Nigeria Risks Over Reliance On Foreign Portfolio Investments

World Bank’s Nigeria Development Update, released on Monday, reveals Nigeria’s increasing reliance on volatile foreign portfolio investment (FPI) inflows, which now dominate foreign exchange (FX) market turnover. “FX market turnover continues to be dominated by CBN and foreign portfolio investment flows,” the update read.

In 2024, net FPI inflows surged 110% to US$13 billion, driven by a market-reflective exchange rate and high yields on debt securities and Open Market Operations (OMO).

While local investors have historically led Nigeria’s equities market, foreign investors outpaced domestic counterparts in trade value in March 2025.

Foreign transactions rose to 36.47% of total trades in Q1 2025, up from 13.77% in Q1 2024, reflecting growing foreign participation.

FPI inflows, attracted by high yields on Nigerian domestic securities and potential revaluation gains, serve as a critical source of FX and debt financing. However, its short-term nature, predominantly in Nigeria, makes it volatile.

The World Bank warns that FPI volatility exposes Nigeria to significant risks, including sudden capital outflows and exchange rate instability, as FX earnings heavily influence supply and demand dynamics.

We are already witnessing its volatile nature, as total foreign portfolio outflows surged 251% to N420.37 billion in Q1 2025, more than triple the N119.81 billion recorded in the same period in 2024, according to the latest data from the Nigerian Exchange (NGX).

For the FX market to stabilize, the report emphasizes that oil exports (90% of Nigeria’s FX earnings) and remittances (estimated at US$21 billion in 2024), must consistently flow into the official market.

Despite FPI strengthening Nigeria’s financial account in 2024, foreign direct investment (FDI) plummeted by 42.3% to US$1.08 billion (less than 1% of GDP). FDI is crucial for job creation, sectoral growth, and achieving Nigeria’s goal of a US$1 trillion economy by 2030.

The World bank notes that Nigeria’s economic growth must accelerate fivefold to meet this target, requiring a shift toward productive sectors that generate jobs and opportunities, particularly for the less privileged.

Structural constraints continue to hinder long-term foreign investment, limiting sustainable growth. Nigeria’s overreliance on FPI highlights its economic vulnerability amid global financial uncertainties. To enhance stability, the government must diversify its FX portfolio by implementing policies to attract FDI and other stable capital inflows.

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