The Centre for the Promotion of Private Enterprise (CPPE) said Nigeria’s recent rebound in capital importation may be encouraging, but underlying structural risks threaten its sustainability.
The economic think tank group gave the warning in a statement on Sunday, signed by its Chief Executive Officer, Muda Yusuf.
It noted that total capital inflows rose to $6.01 billion in the third quarter of 2025, representing a 380 per cent year-on-year increase and a 17 per cent quarter-on-quarter growth.
Describing the rebound as “a welcome development and a positive signal of improving investor sentiment”, the CPPE said it reflects a gradual restoration of confidence following recent macroeconomic reforms, including foreign exchange market liberalisation and tighter monetary policy.
The Centre, however, cautioned that “while the headline numbers are encouraging, a deeper examination of the structure and distribution of inflows reveals underlying vulnerabilities that must be addressed to ensure durability and long-term economic transformation.”
Portfolio flows dominate
According to CPPE, more than 80 per cent of total inflows in the third quarter were portfolio investments, while foreign direct investment accounted for less than five per cent.
“This composition raises important concerns,” the group said. “Portfolio flows, by nature, are highly sensitive to global interest-rate movements, risk sentiment, and policy credibility.
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“They provide liquidity support and can help stabilise financial markets in the short term, but they are volatile and prone to sudden reversals.”
It explained that sustainable growth, job creation and export expansion depend on stable, long-term foreign direct investment tied to production, infrastructure and manufacturing, rather than short-term capital inflows.
“The current structure reflects cyclical financial recovery rather than structural economic transformation,” CPPE stated.
Limited impact on real sector
The think tank group also expressed concern that the bulk of inflows went into the banking and financial sectors, with only marginal allocation to manufacturing, infrastructure and other productive activities.
“Rising capital importation is not yet translating into meaningful expansion of productive capacity,” CPPE said.
It warned that financial deepening without real-sector growth risks creating “a liquidity-driven recovery that does not fundamentally alter Nigeria’s productive base.”
The group stressed that without stronger capital flows into industry, agro-processing, energy, logistics and export-orientated manufacturing, gains in employment and productivity would remain limited.
Concentration risks
The group further highlighted geographic and institutional concentration risks, noting that inflows were heavily concentrated in a small number of countries, particularly the United Kingdom, the United States and South Africa.
It warned that such concentration exposes Nigeria to policy shifts and monetary tightening cycles within a limited set of jurisdictions.
In addition, CPPE said a substantial share of capital inflows is intermediated through a small group of banks, including Standard Chartered, Stanbic IBTC and Citibank Nigeria.
“While this reflects established global banking relationships, it also introduces concentration and transmission risks in the event of changes in correspondent banking dynamics or global liquidity conditions,” the organisation said.
Call for structural reforms
CPPE identified several vulnerabilities, including the risk of sudden portfolio reversals that could destabilise exchange rates and external reserves, persistently weak FDI due to structural constraints, and exposure to global financial tightening.
“Unless structural reforms accelerate, the present rebound may prove fragile,” it warned.
The group urged policymakers to convert the current liquidity-driven recovery into a long-term, investment-led transformation by prioritising structural competitiveness reforms such as reliable electricity supply, efficient transport and logistics systems, predictable regulatory frameworks and improved contract enforcement.
“The central task before policymakers is clear: move from liquidity-driven recovery to investment-led transformation,” CPPE stated.
It added that only by converting short-term capital inflows into long-term productive investment can Nigeria achieve sustainable growth, employment expansion and macroeconomic resilience.
Alex is a business journalist cum data enthusiast with the Pinnacle Daily. He can be reached via ealex@thepinnacleng.com, @ehime_alex on X
