Foreign investment in manufacturing plunges 54% as portfolio inflows dominate capital surge
Foreign investment in manufacturing plunged by more than half in the first nine months of 2025, underscoring deep-rooted structural weaknesses in Nigeria’s productive base despite a sharp rebound in overall capital inflows.
Latest data from the National Bureau of Statistics shows that the production and manufacturing sector attracted $463.52m between January and September 2025, representing a 54.11 per cent decline compared to the $1.01bn recorded in the corresponding period of 2024.
The steep drop comes even as total capital importation more than doubled year-on-year, highlighting a widening disconnect between financial market confidence and real sector investment.
Manufacturing loses ground amid broader capital rebound
The broader capital picture appears, at first glance, encouraging. Total inflows into Nigeria rose to $16.78bn in the first nine months of 2025, up from $7.23bn in the same period of 2024 — a 131.96 per cent increase. Quarterly data indicates that capital importation stood at $5.64bn in Q1 2025, $5.12bn in Q2, and $6.01bn in Q3.
However, beneath the headline growth lies a troubling reality: foreign investment in manufacturing has not kept pace with the resurgence in capital flows. In Q1 2025, the sector recorded $129.92m in inflows, followed by $72.25m in Q2 and a modest recovery to $261.35m in Q3.
By comparison, Q2 2024 alone had delivered a remarkable $624.71m to manufacturing, significantly lifting last year’s performance.
The Q3 2025 capital surge — which saw total inflows jump 380.16 per cent year-on-year — was driven overwhelmingly by portfolio investments rather than long-term productive commitments.
Portfolio Investment accounted for $4.85bn in Q3 2025, representing 80.70 per cent of total inflows. Other Investments contributed $864.57m (14.37 per cent), while Foreign Direct Investment lagged at $296.25m, just 4.93 per cent of the total.
This composition reinforces concerns that Nigeria’s capital recovery is being powered by short-term financial instruments rather than sustainable industrial expansion.
Banking sector leads, factories lag
Sectoral allocation of capital further illustrates the imbalance. The banking sector attracted $3.14bn in Q3 2025 — 52.25 per cent of total inflows — while financing activities accounted for $1.86bn, or 30.85 per cent. In contrast, production and manufacturing secured only $261.35m, representing a mere 4.35 per cent share.
Industry stakeholders argue that while investors appear comfortable with Nigeria’s monetary reforms and improved exchange rate management, they remain cautious about committing funds to factory-based operations.
The President of the Lagos Chamber of Commerce and Industry, Leye Kupoluyi, noted that the dominance of portfolio inflows signals renewed confidence in macroeconomic stabilisation but not necessarily in industrial competitiveness.
According to him, attractive yields in money market instruments and bonds have boosted liquidity and external reserves, yet structural bottlenecks continue to deter manufacturing investment.
These bottlenecks include unreliable electricity supply, heavy dependence on self-generated power, logistics inefficiencies, policy unpredictability, and regulatory complexity.
High production costs and volatile input prices further compress margins for manufacturers, reducing the sector’s appeal to foreign investors.
Long-term decline in industrial contribution
Data from the Manufacturers Association of Nigeria paints a broader historical picture of industrial erosion. The association’s 2025 Think Tank report indicates that manufacturing’s contribution to Nigeria’s economy has fallen dramatically from 29.9 per cent in 1981 to 8.2 per cent in 2024.
Real growth in the sector has similarly weakened, dropping from 14.7 per cent in 2014 to 1.2 per cent in 2024.
The group has also warned of mounting closures within the sector, citing hundreds of manufacturing firms that shut operations in recent years alongside significant job losses.
For many analysts, the sustained drop in foreign investment in manufacturing reflects both domestic inefficiencies and global investor risk aversion.
The National Vice President of the National Association of Small-Scale Industrialists, Segun Kuti-George, attributed the capital shortfall to Nigeria’s infrastructure deficit, estimated at trillions of dollars.
Persistent power shortages, weak transport networks, and poor road connectivity continue to inflate operating costs and discourage long-term commitments to factory projects.
According to him, investors increasingly prefer liquid financial assets and trading activities over capital-intensive industrial ventures that require extended payback periods and face operational uncertainties.
Policy response and outlook
In response to mounting concerns, the Federal Government recently unveiled the Nigeria Industrial Policy 2025, aimed at reducing the cost of doing business and stimulating sectoral competitiveness.
The policy framework outlines fiscal, monetary, export, and industrial incentives designed to attract both domestic and foreign investment into manufacturing.
Authorities have set ambitious targets to increase manufacturing’s contribution to gross domestic product to 15 per cent by 2030 and 25 per cent by 2035.
Achieving these goals will require more than improved macroeconomic indicators; analysts say it will depend on resolving structural constraints that have long undermined industrial productivity.
While the surge in portfolio inflows offers short-term macroeconomic relief, the continued plunge in foreign investment in manufacturing raises questions about the sustainability of Nigeria’s recovery model.
Without a stronger pipeline of long-term industrial capital, the economy risks remaining dependent on volatile financial flows rather than building a resilient production base capable of generating jobs, exports, and inclusive growth.
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