In a troubling fiscal sign, the Central Bank of Nigeria (CBN) has reported a sharp decline in foreign direct investment (FDI) and portfolio inflows during the first quarter (Q1) of 2025, indicating a deeper erosion of investor confidence amid persistent macroeconomic uncertainty.
According to the CBN’s latest Balance of Payments (BoP) report seen by EKO HOT BLOG, FDI dropped by 19.35%, falling from $310 million in Q4 2024 to $250 million in Q1 2025. More significantly, portfolio investment, the short-term, market-sensitive form of capital, recorded an unprecedented net divestment of $5.03 billion, suggesting not just reduced inflows, but a full-scale reversal.
EDITOR’S PICKS
This plunge in capital inflows is not merely a statistical dip, it is a reflection of deeper anxieties about Nigeria’s fiscal direction, exchange rate volatility, and structural reforms.
While FDI is typically seen as a vote of confidence in long-term economic potential, portfolio investment represents investor sentiment in real-time. In Q1 2025, this sentiment turned decisively negative. The report shows that portfolio liabilities reversed by over $5 billion, contributing significantly to a lower financial account balance of $7.58 billion, down from $7.82 billion in the previous quarter.
The exodus of capital was not confined to portfolios alone. Other investment (OI) liabilities, which include loans, trade credits, and currency deposits, also reversed dramatically, a $4.32 billion swing into negative territory. Even Nigerian investments abroad saw movement, with portfolio assets recording outflows of $0.48 billion, a possible signal that domestic investors are hedging against domestic risks.
Lower Confidence and Reserves
The broader implication of this capital flight is evident in Nigeria’s shrinking buffer. The CBN reported a $2.37 billion drop in external reserves, down to $37.82 billion as of March 2025, a 5.9% decline in just three months. This erosion limits the central bank’s ability to defend the naira, support imports, or maintain investor trust in Nigeria’s external position.
In capital markets and policy circles, this decline raises red flags. Analysts generally find this kind of reversal to cause currency instability, higher borrowing costs, and diminished policy room.
The CBN under Governor Olayemi Cardoso has been pushing monetary tightening, interest rate hikes, and a unification of exchange rates to address economic imbalances. However, critics argue that policy implementation has been inconsistent, and foreign investors are not yet convinced of its durability.
Furthermore, Nigeria’s ongoing inflationary pressures and exchange rate volatility have introduced added layers of risk. In such a climate, even traditionally long-term investors are pausing.
FURTHER READING
The current figures suggest more than just a temporary slump, they hint at a fundamental reassessment of Nigeria’s risk profile by foreign investors. Whether this can be reversed depends largely on the credibility of reforms, clarity in communication from economic managers, and improved ease of doing business.
Philip Ibitoye is a Special Correspondent with EKO HOT BLOG. Click here to find daily analysis and critical insight on trending issues in Lagos and other parts of Nigeria.
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