Convert Portfolio-driven Inflows To FDI-led Growth, Economist Urges Federal Gov’t

The Centre for the Promotion of Private Enterprise (CPPE) has urged the government to convert short-term capital inflows into long-term productive investment.

This is because the Centre emphasised the need for structural reforms to achieve sustainable growth, employment expansion, and macroeconomic resilience.

The CEO of CPPE, Dr Muda Yusuf, said this in a statement on Sunday, adding that Nigeria’s capital inflows in the third quarter of 2025 totalled $6.01 billion.

“Nigeria experienced a remarkable rebound in capital importation in the third quarter of 2025 with total inflows reaching $6.01 billion. This marks an impressive 380 per cent year-on-year increase and a 17 per cent quarter-on-quarter rise.

“Such growth reflects a gradual restoration of investor confidence, driven by recent macroeconomic reforms, including foreign-exchange market liberalisation, tighter monetary policy, and improved liquidity within the domestic financial system.”

“While these headline figures are promising, it is essential to delve deeper into the structure and distribution of these inflows to ensure lasting economic transformation. Notably, over 80 per cent of the inflows in Q3 2025 were portfolio investments, with foreign direct investment (FDI) accounting for less than 5 per cent. This disparity raises important considerations for future economic strategy.”

According to Yusuf, portfolio flows can provide critical short-term liquidity and stabilise financial markets; however, they remain vulnerable to global interest-rate fluctuations and shifting risk sentiment. To achieve sustainable economic growth, job creation, and enhanced export capacity, Nigeria must cultivate more stable, long-term FDI focused on production, infrastructure, and technology transfer.

“Current analyses indicate that the majority of inflows have concentrated in the banking and financial sectors, with limited allocation to manufacturing, infrastructure, and other productive areas. This trend highlights the need for a more robust capital structure that directly supports job creation and productivity.”

To address these challenges, the CPPE CEO added that “Nigeria must prioritise strong capital flows toward industries such as agro-processing, logistics, energy, and export-oriented manufacturing. Relying solely on financial market recovery without tangible advancements in real-sector growth risks creating an unsustainable recovery model.

“Furthermore, foreign inflows are concentrated among a narrow set of countries, primarily the United Kingdom, the United States, and South Africa, creating potential vulnerabilities to global shifts and changing investor sentiments. A diversified approach to capital flows, along with broader financial intermediation, will enhance resilience against external shocks.”

He pointed out that the current environment presents a valuable opportunity for reform, saying that “the key challenge now is to foster a transition from portfolio-driven inflows to FDI-led industrial expansion.”

To achieve this, he disclosed that “Nigeria’s macroeconomic stabilisation efforts must evolve into comprehensive structural competitiveness reform stabilisation elements for attracting durable investment, including reliable electricity supply, efficient transport and logistics systems, predictable regulatory frameworks, and improved contract enforcement mechanisms. “

He also added that “the government should actively incentivise capital flows into export-oriented manufacturing, agro-processing, mineral beneficiation, industrial parks, and infrastructure development. By directing foreign capital toward real economic assets rather than short-term financial instruments, Nigeria can lay a solid foundation for lasting economic growth and prosperity.”