Under the current President Bola Tinubu administration, several reforms have been implemented to address specific economic issues in the country. Among these reforms are the unification of foreign exchange market rates, monetary policy tightening, and the removal of fuel subsidies. The reforms have enabled market-driven adjustments so far, affecting several sectors in the country and shaping Nigeria’s portfolio investment landscape.
As the federal government and the leadership of the Central Bank of Nigeria (CBN) push forward with critical reforms, investors appear to show renewed interest in the country. This renewed interest triggered a 56% increase in total portfolio investment in 2024. According to data from the Nigerian Stock Exchange (NGX), total portfolio investment surged to ₦5.59 trillion in 2024, from ₦3.58 trillion recorded the previous year.
Although accounting for only about 15% of total portfolio investment, foreign portfolio investment (FPI) more than doubled in 2024. FPI rose to ₦852.03 billion in 2024 from ₦410.62 billion recorded the previous year. However, outflows exceeded inflows, which likely suggests cautious optimism from investors. Outflows account for 53% of total FPI in 2024. The NGX data shows foreign inflows totalled ₦396.41 billion, a leap from ₦174.80 billion in the prior year. In comparison, foreign outflows also rose to ₦455.62 billion, up from ₦235.82 billion.
However, it was domestic investors who drove the majority of the market’s momentum, accounting for 85% of total transactions. Domestic portfolio investment jumped to ₦4.73 trillion in 2024, compared to ₦3.17 trillion in 2023. Retail and institutional participants alike rotated capital into high-yielding equities and debt instruments. The surge in both domestic and foreign interest shows that investors were no longer just reacting to risk—they were actively chasing returns in what had become, despite persistent inflation, one of Africa’s most promising reform-led markets. Yet, this momentum unfolded against the backdrop of persistent inflation, averaging 32–34%, which continued to erode real returns and raise fundamental questions about the long-term sustainability of Nigeria’s investment rebound.
Key Government Policies that Impacted the Investment Space
Several reforms helped reinforce macroeconomic stability, open foreign exchange markets, raise returns, and improve credibility—key ingredients for reviving foreign portfolio investment after years of dormancy. Some of them include:
- Currency Unification and Exchange Rate Liberalisation
By mid-2023, Nigeria’s Central Bank collapsed the multiple exchange rate windows into a unified, market-driven rate. Away from a regime long criticised for opacity and arbitrage, this move allowed the naira to float more freely, narrowing the gap between the official and parallel market rates, and improving foreign investors’ visibility into currency pricing. While it restored some confidence in FX liquidity and policy transparency, the liberalisation also exposed the naira to sharp depreciation pressures. For portfolio investors, the shift offered better repatriation prospects but heightened currency risk.
- Fuel Subsidy Removal
At his inauguration, Tinubu announced an end to fuel subsidy, which gulped trillions of naira and drained public finance. This removal led to a surge in government revenue. However, it further worsened the cost of living, attracting several criticisms. While this move seems to signal an improvement in Nigeria’s macroeconomic credibility, it introduced social volatility risks, which would have made some investors jittery.
- Bond and Diaspora Financing Initiatives
The Central Bank of Nigeria (CBN) intensified efforts to harness diaspora capital by liberalising remittance inflows. The Federal Government also issued a dollar domestic bond. With personal remittance inflows reaching $20.93 billion in 2024, reflecting an 8.9 per cent year-on-year increase, these measures aimed to stabilise the FX supply and reduce reliance on volatile portfolio flows. However, execution risks remain, particularly in areas such as trust, transparency, and perceptions of sovereign risk. While institutional interest in naira and FX-linked instruments has grown, sustainability depends on Nigeria’s ability to insulate diaspora investment from political interference and currency instability.
- Monetary Tightening Policy
The current CBN governor, Olayemi Cardoso, has been a strong advocate of orthodox monetary policy. Therefore, it is not surprising that the Monetary Policy Committee (MPC), which Cardoso chairs, delivered a series of six interest rate hikes within a single year. In 2024, they raised the Monetary Policy Rate (MPR) by 875 basis points to reach 27.50% by the end of November. The apex bank also issued government securities with attractive yields, attracting both domestic and foreign investors seeking high nominal returns amid persistent inflation. However, while elevated yields enhanced portfolio attractiveness, they further hampered credit growth as the cost of borrowing surged.
An Overview of the 2024 Portfolio Investment Landscape
As the reforms kick in, there has been significant activity in the portfolio investment space in Nigeria. As earlier noted, there was an increase in both foreign and domestic portfolio investments. There was a 107% increase in FPI from ₦411 billion to ₦852 billion in 2024. It is crucial to note that the gap between inflows and outflows narrowed, although outflows still overwhelmed inflows. While foreign inflows recorded a monthly average of ₦17 billion to ₦38 billion, outflows averaged ₦47 billion in 2024. With yields making Nigerian instruments more attractive, the reforms further triggered improved confidence in FX repatriation.
While foreign investors engaged the Nigerian market with cautious optimism, domestic investors crowded the market with significant liquidity. Local investors accounted for 85% of total equity transactions, as total domestic portfolio investment reached ₦4.73 trillion, up from ₦3.17 trillion in 2023. Retail and institutional investors dominated the market as monthly inflows remained consistently high, ranging from ₦598 billion in January to ₦607 billion in December. These numbers indicate that there was notable domestic capital resilience despite persistent inflation.
While there was a record of strengthened investors’ interest in the Nigerian market, inflation loomed, averaging 32–34%. The high inflation rate resulted in often flat or negative real returns for investors. While the increase in investment volume may suggest strengthened investors’ confidence, it may also suggest that certain investors seek quick value in nominal terms amid elusive inflation-adjusted gains. It is therefore not surprising that outflows outweighed inflows.
Recommendations for Strengthening Portfolio Investment
- Efficiently Curbing High Inflation
Although the rebasing of the consumer price index (CPI) has reduced inflation from over 30% to below 25%, it remains crucial to address both the monetary and structural issues that fuel inflationary pressures in the country. Taming inflation will help further sustain investors' confidence and ensure real returns. While the CBN has been committed to fighting inflation through its monetary tightening policy and FX reforms, the federal government needs to intensify efforts in addressing other key issues, such as insecurity, high energy costs, and poor infrastructure. It is also essential that the CBN sustain the momentum of its reforms to prevent a reversal of its gains so far.
- Deepening FX Market Integration
It is crucial that the government look beyond oil as its main source of foreign exchange inflows, in order to strengthen and make Nigeria’s foreign exchange market less vulnerable. One way to achieve this is by leveraging other channels, such as diaspora bonds, digital platforms for foreign exchange transactions, and systems that facilitate easier deposit and withdrawal of funds for investors. These steps can help improve the flow of foreign currency and make it easier for both investors and everyday people to participate. Regardless, it is crucial that the government remains consistent and transparent in its policies. When investors can trust that the rules will not change suddenly, they are more likely to invest their money for the long term.
- Enhancing Portfolio Market Depth
More critically, Nigeria’s capital markets need to offer a wider mix of investment options. Expanding products like Exchange Traded Funds (ETFs), derivatives, and Real Estate Investment Trusts (REITs) can help enhance market depth. Despite their introduction, ETFs, derivatives, and REITs in Nigeria remain underdeveloped, requiring stronger regulation, better liquidity support, and improved investor education to realise their full potential. These tools provide investors with more flexibility, as they make it easier to manage risk, access different market segments, and invest without putting all their eggs in one basket. For foreign investors, especially those seeking more advanced investment strategies, this level of variety is a significant advantage. However, having more options isn’t enough on its own. There also needs to be strong oversight and better governance to make sure everything runs smoothly and fairly. If investors feel protected and well-informed, they are more likely to stick around even when the market gets shaky.
References
BBC News. (2023, May 29). Bola Tinubu: Nigeria's new president sworn in amid hopes and doubts. https://www.bbc.com/news/world-africa-65737846
Federal Ministry of Finance. (2024, June 26). FG raises over $900 million in landmark dollar bond. https://finance.gov.ng/fg-raises-over-900-million-in-landmark-dollar-bond/
Nairametrics. (2023, June 14). Official: CBN announces unification of all exchange rate windows. https://nairametrics.com/2023/06/14/official-cbn-announces-unification-of-all-exchange-rate-windows/
Nigerian Exchange Group. (2024, December). Domestic and foreign portfolio investment report – December 2024. https://doclib.ngxgroup.com/market_data-site/other-market-information-site/FPI%20Report/NGX%20Domestic%20and%20Foreign%20Portfolio%20Investment%20Report-December%202024.pdf
Punch Newspapers. (2024, June 20). Personal remittances hit $20.93bn in 2024 — CBN. https://punchng.com/personal-remittances-hit-20-93bn-in-2024-cbn-2/
