Nigeria recorded total capital inflows of $5.64 billion in Q1 2025, a 67% increase from the $3.38 billion posted in the previous quarter.
However, capital importation data from the National Bureau of Statistics (NBS) reveals that over 90% of these inflows were driven by hot money short-term speculative funds seeking high returns.
A closer look shows that $4.21 billion, or 74.6% of the total, was channelled into money market instruments, primarily OMO bills and Treasury Bills both short-term securities issued by the Central Bank of Nigeria to manage liquidity.
These instruments have become increasingly attractive to foreign investors amid Nigeria’s elevated interest rate environment, forming the core of capital inflows aimed more at stabilising the naira than funding long-term economic activity.
Central Bank’s hawkish policy attracting hot money
The surge in money market inflows comes on the back of the Central Bank of Nigeria’s hawkish monetary policy, which has seen benchmark interest rates rise to record highs.
The CBN has used elevated interest rates as a tool to attract foreign portfolio investors, boost dollar supply, and stabilise the naira.
Foreign investors are allowed to participate in the money market through the purchase of OMO Bills, a powerful tool the CBN has deployed to attract FX inflows without directly raising public debt.
With yields on OMO bills and Treasury Bills reaching as high as 18–25%, foreign investors are responding aggressively, pushing capital importation to its highest level since Q1 2020.
Portfolio dominates, FDI remains weak
The breakdown of Q1 capital imports shows that portfolio investments alone accounted for $5.2 billion, or 92.2% of the total inflows, reflecting Nigeria’s continued reliance on short-term capital to manage its external imbalances.
Within this segment:
- $4.21 billion went into money market instruments
- $877.41 million was invested in government bonds
- $117.33 million came in through equity investments
By contrast, Foreign Direct Investment (FDI) stood at only $126.29 million, representing just 2.2% of total capital imports.
The bulk of FDI came through equity investments in Nigerian companies, indicating marginal interest from long-term investors.
In addition, Nigeria attracted $311.17 million in foreign loans, classified under Other Investment.
Impact on the naira
The naira has recorded relative stability in recent weeks, trading below N1,550/$ in the parallel market, a significant appreciation from its lows earlier in the year.
Analysts believe that the increased inflow of foreign portfolio capital, driven by high yields on CBN securities, has helped boost dollar liquidity and ease exchange rate pressure.
However, there are concerns about the sustainability of this model. Portfolio flows, especially into money market instruments, are typically volatile and subject to rapid reversals if global conditions change or policy credibility falters.
Bottom line
While Nigeria has succeeded in attracting capital inflows to support the naira, the structure of these inflows suggests a heavy dependence on hot money, rather than productive capital.
The CBN’s use of high-yielding instruments has so far worked in stabilising the foreign exchange market, but the country remains vulnerable to external shocks and capital flight.
For long-term stability, analysts have often argued that Nigeria needs to rebuild investor confidence, improve the ease of doing business, and attract more sustainable capital, especially FDI that supports growth, jobs, and innovation.
