Manufacturing sector bleeds as hot money floods Nigeria

•National Bureau of Statistics

Investment in Nigeria’s production and manufacturing sector has plunged sharp­ly, even as overall capital inflows into the country surged to record levels, exposing deep structural weaknesses in Africa’s largest economy and prompting a fresh government push to revive industriali­sation.

Data released by the National Bureau of Statistics (NBS) show that foreign investment into production and manu­facturing fell by 54.11 percent in the first nine months of 2025.

The sector attracted just $463.52 million between January and September 2025, down from $1.01 billion recorded during the same period in 2024, reports Daily Independent.

The steep decline comes against the backdrop of a dra­matic increase in overall capital importation. Total inflows into Nigeria more than doubled year-on-year, rising by 131.96 percent to $16.78 billion in the first nine months of 2025, compared to $7.23 billion in the corresponding peri­od, last year.

The sharp divergence between booming headline capital inflows and collapsing manufacturing in­vestment has intensified debate about the quality, durability and long-term impact of Nigeria’s economic recovery.

A closer review of the cap­ital importation data paints a troubling picture. In the third quarter of 2025 alone, portfolio investment — often described as “hot money” due to its short-term nature — accounted for 80.7 percent of total inflows, amount­ing to $4.85 billion.

By contrast, foreign direct investment (FDI), typically asso­ciated with long-term productive ventures such as factories, plants and infrastructure, lagged far be­hind at $296.25 million during the same period.

Production and manufactur­ing attracted only $261.35 million in Q3 2025 — representing a mere 4.35 percent of total capital inflows.

For an economy long seeking to diversify away from oil depen­dence and deepen domestic pro­duction, the numbers represent a significant setback.

While improved investor confidence in Nigeria’s foreign exchange market reforms and monetary tightening has helped draw in portfolio funds, analysts warn that speculative inflows cannot substitute for sustained industrial investment.

“Portfolio flows can exit as quickly as they enter,” one Lagos-based economist noted. “Without strong FDI into manu­facturing and production, job cre­ation and value addition remain weak.”

The contrast between rising capital importation and declin­ing manufacturing investment has sparked concerns about the underlying health of Nigeria’s economy.

Portfolio investors are typi­cally attracted by high yields in government securities, improved exchange rate transparency, and arbitrage opportunities. But such funds are highly sensitive to glob­al risk sentiment and domestic macroeconomic stability.

Manufacturing investment, on the other hand, depends heav­ily on infrastructure quality, policy stability, energy reliability, logistics efficiency and access to foreign exchange for raw materi­als and machinery.

Industry operators argue that despite ongoing reforms, struc­tural bottlenecks remain signif­icant.

Power shortages, elevated borrowing costs, currency volatil­ity earlier in the year, and import dependence continue to weigh on the sector.

Although inflationary pres­sures have shown early signs of moderation, financing conditions remain tight. Interest rates are still elevated relative to historical averages, raising the cost of capi­tal for manufacturers.

“The surge in capital inflows is encouraging at a macro level,” another analyst said. “But if it is not translating into productive capacity expansion, then the re­covery remains fragile.”

In response to the worrying trend, the federal government has launched a new industrial blueprint — Industrial Policy 2025 — aimed at reinvigorating domestic production and boost­ing manufacturing’s contribu­tion to gross domestic product (GDP).

The policy targets increasing manufacturing’s share of GDP to 15 percent by 2030, a significant leap from current levels estimated in single digits.

Officials say the strategy will focus on improving infrastruc­ture, strengthening local supply chains, supporting export-ori­ented industries, and enhancing access to affordable finance for manufacturers.

The government also plans to prioritise sectors with strong multiplier effects, including agro-processing, textiles, phar­maceuticals, petrochemicals and light manufacturing.

Policy advisers argue that Ni­geria’s large domestic market of over 200 million people provides a natural foundation for industrial growth, if structural constraints are properly addressed.

However, achieving the 15 percent GDP target will require not just policy declarations but sustained implementation, regu­latory consistency and improved investor confidence.

Despite reform efforts, sever­al structural challenges continue to dampen investor appetite for long-term manufacturing com­mitments.

Energy remains a central con­cern. Manufacturers rely heavily on self-generated power due to un­reliable grid supply, significantly increasing operating costs. Logis­tics bottlenecks at ports and poor road infrastructure further add to production expenses.

Access to foreign exchange, though improved compared to previous years, has also been a recurring issue for firms depen­dent on imported machinery and raw materials.

Additionally, high inflation has eroded consumer purchasing power, affecting demand for local­ly produced goods. Weak domes­tic demand reduces incentives for capacity expansion.

There are also concerns about policy unpredictability in previ­ous years, which made long-term planning difficult for foreign in­vestors.

While recent reforms in the foreign exchange market have im­proved transparency and boosted capital inflows, analysts caution that restoring manufacturing in­vestment will require sustained macroeconomic stability.

The decline in manufactur­ing investment raises fears of a “jobless recovery,” where mac­roeconomic indicators improve but employment growth remains subdued.

Manufacturing is widely re­garded as a critical engine for mass employment, technology transfer and value chain devel­opment. Unlike portfolio invest­ment, which mainly impacts fi­nancial markets, manufacturing investment directly generates jobs across skill levels.

A sustained contraction in industrial investment could un­dermine efforts to reduce unem­ployment and poverty.

“If Nigeria’s capital inflows are concentrated in treasury bills and bonds rather than factories and plants, the broader economy will feel limited impact,” an in­dustry expert warned.

This risk is particularly signif­icant for a country with a rapidly growing youth population enter­ing the labour force annually.

The success of the new Indus­trial Policy 2025 will hinge on its ability to tackle fundamental cost disadvantages faced by local man­ufacturers.

Experts say priorities should include: expanding reliable electricity supply, deepening do­mestic raw material sourcing, improving port efficiency and customs processes, reducing regulatory bottlenecks, provid­ing targeted tax incentives tied to performance, strengthening access to long-term development finance.

Some analysts argue that aligning monetary and fiscal policy will be crucial. High inter­est rates may help stabilise the currency and attract portfolio flows, but they simultaneously constrain industrial borrowing.

The Road To 2030

As the government targets a 15 percent manufacturing GDP contribution by 2030, the next few years will prove decisive.

Reversing a 54 percent invest­ment decline will require not only policy ambition but execution dis­cipline, infrastructure upgrades and investor reassurance.

If Industrial Policy 2025 suc­ceeds, Nigeria could gradually shift from a consumption-heavy, import-dependent economy to­ward a production-driven growth model.

If it falters, the country risks remaining vulnerable to volatile portfolio flows, external shocks and limited job creation.

For now, the numbers tell a clear story: capital is returning to Nigeria — but factories are not yet rising with it.