Nigeria has seen a significant surge in Foreign Portfolio Investment (FPI) inflows in the first nine months of 2024, driven by high interest rates and a strengthened foreign exchange policy. According to data, FPI reached N696.88 billion between January and September 2024, marking a 170.1% increase from N258 billion during the same period in 2023.
This growth comes as the Central Bank of Nigeria (CBN) raised the Monetary Policy Rate (MPR) by 450 basis points to 27.25% between February and September 2024. The MPR serves as a benchmark for investment returns, making Nigerian assets more attractive to foreign investors seeking higher yields.
Domestic investment has also risen, with local investors committing N3.271 trillion to the Nigerian stock market in the first three quarters of 2024, a 33.3% increase from N2.454 trillion in 2023.
Analysts at Afrinvest Securities believe that the CBN’s aggressive rate hikes reflect its commitment to curbing inflation and stabilizing the naira. “We believe the CBN’s stance on inflation and currency stability has boosted foreign investor confidence,” Afrinvest analysts said, pointing to the bank’s increase of the MPR to 24.75% early in the year as a signal of its strong position on inflation control.
Highcap Securities analyst David Adonri noted that increased FPI positively affects Nigeria’s foreign exchange market, enhancing liquidity and supporting foreign reserves. “The jump in FPI reflects rising investor confidence in Nigeria’s economy and policy direction,” Adonri explained. He added that higher FPI signals strengthened demand in the foreign exchange market, contributing to currency stability.
While the increase in FPI highlights positive foreign investor sentiment, experts caution that the reliance on high interest rates to attract foreign capital may be unsustainable in the long term. According to investment banker Tajudeen Olayinka, the high interest rate regime is a short-term strategy intended to address immediate economic challenges. “High rates are meant to improve dollar liquidity in the FX market and help control inflation, but their sustainability depends on macroeconomic stability in the coming months,” Olayinka said.
Overall, Nigeria’s high interest rate policy appears to be driving both local and foreign investor engagement, underscoring increased confidence in the country’s financial markets and economic reforms. However, as the economy stabilizes, analysts expect the CBN may adjust its strategy to support more sustainable, long-term growth.
