Foreign Direct Investment in Nigeria Plummets by 70 Percent in Q1 2025

Foreign direct investment in Nigeria experienced a significant drop in the first quarter of 2025, falling by over seventy percent compared to the previous quarter. According to the latest Capital Importation report published by the National Bureau of Statistics, Nigeria attracted just $126.29 million in foreign direct investment during the first three months of the year, a steep decline from $421.88 million recorded in the last quarter of 2024. This downturn highlights a concerning shift in investor behavior and raises questions about the future trajectory of Nigeria’s economic development.

Despite this sharp fall in foreign direct investment, the overall capital inflow into the country actually increased during the same period. Total capital imports rose to $5.64 billion in the first quarter of 2025, up from $5.09 billion in the fourth quarter of 2024 and significantly higher than $3.38 billion during the same quarter in 2024. This increase, however, was largely driven by short-term financial instruments rather than long-term productive investments. Over ninety percent of these capital inflows were channelled into money market securities such as government bonds and treasury bills, which, while helpful in managing liquidity and stabilizing the Nigerian naira, do not contribute substantially to industrial growth, infrastructure development, or job creation.

This distinction is crucial. Foreign direct investment is generally seen as a vote of confidence in the long-term prospects of a country’s economy. It often involves companies committing capital to establish or expand operations, which can create jobs, transfer technology, and enhance skills within the economy. The shift towards short-term, speculative investments suggests that foreign investors are more interested in quick returns through Nigeria’s high-interest debt market than in fostering sustainable economic growth.

Breaking down the foreign direct investment numbers reveals a similar downward trend. Equity investments, which are a key component of FDI, plunged by more than seventy percent quarter-on-quarter, falling from $419.41 million in the last quarter of 2024 to just $124.31 million in the first quarter of 2025. Other capital components of FDI also declined significantly in the quarter, although they showed a strong year-on-year increase due to an extremely low base in the corresponding quarter of 2024.

An analysis of the capital importation trends shows a disconnect between headline capital inflows and the type of investments that have a lasting impact on economic development. The preference for money market instruments coincides with Nigeria’s current high interest rate environment, driven by the Central Bank of Nigeria’s monetary policy. The apex bank has maintained a hawkish stance, pushing benchmark interest rates to record levels in a bid to control inflation and stabilize the currency. These conditions have made government securities very attractive to foreign investors seeking safe, short-term returns, but they do little to improve the country’s industrial base or employment levels.

The manufacturing sector, which is often viewed as a key driver of economic diversification and job creation, has seen a marked decline in foreign capital inflows. The sector attracted just $129.92 million in the first quarter of 2025, down from $191.92 million in the same period in 2024. Its share of total capital importation also dropped significantly, from 5.68 percent in Q1 2024 to just 2.30 percent in Q1 2025. This contraction reflects ongoing challenges faced by manufacturers, including high operating costs, energy shortages, and currency volatility. The reforms introduced by President Bola Tinubu’s administration have, in some cases, tightened purchasing power and slowed domestic consumption, leading many multinational firms to exit or reduce their investments.

Experts have highlighted several reasons for the weak performance of the manufacturing sector in attracting foreign direct investment. Dr. Muda Yusuf, Director of the Centre for Promotion of Private Enterprise, noted that the sector has faced two major shocks recently: foreign exchange constraints and rising energy costs. Both issues have increased the risk associated with investing in manufacturing, making foreign investors cautious. He pointed out that macroeconomic stability has only recently started to return and that investment decisions, especially those involving FDI, tend to be slow and deliberate. Dr. Yusuf expressed cautious optimism that the improving stability could encourage more investment in the future quarters.

Similarly, Lagos-based economist Adewale Abimbola emphasized that the sharp decline in foreign direct investment might reflect broader investor concerns about systemic and structural challenges in the Nigerian economy. He suggested that while macroeconomic indicators improved in the second quarter of 2025—with exchange rate stability and slower inflation growth—the first quarter data showed investor sentiment was still fragile. According to Abimbola, the drop in FDI inflows into manufacturing could also indicate that investors see better opportunities in other sectors, which may appear more viable or less risky. He added that while foreign direct investment remains crucial, policymakers should also focus on strengthening local investor confidence to build a more resilient economic foundation.

The current investment trends highlight a dilemma for Nigeria. The inflow of short-term capital into money markets can provide immediate benefits by supporting government borrowing and currency stability. However, without a corresponding increase in long-term foreign direct investment, the country risks missing out on the deeper structural transformations needed for sustainable growth. Sectors like manufacturing, agriculture, and infrastructure development require patient, committed capital that not only funds expansion but also transfers skills and technology, boosting productivity and employment.

Addressing this challenge will require a concerted effort by Nigerian policymakers to improve the investment climate and reduce the risks perceived by foreign investors. Measures could include ensuring consistent and predictable economic policies, improving infrastructure, tackling energy supply issues, and streamlining regulations. Moreover, enhancing governance and fighting corruption remain critical to building investor trust. As Nigeria strives to diversify its economy beyond oil and gas, attracting quality foreign direct investment will be vital.

 the steep fall in foreign direct investment in Nigeria during the first quarter of 2025 serves as a warning signal. Although total capital inflows increased, the majority were short-term speculative funds that do not contribute to productive economic activities. The manufacturing sector’s declining share of foreign capital further underscores the difficulties facing key industries. While macroeconomic stability is slowly improving, policymakers must act decisively to create an environment that encourages long-term investment. Only then can Nigeria hope to unlock the full potential of foreign capital to drive sustainable growth, job creation, and economic transformation.