Nigeria records $5.6bn Q1 capital inflows on back of CBN reforms

Nigeria is witnessing renewed investor interest following bold reforms by the Central Bank of Nigeria (CBN) and improved macroeconomic stability, with capital inflows rising to $5.6 billion in the first quarter of 2025, according to the National Bureau of Statistics (NBS).

The surge, up 67.1 per cent from $3.4 billion in the same quarter of 2024, reflects the impact of policy actions under CBN Governor Olayemi Cardoso, who assumed office in October 2023.

Reforms such as exchange rate unification, clearance of a $7 billion forex backlog, and currency liberalisation have boosted investor confidence, drawing praise from institutions including the World Bank.

Portfolio investments dominated inflows, accounting for 92.2 per cent or $5.2 billion, followed by “other investments” at $311.2 million.

Foreign Direct Investment (FDI), however, remained weak at $126.3 million, representing just 2.2 per cent of total inflows.

The banking sector attracted the largest share with $3.1 billion, representing 55.4 per cent of the total.

According to the International Monetary Fund (IMF), FDI decisions are shaped by factors such as market size, macroeconomic and political stability, regulatory environment, infrastructure, and the ability to repatriate profits.

While Nigeria’s reforms tick several of these boxes, persistent challenges such as insecurity, weak institutions, and bureaucratic inefficiencies continue to limit long-term foreign investment.

Investor surveys cited by the IMF further reveal that restrictive policies on profit repatriation, local ownership requirements, and regulatory uncertainty discourage investors, while fiscal incentives alone are seen as insufficient to drive meaningful FDI inflows.

Analysts at Afrinvest West Africa explained that the sharp rise in inflows was largely driven by opportunistic “hot money” chasing high-yield money market instruments, with Treasury Bills, Bonds, and OMO bills offering rates above 20 per cent.

While this supports short-term liquidity and naira stability, such flows are highly sensitive to domestic policy shifts and global risk sentiment.

The analysts also warned that the low share of FDI, which is critical for long-term growth, reflects weak investor confidence in non-financial sectors such as manufacturing, ICT, oil and gas, and transport.

They added that the concentration of inflows in Lagos and Abuja highlights competitiveness gaps across sub-nationals.

CBN Governor Olayemi Cardoso has also called for fresh bank recapitalisation to support Nigeria’s $1 trillion GDP target by 2030.

He argued that current bank capital levels are inadequate to finance such economic expansion, stressing the need for stronger institutions capable of funding large-scale investments.

Economists say ongoing GDP rebasing, which captures emerging sectors such as entertainment and ICT, will provide a clearer picture of Nigeria’s economic potential and attract more foreign capital.

They noted that while rebasing does not generate immediate revenue, it strengthens fiscal planning, policy formulation, and investor confidence.

However, they cautioned that reforms must be complemented with improvements in infrastructure, security, agriculture, and ease of doing business for ordinary Nigerians to feel the benefits.

“Nigeria appears to be back in business as long-awaited reforms take shape,” said Emre Akcakmak, portfolio manager at East Capital, pointing to improved currency liquidity, stable naira, and profit repatriation leeway as key investor-friendly measures.