From Adanna Nnamani, Abuja
Foreign investors pumped a massive $7 billion into Nigeria’s banking sector in 2024, the highest in five years, but most of the money is considered “hot money,” raising fresh concerns among experts about how long the investment boom will last.
Hot money could be explained as a situation where investors park their cash where they can make quick profits, not because they believe in the long-term strength of the economy or banking system. Once interest rates drop or the risks rise, they pull their money out fast, which can destabilise the economy or deplete foreign reserves.
According to the latest data from the National Bureau of Statistics (NBS), over 90 per cent of the foreign inflows were short-term investments. These are funds chasing high returns from financial instruments like OMO bills and Treasury bills, which investors can easily pull out if conditions change. This type of capital is known for its quick in-and-out nature and doesn’t really help the economy in the long run.
The banking sector became the biggest magnet for foreign capital in 2024, attracting 56.8 per cent of Nigeria’s total capital inflows — a big leap from just 21.3 per cent in 2023. The total amount that came in marked a dramatic 740.3 per cent increase compared to the $832.64 million received the previous year.
The inflows picked up as the year progressed. After attracting $2.07 billion in the first quarter of 2024, things slowed down in the middle of the year, but by the last quarter, inflows surged to a record $3.23 billion — the highest ever seen in a single quarter.
That momentum has continued into 2025, with $3.13 billion flowing into the sector in Q1 alone. This is the second straight quarter that foreign capital inflows into banks have crossed the $3 billion mark, confirming the sector’s position as the top destination for foreign funds.
However, most of this money isn’t going into long-term investments. Of the $5.64 billion total capital imported into Nigeria in Q1 2025, $4.21 billion — about 75 per cent — went straight into short-term financial securities.
Economists are raising red flags. While this foreign capital temporarily improves Nigeria’s foreign exchange supply, it also leaves the economy vulnerable.
“Most of the inflows are speculative. They’re not coming because investors believe in the strength of our banks,” an economist familiar with the trend said. “If interest rates fall or global markets shift, this money could vanish just as fast as it came.”
Capital inflows into Nigeria’s banking sector had been falling since 2019, when the sector attracted $7.66 billion. By 2023, the figure had dropped to just $832.64 million — a steep decline blamed on COVID-19 and economic uncertainty.
The big bounce-back in 2024 has been linked to new policies from the Central Bank of Nigeria (CBN), including the bank recapitalisation directive and higher interest rates aimed at controlling inflation.
Still, analysts say Nigeria must be careful not to depend too heavily on this type of volatile money.
“The real challenge is converting this short-term gain into lasting investments that create jobs and grow the real economy. “Otherwise, we’re just building on sand”, an analyst noted.
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