Market News

By Oluwakemi Abimbola

Nigeria’s economic outlook is receiving a boost as recent reforms by the Central Bank of Nigeria gradually restore investor confidence and stabilise the naira. With the clearance of a long-standing $7bn foreign exchange backlog and a more transparent FX market, foreign capital is flowing back into the country, signalling renewed optimism about the economy, OLUWAKEMI ABIMBOLA reports

When the National Bureau of Statistics published its latest “Capital Importation Report,” showing that Nigeria attracted $5.6bn in capital inflows in the first quarter of 2025, it sent a clear signal: foreign investors are paying attention to Nigeria again. After years of economic turbulence, foreign capital is beginning to flow back into one of Africa’s largest economies, aided by a mix of bold reforms, improved macroeconomic stability, and renewed confidence in the Central Bank of Nigeria’s policy direction.

The report shows a 67.12 per cent jump from the $3.4bn recorded in Q1 2024 and a 10.86 per cent rise over Q4 2024 figures. Analysts point to one factor above all others: reforms initiated by the CBN under its Governor, Olayemi Cardoso. Since assuming office in October 2023, Cardoso has pursued reforms designed to rebuild Nigeria’s economic buffers and restore investor trust. His tenure has been marked by two major interventions: unifying exchange rates and clearing over $7bn of outstanding foreign exchange backlogs that had stifled investor confidence.

By ending multiple exchange rates and allowing greater flexibility in the forex market, the CBN created an environment where investors could access FX and repatriate profits without fear of restrictions. This single policy shift reassured global funds, portfolio managers, and multinational corporations that Nigeria was ready for business. The World Bank described the measures as “bold interventions that improve the economy’s sustainability,” while the International Monetary Fund (IMF) noted that Nigeria’s sovereign risk spread fell to its lowest level since January 2020, erasing the pandemic-era premium that once discouraged inflows.

What investors want

According to IMF research, foreign investors weigh a mix of factors before committing capital: market size, growth potential, macroeconomic stability, political stability, infrastructure quality, and the regulatory environment.

For Nigeria, the incentives are clear. With over 220 million people, an expanding middle class, and untapped sectors like technology, entertainment, and renewable energy, the market potential is massive. Add to this a more stable naira, improved FX liquidity, and the assurance that profits can be repatriated, and Nigeria begins to tick many of the boxes investors are looking for.

An IMF working paper by Ewe-Ghee Lim confirms this trend, citing “large market size, political and macroeconomic stability, GDP growth, and the ability to repatriate profits” as the five most important FDI determinants. Yet, while investors welcome the reforms, concerns remain about insecurity, weak institutions, and corruption. Fiscal incentives, the IMF observed, often do little to sway long-term decisions compared to guarantees on stability and profit repatriation.

Capital inflows

The NBS figures offer a detailed look at the resurgence. Portfolio Investment dominated inflows, accounting for $5.2bn (92.25 per cent). Other investments followed with $311.17m (5.52 per cent). Foreign Direct Investment was the smallest at $126.29m (2.24 per cent).

Sectorally, the banking industry was the biggest winner, attracting $3.1bn (55.44 per cent) of inflows, followed by the financing sector at $2.09bn (37.18 per cent) and manufacturing at $129.92m (2.3 per cent). Geographically, the United Kingdom led the pack, providing $3.68bn or 65.26 per cent of total inflows.

Afrinvest analysts noted that portfolio flows surged largely due to attractive yields in Nigeria’s money market, where Treasury Bills and OMO bills offered rates above 20 per cent. This drove a 150.8 per cent year-on-year rise in foreign portfolio investment. However, Afrinvest cautioned that such “hot money” is volatile, highly sensitive to changes in domestic monetary policy and global risk sentiment. They warned that without stronger FDI into real sectors like manufacturing, ICT, and transport, Nigeria risks overdependence on speculative inflows.

For global fund managers, Nigeria’s reforms represent a turning point. “Nigeria appears to be back in business as long-awaited economic reforms take shape,” said Emre Akcakmak, portfolio manager at East Capital. “Key measures include improved currency liquidity, leeway for investors to repatriate profits, and the stable naira.”

But he also warned that the CBN will need to balance currency stability with investor returns. “We feel the Central Bank will continue to stem any sharp appreciation of the naira to limit profit taking from the fast money community,” Akcakmak added.

Perhaps the most significant signal of the reform agenda is the planned recapitalisation of Nigeria’s banks. Governor Cardoso has been clear: if Nigeria is to achieve President Bola Tinubu’s ambitious $1tn GDP target by 2030, the banking sector must be recapitalised to support bigger ticket transactions and provide financing for large-scale projects.

“Will Nigerian banks have sufficient capital relative to the financial system’s needs in servicing a $1tn economy in the near future? In my opinion, the answer is no — unless we take action,” Cardoso declared.

This recapitalisation drive echoes the landmark 2004 banking reforms under Charles Soludo, which consolidated the banking industry and created stronger institutions capable of attracting international partnerships.

Rebasing GDP

Beyond banking, Nigeria is also preparing for another GDP rebasing exercise. Economists argue that updating the measurement of economic output will provide a more accurate reflection of Nigeria’s true size and potential.

Development economist Aliyu Ilias said rebasing would bring sectors like entertainment, technology, and services — often underrepresented in official statistics — into the fold. “This new visibility will make Nigeria appear much stronger to foreign investors, which will naturally help us attract more capital,” he said.

Seun Onigbinde of BudgIT noted that previous rebasing in 2013 revealed the explosive growth of telecommunications and entertainment, making Nigeria Africa’s largest economy overnight. “Rebasing reflects the structural changes in the economy, which are often products of policy shifts,” he said.

While economists stress that rebasing does not create new wealth, it provides a more reliable framework for planning, taxation, and policy intervention. For Gabriel Okeowo of BudgIT, it is also critical for tackling poverty and infrastructure deficits. “Rebasing allows planners to be more intentional about solving Nigeria’s biggest problems,” he said.

Challenges

Despite the positive headlines, several challenges could slow momentum. FDI remains weak, at just $126m in Q1 2025, reflecting concerns about insecurity, bureaucratic red tape, and policy inconsistency. Regional disparity is stark: 99.6 per cent of inflows went to Lagos and Abuja, leaving other states struggling to attract investment.

Dependence on hot money means Nigeria is vulnerable to external shocks and changing global interest rate cycles. As Afrinvest analysts warn, “While the uptick may support currency stability and short-term growth spurts, the underlying quality of these inflows mirrors previous episodes of hot-money dependence that heightened vulnerability.”

The road ahead

For Nigeria to convert its capital inflow surge into long-term growth, policymakers will need to focus on structural reforms. This means improving security, strengthening the rule of law, cutting bureaucracy, and making it easier for businesses to operate. If these issues are addressed, the combination of market size, stable macroeconomic conditions, and a well-capitalised banking sector could transform Nigeria into one of the most attractive investment destinations in the Global South.

For now, the numbers show progress. Nigeria is once again on the radar of global investors, and the CBN’s reforms have created a foundation of stability. But sustaining that momentum will require not just bold monetary policies, but also governance reforms that make every dollar of investment count.