The steep drop comes despite a 10.8 per cent rise in total capital inflows, which climbed to $5.64 billion from $5.09 billion in the previous quarter. The divergence underscores a growing preference among foreign investors for short-term, high-yield financial instruments over long-term, productive investments in the Nigerian economy.
On a year-on-year basis, FDI posted a modest 5.97 per cent increase from $119.18 million recorded in Q1 2024. However, FDI’s share of total capital inflows shrank to just 2.24 per cent, down from 8.29 per cent in Q4 2024 and below the 3.53 per cent recorded in the same period last year.
Short-Term Capital Dominates Inflows
The rise in total capital importation was largely driven by a surge in money market investments, particularly Open Market Operation bills and treasury bills issued by the Central Bank of Nigeria (CBN). These instruments, buoyed by elevated interest rates from the CBN’s hawkish monetary policy, attracted around $4.21 billion — representing 74.6 per cent of total inflows in Q1 2025.
While such short-term investments provide liquidity and can stabilise the naira in the near term, economists caution they do little to boost industrial capacity, job creation, or infrastructure development. They also carry the risk of sudden outflows if market conditions shift.
Manufacturing Sector Still Struggling
The NBS report also highlighted continued weakness in manufacturing sector investments. Capital inflows into manufacturing fell 32.31 per cent year-on-year to $129.92 million, down from $191.92 million in Q1 2024. The sector’s share of total capital importation dropped from 5.68 per cent to 2.30 per cent over the same period.
The decline follows a challenging period marked by the exit of several multinational manufacturers between 2023 and 2024, driven by foreign exchange volatility, surging energy costs, and reduced consumer purchasing power during economic reforms under President Bola Tinubu.
Muda Yusuf, Director of the Centre for Promotion of Private Enterprise, said the sector was still recovering from “two major shocks, on forex and energy prices,” noting that FDI decisions take time. “We are seeing more stability now, and maybe present decisions may influence investments in the next quarter,” he said.
Investor Sentiment Remains Cautious
Lagos-based economist Adewale Abimbola suggested the sharp fall in FDI reflects lingering foreign investor concerns about systemic and structural issues. “I would be curious to see if the trend shifted in Q2, when macro conditions improved considerably — from exchange rate stability to deceleration in inflation,” he said.
He added that the drop in manufacturing-related FDI may indicate that other sectors are offering more competitive returns in the current environment. While calling for continued efforts to attract foreign capital, he stressed the importance of boosting domestic investor confidence as a foundation for sustainable growth.
With Nigeria’s capital inflow profile heavily skewed towards speculative, short-term instruments, analysts warn that the economy remains vulnerable to sudden reversals. Without stronger commitments to productive sectors, the headline numbers on capital importation may do little to change the country’s long-term growth trajectory.