Foreign capital inflow experiences a sharple decline by 70%, with overseas investors shifting funds towards high-yield, informal investment options within Nigeria instead.
Foreign Direct Investment (FDI) in Nigeria experienced a significant decline in the first quarter of 2025, according to data provided by the National Bureau of Statistics (NBS). The FDI figure for Q1 2025 reveals a 70.06% quarter-on-quarter decrease, amounting to $126.29 million.
Despite this decline, total capital importation into the country saw a substantial rise, with the figure reaching $5.64 billion in Q1 2025. This marks a notable increase from the $3.38 billion recorded in the same quarter the previous year.
The majority of these inflows, over 90%, were channelled into short-term money market instruments. Specifically, $4.21 billion, or 74.6% of the total capital inflows, were invested in OMO bills and Treasury Bills, both short-term securities issued by the Central Bank of Nigeria.
The surge in money market inflows can be attributed to Nigeria's elevated interest rate environment, making these instruments increasingly attractive to foreign investors. The Central Bank of Nigeria's hawkish monetary policy, which has caused benchmark interest rates to rise to record highs, has played a significant role in this trend.
Interestingly, the decline in FDI is not reflected in the overall increase in capital importation. In Q1 2025, the share of FDI in total capital importation has dropped to just 2.24%. Equity investments, a key component of FDI, saw a significant decrease as well. The FDI figure for Q1 2025 reveals that equity investments accounted for $124.31 million, down by 70.36% from the $419.41 million recorded in Q4 2024.
The inflows are primarily aimed at stabilizing the naira rather than funding long-term economic activity. This raises concerns about the sustainability of the surge in total capital importation, as it may not necessarily lead to productive investment in the Nigerian economy.
The remainder of the FDI figure in Q1 2025, labeled as "other capital," amounted to $1.98 million, a 20.02% decline quarter-on-quarter. It's worth noting that the remainder of the FDI figure in Q1 2024 was just $0.01 million.
The decline in FDI is a stark contrast to the previous quarter, where FDI showed a marginal growth of 5.97% compared to Q1 2024.
In summary, while Foreign Direct Investment in Nigeria declined significantly in Q1 2025, total capital importation saw a substantial increase, with the majority of inflows being channelled into short-term money market instruments. The decline in FDI is raising concerns about the sustainability of the surge in total capital importation and its impact on long-term economic growth.
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