•National Bureau of Statistics (NBS) head office, Abuja
Experts have advised the federal government to strengthen the ease of doing business, expand infrastructure, ensure policy consistency and deepen economic reforms to convert short-term investor interest in Nigeria’s economy into lasting productive investments.
This is coming as they raised concerns over the composition of foreign capital inflows in the first quarter of 2026, with portfolio investments accounting for more than 95 percent of the total, while foreign direct investment (FDI) remained relatively weak, reports Daily Independent.
Recall that Nigeria recorded a sharp increase in foreign capital inflows in the first quarter of 2026, attracting $10.37 billion, an 83.8 percent rise compared with the corresponding period of 2025, according to data released by the National Bureau of Statistics (NBS).
The strong performance signals growing investor confidence in the country’s economic reforms and improved macroeconomic environment.
Analysis by SBM Intelligence showed that the surge in capital imports was driven largely by foreign investors’ appetite for money market instruments and fixed-income securities, particularly bonds, as Nigeria continues to offer attractive yields amid ongoing reforms in the foreign exchange market.
Of the total inflows recorded during the quarter, portfolio investments dominated, reflecting strong participation by foreign investors seeking short-term returns.
In contrast, FDI – widely regarded as the most stable and growth-enhancing form of foreign capital – amounted to just $135 million, highlighting persistent challenges in attracting long-term productive investments.
The development underscores a recurring feature of Nigeria’s capital importation profile, where short-term portfolio flows continue to outweigh investments in critical sectors such as manufacturing, infrastructure, agriculture and technology.
The banking sector emerged as the biggest beneficiary of foreign capital inflows during the period, attracting the largest share of investments.
Industry analysts attribute this to ongoing recapitalisation efforts by banks, improved liquidity conditions and growing investor confidence in the financial services sector.
The sharp increase in capital inflows comes amid broader efforts by the federal government and the Central Bank of Nigeria (CBN) to stabilise the economy through a series of reforms, including exchange-rate liberalisation, tighter monetary policy and measures aimed at improving transparency in the foreign exchange market.
These reforms have contributed to improved foreign exchange liquidity, stronger external reserves and a more predictable investment environment, factors that have helped restore confidence among international investors.
Despite the encouraging headline figures, the International Monetary Fund (IMF) has cautioned Nigeria against becoming overly dependent on portfolio investments, often referred to as “hot money” because of their highly mobile nature.
The Fund noted that while portfolio inflows can provide immediate support for foreign exchange reserves and financial markets, they can reverse rapidly in response to changes in global financial conditions, investor sentiment or domestic economic uncertainties.
According to the IMF, excessive reliance on short-term capital exposes economies to sudden capital flight, exchange-rate volatility and potential financial instability.
The institution, therefore, urged Nigerian authorities to intensify efforts to attract more long-term foreign direct investment that can create jobs, boost productivity and support sustainable economic growth.
Economic experts share similar concerns, noting that FDI brings not only capital but also technology transfer, managerial expertise and long-term commitments that contribute to industrial development.
They argue that although the current surge in portfolio investments reflects renewed confidence in Nigeria’s economic management, the country must address structural challenges that continue to discourage long-term investors.
These include infrastructure deficits, high energy costs, regulatory uncertainties, insecurity and bureaucratic bottlenecks.
The latest figures nevertheless represent a positive signal for Africa’s largest economy, suggesting that reforms undertaken over the past two years are beginning to yield results.
Rising capital inflows have helped improve foreign exchange liquidity and support the naira, while also providing additional resources for financial intermediation and economic activity.
Market observers say the challenge for policymakers will be sustaining investor confidence while creating conditions that attract higher levels of FDI.
Achieving this balance, they argue, will help Nigeria reduce its vulnerability to external shocks and build a more resilient growth model.
As global investors continue to monitor developments in emerging markets, Nigeria’s ability to transform growing portfolio interest into substantial long-term investments may determine whether the recent surge in capital inflows translates into durable economic growth and development.
For now, the country can celebrate a significant rebound in foreign capital imports, but the composition of those inflows remains a reminder that sustainable growth ultimately depends on attracting investment that stays for the long haul rather than capital that can leave at short notice.
