Foreign FX inflows into Nigeria slide as portfolio investment dries up

Dollar inflows into Nigeria’s official foreign exchange market declined sharply last week, underscoring persistent fragility in foreign investor confidence despite ongoing reforms in the FX market.

Data from the Nigeria Foreign Exchange Market (NFEM) showed that total FX inflows fell by 20.67 per cent week-on-week to US$593.70 million, compared with US$748.40 million recorded in the previous week.

The sharp contraction was driven largely by a steep drop in foreign-sourced inflows, according to a research report by Coronation Merchant Bank.

The report revealed that the most severe pressure came from the external segment of the market, as both foreign portfolio investment (FPI) and foreign direct investment (FDI) inflows deteriorated significantly.

FPI inflows plunged by 72.91 per cent to US$46 million, down from US$169.8 million a week earlier, while FDI dropped by 81.87 per cent to just US$7.0 million from US$38.6 million previously.

As a result, foreign sources accounted for only 17.05 per cent of total FX inflows into the official market, reinforcing concerns that offshore investors remain cautious about Nigeria’s macroeconomic fundamentals and policy direction, even after major FX reforms introduced in 2024 and 2025.

With offshore participation fading, domestic sources once again carried the bulk of market liquidity, contributing 82.95 per cent of total inflows.

Individuals led domestic supply with US$165.1 million, followed by the Central Bank of Nigeria (CBN) with US$128.0 million, while exporters and importers accounted for US$115.6 million.

Analysts say the growing dominance of domestic flows highlights Nigeria’s continued dependence on central bank intervention and local FX recycling, rather than sustainable autonomous foreign capital inflows.

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An FX market analyst at a Lagos-based investment firm noted that, “While domestic participation has helped prevent severe dislocations, it is not a substitute for steady foreign inflows. A market dominated by CBN sales is inherently fragile and vulnerable to shocks.”

The naira began the year on a mixed footing. At the official window, the currency appreciated by 0.88 per cent week-on-week to close at N1,430.85/US$, supported largely by sustained dollar sales from the CBN. However, in the parallel market, the naira weakened to around N1,490/US$, reflecting lingering demand pressures outside the formal trading system.

Coronation Research observed that while intervention has helped stabilise the official exchange rate, underlying structural pressures remain unresolved.

These include recovering import demand, weak export earnings outside crude oil, and subdued foreign investment inflows.

Nigeria’s gross external reserves rose marginally by 0.58 per cent to US$45.50 billion, adding about US$264.56 million at the start of the year.

The modest increase came despite significant FX intervention, with the CBN estimated to have spent about US$4.1 billion in the first half of last year to defend the naira and support market liquidity.

According to economists, this trend raises sustainability concerns. “Reserve accumulation alongside heavy intervention suggests inflows are still largely official and oil-related. Without private-sector FX inflows, reserve buffers could come under renewed pressure,” said a macroeconomic analyst.

The adoption of the Bloomberg FX Matching System (BMatch) and the Electronic Foreign Exchange Matching System (EFEMS) has improved interbank transparency, price discovery and reporting, helping to narrow the gap between official and parallel market rates.

These platforms form part of broader measures introduced by the apex bank to enhance efficiency and credibility in the FX market.

However, experts caution that improved infrastructure alone cannot restore confidence without a sustained rebound in autonomous FX inflows.

In the near term, analysts expect the naira to trade within a relatively narrow band at the official window, supported by continued CBN intervention and seasonal easing in FX demand following year-end pressures.

Looking ahead to 2026, Coronation projects the naira will trade within a N1,400–N1,500/US$ range, underpinned by higher oil production, reduced dependence on refined fuel imports, and improved export-driven FX liquidity.

Nonetheless, the bank warned that durable exchange-rate stability will hinge on policy consistency, stronger investor confidence, fiscal discipline and a more transparent, market-driven FX framework capable of attracting long-term foreign capital.

As one economist summed up, “Nigeria has made progress in cleaning up the FX market, but confidence is built over time. Without credible reforms that outlast intervention, foreign investors will remain on the sidelines.”