Domestic capital replaces foreign inflows as manufacturing FDI drops to eight-year low

Foreign investment in Nigeria’s production and manufacturing sector declined to its lowest level in nine years in the first nine months of 2025, underscoring a shift in capital dynamics as domestic financing increasingly fills the gap once occupied by offshore investors.

An analysis of the National Bureau of Statistics (NBS)–capital importation data shows that the manufacturing sector attracted $463.52 million in the nine months of 2025, a 118.1 percent decline from $1.01 billion in the corresponding period of 2024. 

The 2025 inflow is below levels recorded since 2017, when about $445 million was reported. The decline comes at a time when broader business confidence indicators suggest investors are increasingly optimistic about macroeconomic reforms and currency stabilisation in Nigeria.

Ayo Teriba, CEO of Economic Associates (EA), told BusinessDay that the decline in foreign capital flowing into Nigeria’s manufacturing sector may not signal weakness but rather a structural shift toward stronger domestic financing, indicating that local liquidity is increasingly replacing imported capital.

Read also:Nigeria joins six African peers in rate cuts as benchmark nears two-year low

Nigeria’s equity market expansion illustrates that shift. The market capitalisation of the Nigerian Exchange Group rose sharply from N62. 7 trillion at the end of 2024 to N99.38 trillion by 31 December 2025, implying that billions of dollars in new equity value creation, some of which went to manufacturing firms and banks raising fresh capital.

“If overall capital available to manufacturing increased, then a drop in imported capital is not a contraction but a substitution,” he noted. “Domestic issuance can displace foreign inflows when local markets become more liquid and attractive.”

Capital shifting away from factories

Data breakdown shows that manufacturing accounted for only eight percent of the total $6.01 billion in foreign capital imported during the review period, trailing sectors such as financial services, telecommunications, and oil and gas. 

Analysts attribute the trend to global investors favouring sectors with faster returns and lower operational risk.

Sola Obadimu, director general of the Nigerian Association of Chambers of Commerce, Industry, Mines, and Agriculture, attributed the trend to infrastructure gaps and security concerns that affect production costs and planning horizons for foreign investors.

He added that currency depreciation raised input costs in local currency terms and affected demand expectations due to pressure on household purchasing power.

Local manufacturers warn that without stronger foreign participation, scaling production capacity will remain difficult. International investors often bring not just capital but also technical expertise, global supply chain connections, and access to export markets.

“Foreign partners help local firms integrate into global value chains,” said a manufacturing association official. “If inflows decline, it affects competitiveness and reduces the pace of industrial expansion.”

Confidence rising, but cautiously

Data from the Manufacturers Association of Nigeria (MAN) shows the CEO Confidence Index rose by 0.4 points to 50.7 in the third quarter of 2025 from 50.3 in the second quarter. 

However, NBS gross national product (GDP)  data for Q3’25 disclosed that manufacturing real output grew by 1.25 percent in Q3 from 0.8 percent in the same period of 2024

The report also showed that the sector’s real contribution to GDP in the third quarter was 7.62 percent, lower than the 7.82 percent recorded in the same period of 2024 and lower than the 7.81 percent recorded in the second quarter of 2025.

According to MAN’s Q3 report, the current business condition, employment, and production level indices recorded improvement due to the continuous disinflation trend and a more stable exchange rate.

Segun Ajayi-Kadir, director general of MAN, said current indices remain below the 50-point benchmark despite improvement in business conditions, employment, and production levels linked to disinflation and exchange-rate stability. He said inflation, interest rates, and exchange-rate conditions continue to affect manufacturing activity.

PwC, in its 2026 outlook, reported increased adoption of digital systems in manufacturing during 2025, including blockchain, predictive maintenance tools, automation, and connected factory systems. 

The firm projected output growth of about 3.1 percent in 2026, supported by tax measures, levy harmonisation, and expanded use of automated production systems. It added that investment inflows could rise if policy measures and infrastructure projects progress, while credit access and borrowing costs may limit large-scale expansion.

Similarly, Muyiwa Oni, head of research at Stanbic IBTC, said January 2026 purchasing managers’ index data showed business activity grew across agriculture, manufacturing, and services.

“Notably, the government has been visible in infrastructure, livestock development, easing trade constraints, and attracting investments in oil & gas and manufacturing,” he added.

However, not all analysts viewed that sector in that light. The Cost of Doing Business Monitor compiled by the Lagos Chamber of Commerce and Industry (LCCI) showed its industrial sector index, covering manufacturing, mining, and oil and gas, declined from 77.7 in the third quarter of 2025 to 64.5 in the fourth quarter.

Manufacturing FX demand is booming

According to the Central Bank of Nigeria’s statistical bulletin, manufacturing foreign exchange demand rose to $1.8 billion in the nine months of 2025, the highest in five years.

This shows that the manufacturers are increasingly demanding raw materials and machinery to boost their productive capacity.

Read also: The Nigerian economy teaches its children

This assertion is in tandem with what Teriba said, where he noted that falling foreign capital inflows into manufacturing should not be misread as sectoral weakness.

In essence, stronger domestic financing appears to be complementing, rather than constraining, industrial activity, with higher FX demand pointing to expanding production capacity and forward-looking investment by manufacturers.