Foreign portfolio investment has solidified its position as the primary channel for foreign capital entering Nigeria. In 2025, total capital importation reached approximately $23.22 billion, with portfolio investment accounting for $19.74 billion, or more than 85 percent of the total.
This trend accelerated in the first quarter of 2026. Portfolio inflows hit $9.86 billion out of a total capital importation of $10.37 billion, representing over 95 percent of all foreign capital entering the country.
These figures demonstrate a strong preference among foreign investors for highly liquid financial assets over long-term physical commitments like factory construction.
How Capital Enters the Nigerian Market
Foreign investors, primarily based in the United Kingdom, the United States, and South Africa, route their funds through authorized dealer banks in Nigeria. These banks issue a Certificate of Capital Importation (CCI) to facilitate the eventual repatriation of principal and returns.
Once converted to naira at the official exchange rate, the capital is deployed into various assets. The banking sector serves as the primary intermediary for these transactions, making it the largest recipient of the inflows.
Money Market Instruments Dominate Inflows
Short-term government securities remain the preferred asset class for foreign investors. Money market instruments, specifically Treasury Bills and Open Market Operation (OMO) bills issued by the Central Bank of Nigeria, attracted between $13.8 billion and $13.9 billion in 2025.
This preference continued into the first quarter of 2026, with money market instruments drawing $6.50 billion. Investors favor these assets due to their high yields, short tenors of 91 to 364 days, and sovereign backing.
Federal Government of Nigeria bonds saw inflows of $4.89 billion in 2025 and $3.23 billion in the first quarter of 2026. While these bonds offer attractive yields, their longer maturities introduce higher interest-rate risk.
Conversely, equities attracted minimal interest, securing between $1 billion and $2 billion in 2025 and only $132 million in the first quarter of 2026. Despite strong local currency returns, concerns over liquidity and dollar convertibility keep foreign equity investment low.
Risks of Over-Reliance on Hot Money
The concentration of capital in short-term instruments exposes the economy to sudden reversals. If global interest rates shift or confidence in the naira declines, these funds can exit rapidly, putting pressure on foreign exchange reserves.
This accumulation of short-term claims contributed to Nigeria's net foreign liabilities rising to $90.2 billion in 2025.
Furthermore, attracting these volatile funds requires the Central Bank of Nigeria to maintain elevated interest rates. This increases the cost of government borrowing and limits private-sector credit growth, leaving the economy vulnerable to external shocks.
