Against the backdrop of the declaration by the Federal Government that Nigeria’s economy has turned the corner to stability and recovery, going by some macroeconomic indicators, current trend in foreign investments inflow has indicated that foreign investors are yet to buy into the position.

Financial Vanguard findings from the latest Central Bank of Nigeria, CBN, data on foreign capital importation so far in 2025 show that the share of foreign portfolio investment (FPI) component is still predominant while that of foreign direct investment (FDI) is shrinking.

The FPIs are short term easy-in-easy-out foreign financial assets that have no root in the economy unlike FDIs that are long term with real physical assets in the economy creating products and jobs.

The CBN data shows that while the share of FPI in capital importation in the first eight months of 2025 rose sharply to 86 per cent from 60 per cent last year, that of FDI declined to 2.9 per cent from 3.1 per cent.

Total foreign capital importation rose by 118 per cent, year-on-year, to $14.78 billion in eight months as at August 2025 (8M’25) from $6.83 billion in the same period of 2024 (8M’24) with FPI recording $12.76 billion while FDI was $433million, indicating that foreign investors are still shying away from committing long term resources to Nigeria.

This trend, according to the World Bank, Lagos Chamber of Commerce and Industry and investment analysts, also indicates structural deficiency, policy contradictions and lack of trust by foreign investors in the economic conditions in the country.

To address this trend and revive FDI flows into the country, the analysts stressed that the Federal Government should make the economy more competitive and deepen ongoing reforms to attract long term capital.

Explaining the factors behind the slide in share of FDI, leading economists who spoke to Financial Vanguard, noted that while it takes longer time to attract FDI, as investors want to be certain about the long term return from such investments, the continued low level of FDI indicates persistence of structural deficiencies that undermining the attractiveness of the country’s economy.

Why FDIs are not yet coming —Analysts

Ayokunle Olubunmi, Head of Financial Institutions Ratings at Agusto & Co., clarified that the decline in FDI’s share does not indicate a decline in inflows, but reflects the “boisterous surge” in portfolio investment driven by high yields and improving FX liquidity.

He explained: “FDI investors typically take a longer-term view. They want to be certain about market conditions before committing capital. Portfolio investors, on the other hand, respond much faster to short-term opportunities.”

According to him, Nigeria’s recent improvements-currency reforms, resumption of FX market functioning, and stabilisation efforts-are attracting speculative capital quickly, while long-term investors remain cautious.

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Ayodele Akinwunmi, Chief Economist, United Capital Plc, said long-term investors are beginning to reassess Nigeria as economic conditions improve. He expects inflows to sectors such as oil and gas, solid minerals, fintech, banking, insurance, real estate, and manufacturing.

He added: “FDI investors evaluate the long-term viability of an economy before committing capital. With improving economic outlook and deliberate government efforts, the path is becoming clearer for increased FDI inflows.”

On her part, Dr. Chinyere Almona, Director-General of the Lagos Chamber of Commerce and Industry (LCCI), the paradox of rising FDI inflows but a falling share of capital importation underscores lingering investor concerns.

She said: “The decline in relative share indicates that foreign investors may still perceive significant structural and operational risks in Nigeria, such as policy unpredictability, regulatory bottlenecks, infrastructure constraints, and macroeconomic volatility.

”In practical terms, this suggests that the growth in foreign capital is not yet translating into sustained, development-oriented investment, raising questions about the quality and long-term stability of foreign capital entering the country.

“In other words, while FDI is trending upward, Nigeria remains vulnerable to the volatility inherent in short-term capital inflows, underscoring the need to attract more strategically committed, long-term investors who can contribute to industrialization, job creation, and technology transfer.”

FG keeps mum

Attempts to obtain comments from the Federal Government (FG) on this development, proved abortive, as the Nigeria Investment Promotion Council, the agency charged with attracting foreign investment into the country, failed to respond to Vanguard enquiries.

Barriers to long-term investments

Speaking on structural and policy issues that may be limiting Nigeria’s attractiveness to long-term FDI compared to portfolio flows, the analysts pointed to deep-rooted obstacles.

Olubunmi stated: “Creating a conducive environment is imperative. Unfortunately, contradicting policies are prevalent across government levels.”

He cited tax inconsistencies, unpredictable regulatory directives, and poor inter-agency coordination as major deterrents.

Reinforcing this view, Akinwunmi stressed the importance of continuity: “Nigeria must sustain and deepen these reforms, otherwise investor confidence will not solidify.”

Highlighting four hurdles against FDI inflows, Almona of LCCI said: “One key factor is regulatory and policy uncertainty: inconsistencies in tax frameworks, sectoral restrictions, and unclear implementation of incentives make foreign investors cautious about committing to projects that require multi-year capital deployment. Infrastructure deficits, including an unreliable power supply, poor transport networks, and limited digital connectivity, further increase operational costs, reducing Nigeria’s competitiveness for capital-intensive investments. Exchange rate volatility and limited clarity on capital repatriation rules add another layer of risk, particularly for investors evaluating medium- to long-term projects. Moreover, the current FDI pattern exhibits sectoral concentration, with significant inflows into extractives and financial services, while sectors such as manufacturing, agribusiness, and renewable energy remain underfunded.

World Bank assessment

These observations are in line with World Bank’s concerns about the extremely low level of FDI in Nigeria and its assessment of barriers to FDI flows.

The World Bank, in its Nigeria Development Update, October 2025, noted: “The rebasing highlights Nigeria’s continued challenges in attracting long-term productive capital, with FDI remaining extremely low at just 0.6 percent of GDP in 2024 with the new rebasing. This reinforces the urgent need to accelerate structural reforms to foster private investment, which is essential for achieving sustainable growth.

“The persistent weakness in FDI inflows is directly attributed to structural challenges impacting the business environment. These challenges continuously hinder long-term foreign investments, whether undertaken through equity or debt.”

The World Bank also noted that attracting long-term productive capital remains difficult, stressing that, “The low FDI ratio serves as a reinforcement of the urgent need to accelerate structural reforms necessary to foster private investment and achieve sustainable growth.”

Mixed outlook for FDI growth

In spite of these assessments, the analysts were divided about realistic projections for increasing FDI’s share of total capital importation over the next 12-24 months.

According to the World Bank, FDI, as a percentage of GDP, will remain subdued, even while anticipated to improve gradually in the medium term due to a more conducive macroeconomic environment. While projecting that net FDI is projected to hold steady at 0.6 percent of GDP in 2025, before slightly easing to 0.5 percent of GDP in both 2026 and 2027, the World Bank, stated that, “This limited expected growth underscores the continuous difficulty Nigeria faces in securing long-term capital when compared to the country’s high economic potential.”

Olubunmi of Agusto & Co expressed caution, citing ongoing tax reforms, the upcoming 2027 general elections, and uncertainty around the renewed Trump administration’s global trade and investment policies.

“These factors will shape FDI flow in the short to medium term,” he said, adding that uncertainty in global and domestic policy environments may constrain FDI growth.

Akinwunmi however expressed optimism projecting increasing share of FDI in capital importation into the country.

“I believe capital importation into the country will continue to rise over the next 12-24 months, with Foreign Direct Investment (FDI) taking an increasingly dominant share.

“This outlook is supported by the strong investment opportunities available in Nigeria and the government’s ongoing efforts to position the country as an attractive FDI destination. My projection is that capital inflows could grow by approximately 5-10% over this period,” he said.

While expressing similar optimism, LCCI DG Almona stressed the need for deliberate policy action, strategic incentives, and improved investment facilitation.

“In the short term (12 months), FDI growth is likely to be moderate, at a rate of 15-25% year-on-year, which could increase its share of total inflows to around 2.5-2.8%, assuming a stable macroeconomic environment and incremental improvements in investor confidence.

“Over the medium term (12-24 months), with decisive interventions such as policy consistency, regulatory transparency, and sector-specific incentives, Nigeria could attract larger-scale, long-term investments, potentially lifting FDI’s share to 3-4%, she projected.

Almona also listed four policy measures needed to enable FDI, including: “Expansion and modernization of Special Economic Zones (SEZs) and industrial parks to reduce operational costs; Strengthening ease-of-doing-business frameworks, particularly in areas of licensing, dispute resolution, and foreign exchange management; Targeted promotion of sectors with high multiplier effects, such as manufacturing, agribusiness, technology, creative/entertainment, and renewable energy; Leveraging public-private partnerships (PPPs) for infrastructure development to provide a more predictable operating environment.”

Also highlighting measures to enhance FDI inflows, Akinwunmi, Chief Economist, United Capital Plc, said: “The government should consider legislation that prohibits the export of raw materials without first adding value within Nigeria. This will help deepen industrialisation, create jobs, and ensure the country captures more value along the production chain.

“In addition, there should be stronger collaboration with private-sector operators to mobilise long-term capital for critical infrastructure development through Public-Private Partnership (PPP) models. Such partnerships will enhance efficiency, reduce the fiscal burden on government, and accelerate the pace of infrastructure delivery across the country.”