FDI into Nigeria plummetted by 70% in Q1 2025 despite surge in capital inflows.
NaijaOnPoint Nigeria reports that Nigeria witnessed a sharp 70.06% drop in Foreign Direct Investment (FDI) in the first quarter of 2025, according to the latest Capital Importation report by the National Bureau of Statistics (NBS).
FDI fell to $126.29 million in Q1 2025, down from $421.88 million recorded in Q4 2024, highlighting growing investor uncertainty over long-term commitments to the Nigerian economy.
FDI Shrinks as Foreign Investors Prioritize ‘Hot Money’
Despite the plunge in FDI, total capital importation rose to $5.64 billion in Q1 2025, up from $5.09 billion in the previous quarter and $3.38 billion in Q1 2024. This signals a clear shift towards short-term speculative investments, commonly referred to as “hot money.”
On a year-on-year basis, FDI posted a modest 5.97% growth from $119.18 million in Q1 2024. However, this uptick pales in comparison to the explosive growth of portfolio investments and money market inflows, which now dominate Nigeria’s capital landscape.
FDI Now Just 2.24% of Total Capital Inflow
FDI’s share of total capital importation in Q1 2025 stood at only 2.24%, down sharply from 8.29% in Q4 2024 and 3.53% in Q1 2024.
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Equity investments accounted for $124.31 million, a 70.36% quarterly drop.
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“Other capital” contributed just $1.98 million, down 20.02% quarter-on-quarter but sharply up from a mere $0.01 million in Q1 2024.
Speculative Inflows Dominate Nigeria’s Capital Market
More than 90% of capital inflows were directed into short-term instruments such as Open Market Operations (OMO) and Treasury Bills, lured by Nigeria’s elevated interest rates. According to the NBS:
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$4.21 billion, or 74.6% of total inflows, were pumped into money market instruments.
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These inflows are driven primarily by foreign portfolio investors seeking high-yield, low-risk returns amid the Central Bank of Nigeria’s hawkish stance.
While the rising inflows may temporarily boost forex liquidity and support the naira, experts warn that an overreliance on hot money could pose significant macroeconomic risks, especially during periods of market volatility or political uncertainty.
What This Means for Nigeria’s Economic Outlook
Analysts say the dwindling FDI underscores investor caution about Nigeria’s long-term economic fundamentals, including policy consistency, security, and infrastructure.
Unlike portfolio investments, FDI often signals confidence in a country’s economic stability, as it typically funds factories, infrastructure, job creation, and technology transfer.
Until Nigeria can improve its business climate, attract sustainable investments, and de-risk the economy, this trend may continue.