Stable FX, High Yields, Disinflation Drive Capital Inflows – Analysts
Nigeria’s exchange rate (FX) stability, elevated yields on fixed-income securities, and sustained disinflation have continued to fuel the country’s short-term capital inflows.
The local currency exchange rate versus the dollar has become more stable under Olayemi Cardoso-led Central Bank of Nigeria (CBN) reforms, with persistent policy rate tightening taming headline inflation.
The inflation rate has declined sharply, as reflected in the statistics office’s consumer price index, supported by significant exchange rate improvements.
Robust foreign reserves and adequate dollar supply have put Nigeria’s economic reform on the global map, resulting in a flood of foreign currency chasing high yields on naira assets in the fixed-income market.
Nigeria saw a sharp rebound in capital inflows in 2025, with total importation rising by 88.45% year-on-year to $23.22 billion from $12.32 billion in the previous year, according to the latest data from the National Bureau of Statistics.
According to Cowry Asset Management Limited, much of this surge was driven by portfolio investors who leaned heavily into money market instruments, fixed income securities, and equities, drawn by elevated interest rates and a relatively stable exchange rate environment throughout the year.
Analysts said a closer look at the numbers shows that portfolio investment remains the dominant force behind Nigeria’s capital inflows. In 2025 alone, portfolio investments climbed sharply to $19.75 billion from $8.38 billion in 2024, accounting for about 85% of total inflows.
The investment firm said investors appeared to take advantage of the relative stability of the naira, which averaged around ₦1,435.76 per dollar, alongside interest rates that hovered near 27%.
Capital import report breakdown showed that money market instruments alone accounted for over 80% of total portfolio inflows at $13.83 billion, nearly doubling from the previous year.
“This was followed by bonds and other fixed income securities at $4.89 billion, while equity investments, though improved, remained modest at $1.02 billion.
“Outside of portfolio flows, other investments contributed a smaller share, accounting for 11% of total inflows at $2.55 billion, though this represented a decline of 22.5% compared to 2024.
“Loans made up the bulk of this category at $2.49 billion, while trade credit returned to positive territory for the first time since 2022, albeit at a modest $19.5 million. Currency deposits and other claims remained largely subdued.
“Foreign direct investment, often seen as a more stable and longterm indicator of investor confidence, showed a gradual but encouraging improvement.
“FDI rose by 36.8% year-on-year to $923 million from $674.7 million, marking its highest level since 2020. While still relatively low compared to portfolio flows, the uptick suggests a slow return of long-term investor interest”, analysts explained.
Cowry Asset said on a closer quarterly reading, the composition of inflows reinforces the dominance of short-term capital. In Q4 2025, total capital imports totalled $6.44 billion, with portfolio investment alone accounting for $5.49 billion, or just over 85% of the total.
Within this, money market instruments remained the clear favourite at $3.08 billion, even though this segment saw a slight year-on-year moderation, analysts said.
Bonds followed strongly at $1.97 billion, reflecting sustained appetite for fixed-income securities, while equity inflows rose to $433.05 million, with a gradual return to risk-taking.
Foreign direct investment stood at $357.80 million during the quarter, while other capital flows remained relatively modest at $599.65 million, weighed down by declines in loans despite some recovery in trade credits and other claims.
The investment firm said the picture that emerges is one where investors are still prioritising liquidity, yield, and flexibility over long-term commitments. The sectoral distribution of these inflows tells an equally revealing story about where foreign capital feels most comfortable.
The banking sector alone attracted $3.85 billion in Q4 2025, accounting for nearly 60% of total inflows, underscoring its role as the primary gateway for foreign capital and a key beneficiary of elevated interest rates.
The financing sector followed with $1.94 billion, capturing about 30%, while the real economy lagged significantly behind. Production and manufacturing received just $308.93 million, and sectors such as agriculture, telecommunications, and trading recorded relatively small inflows in comparison.
Critical areas like oil and gas, infrastructure-related segments such as transport, and even high-employment sectors like construction and real estate saw minimal participation. This shows capital is flowing into financial assets rather than productive sectors that can drive broad-based economic growth and job creation.
Cowry Research believes the strong recovery in capital inflows reflects an improvement in Nigeria’s macroeconomic sentiment, supported by the Central Bank of Nigeria’s monetary policy adjustments aimed at attracting foreign inflows.
“The combination of exchange rate stability, high yields, and easing inflationary pressures since early 2025 has helped reposition the country as an attractive destination for short-term capital. However, beneath the surface, the story is less straightforward.
“The overwhelming dominance of portfolio inflows highlights a continued reliance on short-term, and often volatile, capital. These flows can reverse quickly in response to shifts in global risk appetite, geopolitical tensions, or tighter financial conditions abroad.
“Events such as escalating tensions in the Middle East or a rise in global trade protectionism could easily unsettle these gains”, the investment firm said. NCC Orders Telcos to Compensate Subscribers for Poor Service
