Hot money inflows may reverse if policy expectations shift – Analysts warn

Economic experts have warned that hot money inflows may reverse Nigeria’s capital importation inflows if the CBN shifts its monetary policy too quickly.

Nigeria’s capital importation surged to $6.44 billion in Q4 2025, pushing total inflows for the year to $23.22 billion, almost double the $12.32 billion recorded in 2024.

This is according to the latest data released by the National Bureau of Statistics (NBS).

MoreStories

Afreximbank approves $10bn to ease impact of Iran war on African, Caribbean economies

April 7, 2026

NESG says business confidence weakens despite 101.2 expansion in March

April 7, 2026

The increase is attributed to ongoing economic reforms, attractive high-yield investment opportunities, and speculation ahead of the 2027 elections.

Experts say this convergence of factors is reshaping foreign portfolio flows, signaling both opportunities and risks for the country’s financial markets.

The sharp rise has sparked debate: is this momentum the result of deliberate policy success by the Central Bank of Nigeria (CBN), or early investor positioning ahead of the 2027 elections?

Analysts point to a mix of economic reforms, elevated yields, and political considerations as the key drivers behind the record inflows.

While portfolio inflows dominate, questions remain about the sustainability of this growth and the balance between short-term and long-term investments.

**What they are saying **

Experts who spoke to Nairametrics attribute the surge in capital inflows to reforms implemented by the CBN, particularly exchange rate unification, tighter monetary policy, and FX market liberalisation.

These measures have boosted investor confidence and improved liquidity in the foreign exchange market.

• Sam Ogbaraku, portfolio manager at Kwik Securities Ltd, said, “Nigeria appears to be back in business” as reforms take hold.
• Bashir Gidado Gawu of Sirdick Capital added, “Portfolio inflows have likely been supported by improved confidence.”

The improved FX market environment has made it easier for investors to enter and exit Nigeria’s markets, a key consideration for foreign portfolio investors.

Analysts note that the perception of policy consistency and the gradual reduction of FX bottlenecks have contributed significantly to investor sentiment.

**High yields attract foreign capital **

Another major driver is Nigeria’s elevated interest rate environment, which continues to attract yield-seeking investors from advanced economies.

Recent data shows portfolio investment accounted for about 85% of total inflows in 2025, highlighting the dominance of short-term, high-yield capital.

• The Debt Management Office (DMO) recently increased borrowing costs at its latest Federal Government bond auction.
• The stop rate for the JUN-2032 bond rose by 41 basis points to 16.15%, while the MAY-2033 bond increased sharply by 90 basis points to 16.64%.
• “Investors are trading Nigeria again… largely for yield,” noted Sam Ogbaraku.

Analysts warn that the heavy reliance on “hot money” could make inflows volatile if market conditions or policy expectations change.

The surge in stop rates also signals that borrowing costs for the government may rise, creating implications for fiscal management and the broader economy.

**Inflation pressures and policy uncertainty **

Rising inflation adds another layer of complexity to the outlook. Experts expect inflation to increase again in March 2026, which could force the CBN to balance sustaining foreign inflows with supporting domestic growth.

• _“This could put the CBN in a difficult position: continue raising interest rates to sustain foreign inflows, or ease policy to support domestic growth,” Ogbaraku said.  _

Higher rates maintain Nigeria’s yield advantage but increase local borrowing costs, potentially slowing economic activity.

Analysts also caution that if inflation expectations are not anchored, investors may begin pricing in currency risk, which could temper capital inflows despite higher yields.

**Political Cycle: Early bets on 2027 **

Political dynamics, experts say, may also be influencing inflows, as investors position ahead of the 2027 elections. They noted that pre-election periods historically attract speculative investments due to expectations of policy shifts, currency movements, and fiscal expansion.

• Biodun Ayanbolu, a political risk analyst in Abuja, said, “Pre-election periods in Nigeria attract speculative inflows as investors anticipate policy changes.”
• Adeolu Maja, University of Lagos, added, “Many investors may be looking at the relative stability of the naira in recent months. Money follows stability.”
• Ferdinand Ottoh, Professor of Political Science at the University of Lagos, noted, “FDI is part of diplomacy tools, but investors are cautious. Portfolio inflows dominate because they move easily in a volatile environment.”

The current surge may reflect early strategic positioning, including currency bets, risk hedging, and sectoral reallocation. Analysts caution that while political stability encourages inflows, it does not necessarily guarantee long-term investment in productive sectors.

**Composition of inflows raises questions **

A closer look at the data highlights a structural concern: Nigeria is attracting mainly short-term capital rather than long-term investment.

• Portfolio inflows reached $19.74 billion in 2025.
• Foreign direct investment remained below $1 billion during the same period.

This imbalance suggests that while the country is attracting capital, much of it is not yet channelled into productive sectors that drive sustainable economic growth.

• _As Professor Ottoh noted, “No investor will come to Nigeria in a very volatile environment. Except we are talking about portfolio investments.” _

The reliance on short-term inflows makes the economy vulnerable to sudden reversals if market sentiment changes, global interest rates rise, or political risks intensify.

**More Insights **

Experts note that the broader global environment also plays a role. Emerging markets have generally seen higher inflows as global investors seek diversification and yield, particularly given low interest rates in advanced economies.

• Nigeria’s structural reforms and relatively high yields make it attractive compared to regional peers, despite ongoing domestic challenges.
• Analysts caution, however, that high portfolio inflows can mask underlying economic vulnerabilities, including fiscal deficits, high debt service costs, and persistent inflation pressures.

This suggests that while Nigeria is successfully attracting capital, converting it into long-term productive investment remains a critical challenge.

Nigeria’s surge in capital importation reflects a convergence of factors: credible policy reforms, attractive yields, political expectations, and global dynamics.

While some experts say the reforms have improved confidence, they noted that the dominance of portfolio investment underscores the short-term nature of much of the capital.

**What you should know **

Nairametrics earlier reported that Nigeria recorded a total capital importation of $6.44 billion in the fourth quarter of 2025, representing a 26.61% year-on-year increase compared to $5.09 billion recorded in the corresponding period of 2024.

• A breakdown of the data shows that portfolio investment remained the dominant driver of capital inflows, accounting for $5.49 billion or 85.14% of total capital imported during the quarter.
• Foreign Direct Investment (FDI) contributed $357.80 million, representing just 5.55%, while other investments stood at $599.65 million or 9.31% of total inflows.