Nigeria’s foreign direct investment (FDI) decreased by 19.35% in the first quarter of 2025, dropping to $250 million from $310 million in the last quarter of 2024, according to the Central Bank of Nigeria’s (CBN) latest Balance of Payments report. This decline signals ongoing challenges in attracting long-term foreign capital despite a modest recovery from a net divestment of $310 million in Q1 2024.
Capital Inflows Under Pressure
The CBN report highlights a broader contraction in Nigeria’s financial account, which fell to $7.58 billion in Q1 2025 from $7.82 billion in Q4 2024. The downturn was driven by a significant reversal in portfolio investments, which swung from a $5.61 billion inflow to a $5.03 billion net outflow—a shift of $10.6 billion. This indicates waning foreign interest in short-term financial instruments like government bonds and CBN bills.
Additionally, “other investment” liabilities, such as loans and non-resident deposits, plummeted from $13.89 billion to $4.32 billion. Domestic investors also contributed to capital outflows, with direct investment assets abroad reaching a net outflow of $550 million, reflecting a trend of offshore diversification.
Economic analysts attribute these declines to persistent issues, including exchange rate fluctuations, high inflation, and uncertainty surrounding monetary and fiscal policies, which have reduced the appeal of Nigerian assets to global investors.
Trade Surplus Offers Some Relief
Despite the capital flight, Nigeria’s current account recorded a surplus of $3.73 billion in Q1 2025, slightly down from $3.80 billion in the prior quarter but up from $3.69 billion a year earlier. This surplus was supported by a robust goods trade balance, which expanded to $4.16 billion from $2.62 billion, fueled by a 9.79% rise in export earnings to $13.91 billion. Key drivers included a 26.7% increase in gas exports to $2.66 billion and a 30.4% surge in non-oil and electricity exports, boosted by global demand and the naira’s depreciation.
Imports saw a slight decline to $9.75 billion from $10.05 billion, primarily due to reduced demand for petroleum products and non-oil goods. However, the services account deficit grew to $3.69 billion from $3.48 billion, driven by higher spending on travel and business services, and financial service inflows also weakened.
External Reserves and Remittances Decline
The overall balance of payments shifted into a $2.77 billion deficit in Q1 2025, compared to a $1.10 billion surplus in Q4 2024, reflecting the sharp drop in capital inflows. Consequently, Nigeria’s external reserves fell by $2.37 billion, from $40.19 billion in December 2024 to $37.82 billion by March 2025.
The secondary income account, which includes remittances and foreign aid, dropped 17.9% to $5.29 billion. Diaspora remittances slightly decreased from $5.08 billion to $4.93 billion, while foreign aid and grants to the government fell by over 67%, possibly due to geopolitical shifts, including restrictions on aid from some Western countries.
Implications for Nigeria’s Economy
The decline in FDI and portfolio investments underscores the challenges Nigeria faces in maintaining investor confidence amid economic volatility. While the trade surplus and export growth provide some stability, the weakening financial account and shrinking reserves highlight the need for policy reforms to address structural issues like inflation and exchange rate instability.
The CBN has introduced measures to boost foreign exchange inflows, but analysts suggest that sustained efforts to improve the business environment, enhance infrastructure, and stabilize policies are critical to reversing the FDI decline. The government’s focus on non-oil exports and regional trade initiatives, such as the African Continental Free Trade Area (AfCFTA), may also help diversify economic growth and attract long-term investment.
As Nigeria navigates these economic headwinds, stakeholders are calling for coordinated efforts to restore investor trust and strengthen the country’s position as a leading investment destination in Africa.
