Nigeria’s banking sector has emerged as the leading beneficiary of renewed foreign and domestic investor confidence, following sweeping economic reforms that are beginning to reposition Africa’s largest economy, writes JOSEPH INOKOTONG.

The latest data from the National Bureau of Statistics (NBS) show that capital importation into the country rose sharply to $5.6 billion in the first quarter of 2025, a 67.12 percent increase compared with the $3.4 billion recorded in the same period of 2024.

Of this inflow, $3.1 billion, more than half of the total, went into the banking sector, underscoring the pivotal role of financial institutions in driving renewed interest in Nigeria’s economy. Analysts and stakeholders link the surge to the bold policy interventions of the Central Bank of Nigeria (CBN) under Governor Olayemi Cardoso, who has focused on stabilising the foreign exchange market and restoring investor trust since assuming office in October 2023.

The trend is significant not only for its scale but also for what it signals about Nigeria’s economic direction. For several years, foreign investment inflows had declined, discouraged by inconsistent policies, a distorted exchange rate regime, and macroeconomic instability. The recent rebound suggests that reforms are beginning to alter perceptions, creating new opportunities for growth and diversification.

When Cardoso took over leadership of the CBN, the economy was weighed down by a backlog of over $7 billion in unmet foreign exchange obligations, and investors were wary of committing funds to a market where liquidity and transparency were lacking. One of his first moves was to unify the exchange rate and clear the backlog. These decisions, though painful in the short term, were widely applauded by international financial institutions such as the World Bank, which described them as “bold steps” to improve the sustainability of Nigeria’s economy.

The effects have been evident. Nigeria’s sovereign risk spread, a key indicator of investor perception, fell to its lowest level since January 2020, erasing the premiums accumulated during the pandemic years. With improved liquidity in the foreign exchange market and greater clarity for profit repatriation, investors have begun to return, encouraged by a policy environment that appears more predictable than in previous years.

The NBS report for the first quarter of 2025 shows that portfolio investment dominated inflows, accounting for $5.2 billion, or 92.25 percent of the total. Other investments stood at $311.17 million, representing 5.52 percent, while foreign direct investment (FDI) accounted for just $126.29 million, or 2.24 percent. The heavy reliance on portfolio flows underlines both the opportunities and risks facing Nigeria. While these inflows provide immediate liquidity and bolster reserves, they are also highly volatile and can reverse suddenly in response to shifts in global financial markets.

The banking sector was the biggest magnet for funds, recording inflows of $3.1 billion, equivalent to 55.44 percent of the total. Financing followed with $2.09 billion, while production and manufacturing received $129.92 million. The bulk of the inflows came from the United Kingdom, which accounted for $3.68 billion, or 65.26 percent of the total.

Market analysts have pointed out that the surge in portfolio flows reflects renewed investor confidence in Nigeria’s debt and money market instruments. According to Ike Chioke, Managing Director of Afrinvest West Africa Limited, portfolio flows rose by 150.8 percent year-on-year to $5.2 billion, with money market instruments attracting $4.2 billion, while bonds and equities accounted for $877.4 million and $117.3 million, respectively. The trend, he explained, suggests that investors are drawn to Nigeria’s relatively high yields in a global environment where returns are lower.

Parallel to the surge in capital inflows, Nigeria recently rebased its Gross Domestic Product (GDP), providing a clearer picture of the economy’s performance. Statistician-General of the Federation, Adeyemi Adeniran, explained that the rebased GDP for 2024 stood at ₦372.82 trillion, reflecting a 35.4 percent increase compared with figures from the old base year. The rebasing exercise revealed a shift in the structure of the economy, with agriculture and services gaining in significance, while industry’s share declined.

According to Adeniran, the rebasing exercise was not merely about producing a bigger number but about ensuring that economic data reflects current realities. He emphasised that accurate, timely data are essential for policy formulation and effective planning. Economists agree that rebasing allows for better visibility into emerging sectors such as ICT, entertainment, and fintech, which had previously been underreported. Development economist Aliyu Ilias noted that the new visibility will enhance Nigeria’s appeal to foreign investors and provide the government with more reliable data for resource allocation and fiscal planning.

For the CBN, however, the focus remains on ensuring that Nigeria’s banking sector is adequately capitalised to support the country’s ambitious economic targets. Governor Cardoso has made it clear that the current level of bank capitalisation is insufficient to support the Federal Government’s plan to grow the economy to $1 trillion by 2030. He has therefore directed banks to prepare for a new round of recapitalisation to strengthen their balance sheets, attract international capital, and expand their capacity to finance large-scale projects.

“Will Nigerian banks have sufficient capital relative to the financial system’s needs in servicing a $1 trillion economy in the near future? In my opinion, the answer is no, unless we take action,” Cardoso said recently. He argued that recapitalisation is critical for ensuring that banks can support growth in key sectors such as infrastructure, agriculture, and manufacturing, while remaining resilient to external shocks.

Stakeholders have largely welcomed the reforms, though they urge caution. Emre Akcakmak, portfolio manager at East Capital, remarked that Nigeria appears “back in business” as reforms begin to take shape, citing improved liquidity, profit repatriation, and a more stable naira. Standard Chartered’s head of Africa strategy, Samir Gadio, also noted that portfolio inflows are being supported by better FX market functioning, moderating dollar-naira volatility, and robust yields.

Domestically, economists such as Bismarck Rewane of Financial Derivatives Company Limited argue that Nigeria is beginning to emerge from the most painful phase of its reform adjustments. He predicted that 2025 would be less difficult than 2024, though he stressed that success depends on proper sequencing of policies and the implementation of structural reforms. Rewane also pointed to persistent challenges such as power supply inefficiencies and lack of transparency in the oil and gas sector, which he argued must be addressed to sustain investor confidence.

Other analysts have cautioned that while GDP rebasing and higher inflows are positive developments, they do not automatically translate into better living standards for Nigerians. Economist Nelson Adedeji explained that genuine growth requires improvements in infrastructure, security, agricultural productivity, manufacturing, and the ease of doing business. Without these, he warned, statistical gains could fail to deliver tangible benefits to ordinary citizens.

The broader consensus among stakeholders is that while Nigeria has made progress in restoring investor confidence, much remains to be done to ensure that inflows are diversified and sustained. Heavy dependence on portfolio flows exposes the economy to global financial volatility, while low levels of FDI suggest that investors are still hesitant to commit long-term resources to productive sectors. Addressing these gaps will require continued reforms, transparency, and targeted policies that reduce risks and improve competitiveness.

For Nigeria, the road ahead is clear but challenging. The banking sector’s strong performance in attracting inflows underscores its centrality to economic growth, but sustaining momentum will depend on recapitalisation, structural reforms, and inclusive policies that translate gains into jobs, infrastructure, and improved living standards.

The surge in capital inflows and the rebased GDP provide grounds for cautious optimism. They suggest that Nigeria is on the path to recovery, but the ultimate measure of success will be whether reforms deliver durable growth that benefits not just investors but the millions of Nigerians who still face daily struggles with poverty, unemployment, and rising costs of living.

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