The Centre for the Promotion of Private Enterprise (CPPE) has cautioned that Nigeria’s $6 billion capital importation recorded in the third quarter of 2025 is largely driven by short-term portfolio flows and may not signal lasting economic transformation.
In a statement on Sunday, CPPE Chief Executive Officer Muda Yusuf described the 380 percent year-on-year and 17 percent quarter-on-quarter rise in inflows as a “remarkable rebound,” crediting recent macroeconomic reforms for boosting investor sentiment.
“The rebound signals that policy stabilisation efforts are beginning to influence investor behaviour positively,” Yusuf said.
He attributed the surge to foreign exchange market liberalisation, tighter monetary policy and improved liquidity conditions in the domestic financial system.
Portfolio Dominance Raises Concerns
Despite the strong headline figures, Yusuf warned that the structure of inflows presents vulnerabilities. According to him, more than 80 percent of total capital importation in Q3 2025 came from portfolio investments, while foreign direct investment (FDI) accounted for less than five percent.
“This composition raises important concerns,” he said.
“Portfolio flows, by nature, are highly sensitive to global interest-rate movements, risk sentiment, and policy credibility.
“They provide liquidity support and can help stabilise financial markets in the short term, but they are volatile and prone to sudden reversals.”
Yusuf argued that sustainable growth, job creation and export expansion depend on stable, long-term FDI tied to manufacturing, infrastructure and technology transfer.
“The current structure therefore, reflects cyclical financial recovery rather than structural economic transformation,” he added.
Limited Real-Sector Impact
The CPPE chief noted that most inflows were concentrated in the banking and financial sectors, with limited allocation to manufacturing and infrastructure.
“This pattern underscores a persistent structural weakness: rising capital importation is not yet translating into meaningful expansion of productive capacity,” he said.
He warned that financial deepening without corresponding real-sector growth could result in a liquidity-driven recovery that leaves the economy vulnerable to shocks.
Yusuf also flagged geographic concentration risks, noting that capital inflows remain heavily dependent on a few countries, including the United Kingdom, the United States and South Africa.
“The present rebound may prove fragile unless structural reforms accelerate,” he warned.
Call for Investment-Led Transformation
He urged policymakers to channel portfolio-driven inflows into long-term industrial expansion by strengthening infrastructure, improving power supply, ensuring regulatory certainty and enforcing contracts.
“Government must deliberately incentivise capital flows into export-oriented manufacturing, agro-processing, mineral beneficiation, industrial parks and infrastructure development,” he said.
“The central task before policymakers is clear: move from liquidity-driven recovery to investment-led transformation.”
Yusuf added that diversifying capital sources, including deeper engagement with Gulf and Asian investors as well as intra-African flows under the AfCFTA framework, would help reduce exposure to global financial volatility.
