Nigeria attracts $29.6bn portfolio inflows as investors shun long....

Foreign portfolio investment has emerged as the dominant source of foreign capital entering Nigeria, highlighting renewed investor confidence in the country’s financial markets but also exposing the economy to growing dependence on short-term capital that can exit as quickly as it arrives.

Latest capital importation figures show that Nigeria attracted about $23.22 billion in total foreign capital in 2025, with portfolio investment accounting for approximately $19.74 billion, representing more than 85 per cent of the total inflows.

The trend became even more pronounced in the first quarter of 2026, when portfolio inflows reached $9.86 billion out of total capital importation of $10.37 billion, accounting for more than 95 per cent of foreign capital entering the country.

The combined inflow of about $29.6 billion underscores the increasing preference of foreign investors for Nigerian financial assets rather than long-term productive investments such as manufacturing plants, industrial facilities and infrastructure projects.

Portfolio investment typically enters the country through authorised dealer banks, where foreign investors remit funds in US dollars and obtain Certificates of Capital Importation (CCI), enabling them to repatriate both their capital and investment returns without regulatory obstacles. After conversion into naira at the prevailing official exchange rate, the funds are invested mainly in government securities, with smaller allocations to Federal Government bonds and equities listed on the Nigerian Exchange.

Money market instruments remain the preferred destination for foreign investors. Treasury Bills and Central Bank of Nigeria Open Market Operation (OMO) bills attracted about $13.9 billion in 2025 and another $6.5 billion during the first quarter of 2026. Their appeal lies in their relatively short maturities, attractive yields, strong liquidity and the backing of either the Federal Government or the Central Bank.

Federal Government bonds ranked second, attracting approximately $4.89 billion in 2025 and $3.23 billion in the first quarter of 2026. Although these securities offer competitive returns, their longer maturities expose investors to greater interest rate risk and reduce flexibility compared with short-term instruments.

Equities accounted for only a small fraction of portfolio inflows despite the strong performance of the Nigerian stock market over the past two years. Foreign investors committed only about $1 billion to $2 billion to equities in 2025, while inflows during the first quarter of 2026 amounted to about $132 million. Analysts attribute the limited appetite for shares to concerns over market liquidity, corporate governance and uncertainties surrounding foreign exchange convertibility.

The surge in portfolio investment has strengthened Nigeria’s external reserves, supported foreign exchange liquidity and contributed to relative stability in the naira. However, economists caution that the heavy reliance on short-term portfolio flows leaves the economy vulnerable to sudden capital reversals whenever global financial conditions change or investor confidence weakens.

Unlike foreign direct investment, which finances factories, infrastructure, technology transfer and long-term employment, portfolio investment is largely concentrated in financial assets and government securities. Consequently, while it provides immediate foreign exchange support and helps finance public borrowing, it contributes relatively little to expanding productive capacity or creating sustainable jobs.

The International Monetary Fund and several market analysts have repeatedly warned that excessive dependence on portfolio inflows increases Nigeria’s exposure to external shocks, particularly during periods of global monetary tightening or heightened risk aversion. Nigeria’s net foreign liabilities, estimated at about $90.2 billion in 2025, also reflect the growing stock of foreign portfolio claims on the economy.

Analysts say attracting larger and more stable foreign investment at lower borrowing costs will require sustained improvements in macroeconomic fundamentals. Stable foreign exchange liquidity, lower inflation, consistent monetary policy and greater regulatory certainty would reduce the risk premium demanded by investors and allow the Central Bank to ease interest rates over time without triggering significant capital outflows.

They also argue that improvements in electricity supply, security, infrastructure, contract enforcement and the overall business environment would encourage greater foreign direct investment, gradually shifting investor preference from short-term financial instruments towards long-term productive assets.

While portfolio investment has played a critical role in rebuilding external reserves and stabilising the foreign exchange market, economists maintain that Nigeria’s long-term economic resilience will ultimately depend on its ability to convert current investor confidence into productive investment capable of generating employment, expanding industrial output and reducing reliance on expensive short-term capital.