Nigeria was only able to attract $2.15 billion in foreign direct investment (FDI) out of a total capital importation of $44.76 billion that entered the country in the last four years, covering 2022 to 2025.

The figure, which is just 4.8 per cent of the total capital flow into the country, a sharp contrast to $31.7 billion attracted through portfolio investments.

Nigeria’s economy in recent years has been dominated by portfolio investment, which many experts describe as hot money.

Though it boosts the financial market, especially the capital market, investors can easily pull out at the slightest sign of instability.

FDI, which is a cross-border investment where an entity based in one country establishes a lasting interest and significant management control over an enterprise in another country, involves active investment, such as setting up subsidiaries, mergers or joint ventures.

Experts believe that increasing FDI, which involves investing in long-term assets like creating or acquiring a manufacturing facility, is the most important for Nigeria.

Prof. Godwin Oyedokun of Lead City University said part of the reason Nigeria is experiencing poor FDI inflows is low investor confidence.

“Nigeria’s economy is considered to be volatile, especially with unstable foreign exchange (FX) issues. There is also the case of widespread insecurity in the country. No investor would want to put his money where his life and the life of his workers are threatened,” he said.

He noted that beyond FX and insecurity issues, there is also the problem of poor infrastructure, particularly epileptic power supply, which has become a major input cost for businesses.

According to the Manufacturers Association of Nigeria (MAN), power accounts for about 30-40 per cent of production costs, particularly in the manufacturing sector.

In 2025 alone, manufacturers said they spent over N1.5 trillion on alternative power sources like diesel and generators due to unreliable national grid supply.

This is also one of the drivers of the high cost of manufactured goods and rising inventory, which hit N1.04 trillion as of the first half of 2025.

Oyedokun said addressing key barriers such as streamlining regulations through the Nigerian Investment Promotion Council (NIPC) to cut red tape and ensure transparent enforcement, checking corruption, ensuring policy consistency and treating foreign and local firms equally to build investor confidence as well as strengthening the legal system while prioritising the provision of critical infrastructure such as power and good road network, will make the country more attractive for investors.

Analysts at Cowry Asset Management Limited have warned that Nigeria’s strong rebound in capital importation is being driven largely by short-term portfolio inflows, exposing the economy to potential volatility despite improving macroeconomic conditions.
According to data from the National Bureau of Statistics (NBS), total capital importation rose sharply by 88.45 per cent year-on-year to $23.22 billion in 2025, up from $12.32 billion recorded in 2024.

The surge was underpinned by increased investor appetite for Nigerian financial assets, supported by exchange rate stability, high interest rates, and easing inflation since early 2025.

A breakdown of the inflows shows that portfolio investments overwhelmingly dominated, rising to $19.75 billion in 2025 from $8.38 billion in the previous year and accounting for about 85 per cent of total capital inflows.

Money market instruments led this segment with $13.83 billion, representing over 80 per cent of portfolio inflows, followed by bonds and other fixed income securities at $4.89 billion, while equities contributed a relatively modest $1.02 billion.

Cowry Asset noted that this heavy reliance on portfolio flows, typically short-term and highly sensitive to global financial conditions, poses a significant risk.

Such inflows can reverse quickly in response to shifts in global risk appetite, tightening monetary conditions abroad or geopolitical developments, including tensions in the Middle East and rising trade protectionism, the company said.

Other investment inflows accounted for a smaller share of 11 per cent, totalling $2.55 billion, though this represented a 22.5 per cent decline from 2024 levels.

The report stressed that critical sectors, including oil and gas, transport infrastructure, construction, and real estate, continued to attract limited foreign investment, reinforcing concerns that capital inflows are being channelled into financial assets rather than productive sectors capable of driving sustainable economic growth and job creation.

While improved macroeconomic stability and policy adjustments by the Central Bank of Nigeria (CBN) have helped to restore investor confidence, Cowry Asset cautioned that the current structure of inflows leaves the economy vulnerable to external shocks and underscores the need to attract more stable, long-term investments.