Nigeria’s foreign direct investment (FDI) fell dramatically by 70.06% in the first quarter of 2025, raising fresh concerns over the country’s ability to attract long-term productive capital despite a surge in overall capital inflows.
According to the National Bureau of Statistics (NBS) Capital Importation Report, FDI dropped to $126.29 million in Q1 2025, down sharply from $421.88 million in Q4 2024. The steep decline underscores growing investor preference for short-term, high-yield financial instruments over equity and other forms of long-term commitments to the Nigerian economy.
While year-on-year data shows a marginal 5.97% increase compared to the $119.18 million recorded in Q1 2024, analysts warn that the improvement is insignificant against the backdrop of Nigeria’s structural economic challenges and dwindling investor confidence.
The NBS data reveals that FDI accounted for only 2.24% of total capital inflows in Q1 2025, down from 8.29% in the preceding quarter and below the 3.53% share recorded in Q1 2024.
This is in sharp contrast to the broader capital importation trend, which rose to $5.64 billion in Q1 2025—up from $5.09 billion in Q4 2024 and $3.38 billion in Q1 2024. However, over 90% of these inflows were directed into short-term money market instruments, particularly government bonds, Open Market Operation bills, and treasury bills.
These instruments, buoyed by Nigeria’s elevated interest rate environment and the Central Bank of Nigeria’s tight monetary stance, offer attractive short-term returns but contribute little to industrial expansion, job creation, or infrastructure development.
A closer look at the figures shows that equity investments, the main driver of FDI, stood at $124.31 million in Q1 2025, representing a 70.36% drop from $419.41 million in Q4 2024. The remaining $1.98 million came from other capital components, which, despite a 20.02% quarterly drop, saw significant year-on-year growth from a negligible base in 2024.
One of the most worrying aspects of the report is the continued decline in foreign capital inflows into Nigeria’s manufacturing sector. The sector attracted $129.92 million in Q1 2025, down from $191.92 million in Q1 2024—a 32.31% decline. Its share of total capital importation fell from 5.68% in Q1 2024 to 2.30% in Q1 2025.
The drop follows the exit of several multinational companies between 2023 and 2024, citing harsh operating conditions during President Bola Tinubu’s reform drive, which led to weakened consumer purchasing power and reduced domestic demand.
Dr. Muda Yusuf, Director of the Centre for the Promotion of Private Enterprise (CPPE), explained that the manufacturing sector suffered from two major shocks—foreign exchange instability and high energy costs—that discouraged investors.
“There is a possibility that investors still perceive a high risk in committing to Nigeria’s real sector. Although macroeconomic stability is gradually returning, it will take time before this translates into renewed investment inflows,” Yusuf said, expressing cautious optimism that Q2 2025 could show improvements.
Similarly, Lagos-based economist Adewale Abimbola linked the sharp drop in FDI to lingering structural bottlenecks in the Nigerian economy.
“I would be interested to see if the improved exchange rate stability and slower inflation in Q2 will change the trajectory. The reality is, while FDI is important, boosting local investor confidence should also be a priority,” Abimbola noted.
Analysts warn that Nigeria’s heavy reliance on short-term speculative capital is unsustainable. Such inflows, while beneficial for managing liquidity and supporting the naira, can exit the economy at short notice, creating volatility in financial markets.
FDI, on the other hand, is typically a vote of long-term confidence, signalling that investors believe in the host country’s stability, policy environment, and growth potential. The current trend suggests that Nigeria still struggles to position itself as a competitive destination for such capital.
For Nigeria to reverse the FDI decline, experts recommend:
Strengthening macroeconomic stability to reassure investors.
Improving infrastructure to lower the cost of doing business.
Addressing policy uncertainty and ensuring regulatory consistency.
Enhancing security to protect investments.
With Q2 2025 already showing signs of better inflation control and exchange rate stability, stakeholders hope the tide can turn in favour of more sustainable, productive investments that drive real economic growth.