Nigeria’s equities market shines again, but can it lure global capital?

By Arthur Eriye

The Nigerian stock market is currently experiencing a resurgence that it has not seen in years. After enduring much of the past decade plagued by foreign exchange instability, soaring inflation, and fluctuating investor confidence, the Nigerian Exchange (NGX) has once again become a topic of discussion in the boardrooms of London, Johannesburg, New York, and Dubai.

Portfolio managers who previously regarded Nigeria as a challenging market are now reconsidering their stance. International investment banks are increasingly publishing reports on Nigerian equities. Frontier-market funds that had reduced their exposure are now reevaluating valuations. Investment conferences that once primarily highlighted Egypt, Morocco, and South Africa are once again recognizing Nigeria as a market deserving attention.

However, beneath this renewed optimism lies a paradox.

While Nigeria has regained global interest, foreign capital has not returned in the anticipated volumes. Domestic institutional investors—especially pension funds, asset managers, and retail investors—continue to dominate the majority of transactions on the Nigerian Exchange. The market is indeed drawing renewed interest, but this interest has yet to manifest as a sustained influx of foreign portfolio investment.

This distinction is crucial, as attention and investment are not synonymous.

For Nigeria, the challenge of transforming renewed global interest into long-term capital inflows may emerge as one of the country’s most significant economic tests in the coming years.

The resurgence of interest is not a mere coincidence. A series of policy reforms implemented over the past two years has transformed the way investors perceive Africa’s largest economy. The liberalization of the foreign exchange market has mitigated many of the distortions that previously deterred foreign investors. Enhanced exchange-rate flexibility has facilitated better price discovery, while the Central Bank of Nigeria’s (CBN) initiatives to boost liquidity have simplified the process for investors to repatriate funds—one of the primary concerns during the era of exchange controls.

READ ALSO; First HoldCo becomes Nigeria’s most valuable listed bank, overtakes Zenith on NGX

Banking reforms have introduced an additional layer of optimism. The recapitalization initiative announced by the CBN is compelling financial institutions to fortify their balance sheets, attract new capital, and prepare for expanded regional and international operations. Investors typically view stronger capital foundations as indicative of resilience, especially in an economy where banks continue to serve as the cornerstone of financial intermediation.

Corporate earnings have also played a significant role in shifting perceptions. Numerous publicly listed companies have reported increased revenues and enhanced profitability despite the challenging operating conditions. Banks have profited from elevated interest income, while firms with foreign currency earnings have experienced substantial gains following the exchange-rate reforms.

These recent developments have sparked one of the most significant equity market rallies in Africa, bringing Nigeria back into the focus of international investors seeking value in frontier markets.

Nevertheless, seasoned investors are posing a more fundamental inquiry: Is this rally being propelled by sustainable reforms or merely by transient market conditions?

Historical context sheds light on the reasons for ongoing caution.

Prior to the oil price shock and the foreign exchange crisis of the previous decade, Nigeria was considered one of Africa’s top destinations for foreign portfolio investment. This perception shifted with the implementation of multiple exchange rates, ongoing foreign currency shortages, and concerns regarding capital repatriation. For global investors, the capacity to exit an investment holds equal importance to the returns it yields. As confidence in this process diminished, numerous international funds opted to decrease their exposure.

As a result, domestic investors gradually emerged as the predominant force in the market, sustaining trading activity even as foreign participation plummeted.

Ironically, this resilience is now becoming one of Nigeria’s most compelling selling points.

The pension industry in Nigeria, which manages trillions of naira in retirement assets, along with domestic asset managers and retail investors, has supplied the liquidity necessary to maintain market operations during years of foreign investor withdrawal. This depth is increasingly acknowledged by international fund managers as a sign of a more robust capital market.

Analysts indicate that the enhancing macroeconomic conditions are starting to rebuild confidence in Nigerian assets; however, they warn that foreign investors are still awaiting more substantial proof that reforms will be lasting.

Johnson Chukwu, the Chief Executive Officer of Cowry Asset Management, asserts that the interplay of foreign exchange reforms, enhanced market transparency, and appealing equity valuations has reestablished Nigeria’s presence on the global investors’ radar. Nonetheless, he contends that ongoing foreign investments will hinge on stable policies and further advancements in foreign exchange liquidity.

In a similar vein, David Adonri, Vice Chairman of Highcap Securities, remarked that the banking recapitalization initiative has emerged as one of the most significant drivers for the equity market, highlighting that stronger banks and improved corporate earnings are rendering Nigerian stocks increasingly appealing to institutional investors.

Capital market specialist, Professor Uche Uwaleke, posits that foreign portfolio investors are expected to return gradually rather than all at once. He notes that while reforms have enhanced market sentiment, international investors will persist in monitoring inflation, exchange-rate stability, and policy consistency prior to committing substantial capital.

Economist Muda Yusuf, the Chief Executive Officer of the Centre for the Promotion of Private Enterprise (CPPE), echoes this sentiment. He contends that macroeconomic stability is the fundamental driver of investor confidence, emphasizing that reducing inflation, enhancing infrastructure, and upholding policy credibility will be essential for Nigeria to transform renewed investor interest into sustained capital inflows.

Another factor that attracts foreign investors is valuation. In comparison to various frontier and emerging markets, numerous Nigerian equities continue to trade at relatively appealing multiples, even as earnings improve. For long-term investors, this situation offers an opportunity to invest in quality companies whose market prices may not yet fully reflect their growth potential.

Furthermore, Nigeria’s demographic narrative continues to bolster its investment appeal. With a population exceeding 230 million, rapid digital adoption, increasing financial inclusion, and a burgeoning technology ecosystem, the country remains one of Africa’s most attractive long-term consumer markets.

Nonetheless, considerable risks persist.

Inflation continues to impact consumer spending, interest rates remain high, and exchange-rate fluctuations have not entirely subsided. Security issues, infrastructure shortcomings, and gaps in policy implementation also remain significant factors in investors’ risk evaluations.

The global competition for capital has intensified. Elevated interest rates in developed nations enable investors to achieve appealing returns with comparatively lower risk, necessitating that Nigeria intensifies its efforts to attract international portfolio investments.

This indicates that merely having attractive stock prices will not suffice.

Ultimately, policy consistency, macroeconomic stability, and investor confidence will dictate whether foreign capital returns in substantial amounts.

The upcoming months will be crucial. Should inflation decrease further, foreign exchange liquidity improve, banking recapitalization advance successfully, and reforms stay on track, Nigeria may experience a gradual yet sustained recovery in foreign portfolio investment.

Such a recovery would extend beyond the stock market. Increased foreign involvement would enhance market liquidity, lower the cost of capital for businesses, strengthen the naira through increased foreign exchange inflows, and motivate more companies to seek long-term financing from the capital market.

For many years, Nigeria’s stock market was characterized more by the capital it lost than by the opportunities it offered. However, this narrative is starting to shift. Global investors are once again turning their attention to Nigeria—not because its challenges have vanished, but because its potential is becoming increasingly difficult to overlook.

The extent to which this renewed interest results in billions of dollars in new investments will hinge on one critical factor: the country’s capacity to demonstrate that its reforms are not merely temporary measures in response to a crisis, but rather the groundwork for a more stable and predictable economy.

At present, Nigeria continues to be a market on the global watchlist—recognized for its potential, yet still in the process of fully restoring its investors’ confidence.