pattern suggests that foreign capital is largely circulating within financial markets rather than being deployed into productive sectors such as industrial manufacturing, agriculture, energy, or infrastructure.
The concentration in finance improves liquidity conditions and supports foreign exchange stability in the short term. However, it does little to expand Nigeria’s productive base or diversify its export capacity.
Source Countries and Capital Composition
The United Kingdom led capital inflows in Q3 with $2.94 billion, followed by the United States at $950.47 million and South Africa at $773.95 million. The data do not disaggregate how much of these flows represent FDI versus portfolio investment, but given overall composition trends, the majority likely reflects financial investments rather than greenfield or strategic corporate commitments.
The absence of significant sectoral diversification further reinforces the view that Nigeria’s capital recovery is concentrated in financial instruments rather than long-term business expansion.
The composition of capital inflows has direct implications for economic growth. FDI tends to generate multiplier effects through supply chains, skills development, and employment. It also signals investor confidence in long-term policy stability and market fundamentals.
Portfolio flows, while beneficial for boosting reserves and stabilizing the currency, are highly sensitive to interest rate differentials and global risk sentiment. A shift in global liquidity conditions, a fall in domestic yields or renewed exchange rate volatility could trigger rapid outflows.
Nigeria experienced similar dynamics in previous tightening cycles, when strong inflows reversed following changes in global conditions.
The 2025 data, therefore, present a dual narrative. On the surface, capital importation has rebounded sharply, surpassing full-year 2024 levels within nine months. Beneath that strength lies a familiar vulnerability: limited long-term investment relative to short-term financial flows.
Economists note that for Nigeria to translate capital inflows into sustained structural transformation, the composition will need to shift toward sectors that expand productive capacity. They also warn that without stronger FDI growth, the current surge may support macroeconomic stability but fall short of driving durable employment, industrialization, and broad-based economic expansion.