Muda Yusuf says portfolio-heavy inflows signal recovery but warn structural reforms needed for lasting growth….
The Centre for the Promotion of Private Enterprise (CPPE) has acknowledged Nigeria’s sharp rebound in capital importation in the third quarter of 2025 but cautioned that the structure of inflows exposes the economy to significant vulnerabilities.
In a statement issued on February 22, 2026, the Chief Executive Officer of CPPE, Dr. Muda Yusuf, said total capital inflows rose to $6.01 billion in Q3 2025, representing a 380 percent year-on-year increase and a 17 percent quarter-on-quarter growth.
Yusuf attributed the rebound to gradual restoration of investor confidence following macroeconomic reforms, particularly foreign-exchange market liberalisation, tighter monetary policy and improved liquidity conditions in the domestic financial system. According to him, the trend suggests that policy stabilisation efforts are beginning to positively influence investor behaviour.
However, he stressed that while the headline figures appear encouraging, a closer examination of the composition and distribution of inflows reveals underlying weaknesses that must be addressed to secure durable and transformative growth.
Portfolio dominance raises concerns
According to CPPE’s analysis, more than 80 percent of the Q3 inflows were portfolio investments, while foreign direct investment accounted for less than five percent.
Yusuf warned that such a structure signals a recovery driven largely by short-term capital rather than long-term productive investment.
“Portfolio flows are highly sensitive to global interest-rate movements, risk sentiment and policy credibility,” he noted. “They provide liquidity support and help stabilise financial markets in the short term, but they are volatile and prone to sudden reversals.”
He emphasised that sustainable economic growth, job creation and export expansion depend primarily on stable, long-horizon foreign direct investment tied to manufacturing, infrastructure, production and technology transfer.
Weak impact on productive sectors
The CPPE also pointed to sectoral concentration as another concern. Yusuf observed that most of the capital inflows were channelled into the banking and financial sectors, with limited allocation to manufacturing, infrastructure and other productive areas of the economy.
He argued that rising capital importation will yield limited employment and productivity gains unless stronger flows are directed into industry, agro-processing, logistics, energy and export-oriented manufacturing.
“Financial deepening without real-sector expansion risks creating a liquidity-driven recovery that does not fundamentally alter Nigeria’s productive base,” he said.
Geographic and institutional concentration
Yusuf further highlighted the heavy concentration of foreign inflows from a narrow group of countries, particularly the United Kingdom, the United States and South Africa. He said such concentration exposes Nigeria to monetary policy shifts, investor sentiment changes and tightening cycles in a limited set of jurisdictions.
In addition, he noted that a substantial share of the inflows was intermediated through a small group of banks, including Standard Chartered, Stanbic IBTC and Citibank Nigeria. While acknowledging that this reflects established global banking relationships, he warned that it also introduces transmission risks in the event of shifts in correspondent banking dynamics or global liquidity conditions.
Key risks identified
The CPPE listed several vulnerabilities in the current capital-flow structure, including the risk of sudden portfolio reversals that could destabilise exchange rates and external reserves, persistently weak foreign direct investment linked to structural constraints such as unreliable power supply and regulatory unpredictability, and exposure to global financial tightening and geopolitical uncertainty.
Yusuf cautioned that without accelerated structural reforms, the current rebound in inflows could prove fragile.
Policy shift needed
He argued that the present recovery provides an opportunity for policymakers to convert portfolio-driven liquidity into FDI-led industrial expansion.
According to him, macroeconomic stabilisation must now give way to deeper structural competitiveness reforms, including reliable electricity supply, efficient transport and logistics systems, predictable regulatory frameworks and stronger contract enforcement.
He called for deliberate incentives to channel capital into export-oriented manufacturing, agro-processing, mineral beneficiation, industrial parks and infrastructure development.
“Without clear policy direction, foreign capital will remain concentrated in short-term financial instruments rather than real economic assets,” Yusuf said.
He also urged diversification of capital sources through engagement with Gulf sovereign wealth funds, Asian institutional investors and intra-African investment flows under the African Continental Free Trade Area framework, noting that this would broaden Nigeria’s capital base and reduce exposure to Western financial-cycle volatility.
Investment outlook
In the short term, Yusuf said Nigeria presents attractive yield opportunities in fixed-income and money-market instruments, supported by tight monetary policy, high interest rates and improved foreign-exchange liquidity.
However, he advised investors to remain cautious about global risk repricing and policy-continuity risks.
Over the medium to long term, he described subdued FDI levels as presenting early-entry opportunities in reform-sensitive sectors such as power and energy infrastructure, agro-processing, logistics, digital financial services and export-oriented manufacturing.
Conclusion
Yusuf concluded that while the Q3 2025 capital-importation rebound is a positive signal of improving investor sentiment, its portfolio-heavy and financially concentrated nature underscores the urgency of structural reform.
“The central task before policymakers is to move from liquidity-driven recovery to investment-led transformation,” he said, adding that only by converting short-term capital inflows into long-term productive investment can Nigeria achieve sustainable growth, employment expansion, export diversification and macroeconomic resilience.
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