Decline in Foreign Direct Investment Highlights Shift in Investor Behavior
Foreign Direct Investments (FDI) into Nigeria experienced a significant drop in the first quarter of 2025, falling by 70.06 per cent quarter-on-quarter to $126.29 million. This marked a sharp decline from the $421.88 million recorded in the final quarter of 2024. Despite an overall increase in capital importation into the country, this downward trend suggests that foreign investors are increasingly favoring short-term, high-yield financial instruments over long-term, productive investments.
On a year-on-year basis, FDI showed a modest growth of 5.97 per cent compared to $119.18 million in the same period of 2024. However, this small increase has not been enough to reverse the broader pattern of declining interest in long-term investment. The data further reveals that FDI accounted for only 2.24 per cent of total capital imported into Nigeria in Q1 2025, down from 8.29 per cent in the previous quarter and below the 3.53 per cent recorded in Q1 2024.
Rising Capital Inflows with a Focus on Short-Term Instruments
Total capital importation increased to $5.64 billion in Q1 2025, up from $5.09 billion in Q4 2024 and $3.38 billion in Q1 2024. While these figures may suggest renewed investor confidence, a closer examination shows that the majority of these inflows were directed into short-term money market instruments such as government bonds and treasury bills rather than equity or direct investments.
These instruments, though important for managing liquidity and stabilizing the naira, do not contribute significantly to industrial growth, employment generation, or infrastructure development. The trend raises concerns about the sustainability of Nigeria’s current investment profile, which remains heavily reliant on speculative flows that can exit the economy quickly.
Equity Investments Drop Sharply
A breakdown of FDI shows that equity investments totaled $124.31 million in Q1 2025, representing a 70.36 per cent drop from the $419.41 million recorded in Q4 2024. The remaining $1.98 million came from other capital components, which declined by 20.02 per cent quarter-on-quarter but saw a significant rise on a year-on-year basis due to a negligible base of $0.01 million in Q1 2024.
Over 90 per cent of the total capital inflows were directed into short-term money market instruments, primarily Open Market Operation bills and Treasury Bills. These securities, issued by the Central Bank of Nigeria to manage liquidity, have gained popularity among foreign investors due to the country’s elevated interest rate environment.
Manufacturing Sector Struggles to Attract Investment
Despite a 67.12 per cent year-on-year rise in total capital inflows, the manufacturing sector recorded a 32.31 per cent decline in capital importation in Q1 2025. The sector attracted $129.92 million in Q1 2025, down from $191.92 million in the corresponding quarter of 2024. Its share of total capital importation also fell from 5.68 per cent in Q1 2024 to 2.30 per cent in Q1 2025.
The manufacturing sector’s ability to attract foreign investment has remained weak. The period between 2023 and 2024 saw multinationals exit the market due to a challenging operating environment during economic reforms introduced by President Bola Tinubu. As reforms weakened purchasing power and slowed consumption, manufacturers reduced their investments.
Expert Perspectives on Investment Trends
Dr Muda Yusuf, Director of the Centre for Promotion of Private Enterprise, highlighted that the manufacturing sector faced two major shocks—forex and energy price fluctuations—that would take time to ease before attracting more investors. He noted that while macroeconomic stability has gradually returned, many investors still perceive the risks of investing in the real sector as high.
Yusuf expressed hope for improved foreign investment in the manufacturing sector, stating that recent stability might influence future investment decisions. “Decisions to invest or not to invest in foreign direct investment are generally slow and painstaking,” he said.
Lagos-based economist Adewale Abimbola suggested that the sharp decline in FDI could reflect foreign investor sentiment towards systemic challenges in the Nigerian economy. He noted that if macro conditions improve in Q2, including exchange rate stability and lower inflation, the trend might shift. He also emphasized the need to boost local investor confidence alongside attracting foreign investment.