Capital Importation Gains Still A Cosmetic Covering to Unresolved Structural Issues.

By Chinedu Okoye 

Capital Importation: Quantity Without Quality?

“Nigeria’s capital importation jumps 67% to $5.64 billion in Q1 2025, driven by portfolio investments, compared to $3.4 billion recorded in the same period of 2024.” this represents a 10.82% rise from Q4 2024. @Nairametrics

The above seems laudable on the surface, but as usual the devil is in the details.

First, the FX flows are concentrated in two forms:

1. Portfolio Investments accounted for 92% of total FX inflows for the period and as it be has for prior periods.
2. The concentration is also in the territorial sources of these funds as 65% of total Inflows originated from Britain. Suggesting that there is need for more sources even as we consolidate finance relations with the Kingdom.

Secondly, foreign direct investment contribution to FX inflows stood at $126.29 million with a sharp of 2.24% of Q1 2025. total capital importation in. -@NBS

This is an indication that long-term foreign investors (in fixed assets) are yet to be convinced, or the federal government has failed to facilitate investment deals, and as the table below shows, banking and finance accounts for 92.62% of total Inflows. With Manufacturing making up 2.30%.

        Industry                     | Share% of Total Inflow

1. Banking Sector     | 55.44%
2. Financing Sector  | 37.18%
3. Manufacturing       |  2.30%.
4. FDI                           | 2.24%

Zero Equilibrium Remarks:

 

Investors Need Certainties not MoUs:

Despite the slew of memorandums of understandings signed with private and public would-be foreign investors (into the real economy and with long-term sunk capital), manufacturing –a proxy for the real sector— attracted the least amount of foreign capital.

This goes to show that despite the reforms, the growth of real sector is still marred by the inflationary [and exchange rate depreciation] shock. Mega-cap companies who are only just recovering and recording significant profit, were able to tweak their business models, weather the storm, or had an invaluable value proposition (or strategy).

Flow Composition: Concentrated, Fleeting, Fragile, and how to Use Equity to Court FDI:

Portfolio investments are usually; highly liquid, but with a medium (at best) to short term focus. With relatively higher interest rates making it a costly form of capital importation, with bankruptcy sometimes masked with revolving credit availability. 

Since it is clear that improving the manufacturing, [Industrial, and agricultural] sector(s) contribution to FX flows, would be a significant contribution to higher and sustainable FX inflows, more strategic, aggressive and purposeful policy actions are necessary.

The Federal Government coukd privatize underutilized or dilapidated federal assets (e.g., the four Refineries, Ajaokuta Steel Mine, etc), and list them on the Stock market. This provides a clear and unambiguous business deal, with the allure being the low purchase cost and a market with sufficient demand for products thereof – Nigeria, ECOWAS and AfCFTA.

A strong legal and trustworthy regulatory system is also invaluable to foreign investors. This means improving tangible and intagible infrastructure, formulating, implementing favorable policies and creating a business friendly environment.

 

Policy Credibility, and Investing in Human [Capital] Development:

All these done silmultaneously with investing in human development (to up skill the labor force),  and demonstrating policy credibility and political reliability. This isn't done in a day, but can be achieved once the business environment improves and looks favorable.

A healthy and educated labor force, an efficient transportation infrastructure, a swift and reliable justice system, and a clear and unambiguous government policy, will bring in more FDI than‘negotiations’ which end up as MoUs.

 

Foreign Direct Investment Capital Importation as a Resource Exportation:

Capital importation is the otherside of resource and market share exportation.. Suppose a foreign investor buys a land in country A, to grow bananas and hopes to either sell it in country A, or export it to countries B,C or, D.

Here, the host country (country A), has essentially imported the investors funds money – paying for it with the land, labor and other resources and factors that makes the country suitable for investment– or exported said FOPs.

Zero Equilibrium Remarks:

So, in light of the above, priority should be given to supporting local industrial development, for it is the same [tangible and intagible] infrastructure they would need to succeed, that foreign investors [in fixed capital] would need.

The Federal government need to move to securitize and flip some federal assets, and also fix what's broken in the economic structure first– the link between, credit and industry; and the mismatch between labor demand and the skills set of supply–whilst simultaneously courting investors, before any meaningful gains in FDI's contribution to FX inflows can be made.

For now the Nigerian Economy –and the Naira remains dependent on variable, short-term (or fleeting), capital, and debt for both monetary [to stabilize exchange rate and inflation rate, and fiscal reasons [to fund the budget].