Chris Okpoko
Last week, reports in the media stated that foreign investors sold off equities worth ₦576.09 billion on the Nigerian Exchange between January and June 2025, representing an 84.97 percent increase from the ₦311.41 billion withdrawn in the same period in 2024. The outflows exceeded foreign inflows, which were ₦559.25 billion, resulting in a net negative foreign portfolio position of ₦16.84 billion over the six months. The figures, contained in the NGX’s June 2025 Domestic and Foreign Portfolio Investment Report, show that foreign trading activity has intensified compared to the same period last year. Total foreign transactions reached ₦1.14 trillion in the first half of the year, more than double the ₦540.48 billion recorded in the first half of 2024. According to the reports, Economists attributed the surge in outflows to the inconsistencies caused in global markets by the policies of US President Donald Trump, such as the high yields in T-bills that spurred sell-offs, among other issues.
The Nigerian stock market has experienced its fair share of fluctuations, subject to both domestic economic conditions and global market trends. The recent sell-off of ₦576 billion worth of stocks by foreign investors within six months has raised concerns and highlighted various implications for Nigeria’s economy, especially amid the government’s ongoing drive to attract foreign direct investment (FDI).
The immediate effect of a large-scale sell-off by foreign investors is the decline in market confidence. The Nigerian equities market, like many emerging markets, relies heavily on foreign investment to bolster liquidity and price stability. When foreign investors divest en masse, it not only signals a lack of confidence in the local economy but also triggers panic among domestic investors. The perception of instability can lead to increased market volatility, resulting in further sell-offs by local investors fearing losses. Consequently, as stock prices plummet, the market capitalization significantly diminishes, creating a vicious cycle that can be hard to break.
Furthermore, the abrupt withdrawal of foreign capital can lead to increased yield spreads, as domestic companies find themselves unable to tap into international financing at favorable rates. Investors may demand higher returns for perceived risks in an unstable environment, pushing capital costs upwards, thus stifling both new investments and expansion plans by Nigerian firms.
The sell-off’s implications extend well beyond the stock market; they encompass broader economic growth trends. Foreign investments are crucial for financing infrastructure projects, technology transfer, and fostering job growth. A reduction in FDIs, spurred by negative sentiment from the stock market, can lead to stagnating growth rates. Nigeria’s economy needs robust investments to accelerate growth and diversify its revenue sources beyond oil, as over-reliance on petroleum revenues has proven untenable.
When foreign investors pull out, it often results in a diminished capacity for economic development. The public and private sectors may struggle to secure funding to maintain infrastructure or innovate new products and services. The result is a ripple effect across various sectors, leading to reduced productivity and potentially higher unemployment rates, particularly among the youth.
The Nigerian government’s efforts to attract FDIs are critical to economic recovery and long-term sustainability. The recent sell-off prompts a re-evaluation of current policies aimed at enhancing the investment climate. Policymakers must identify the underlying reasons for the divestment and respond appropriately.
One critical area of focus is regulatory frameworks. If foreign investors cite bureaucratic hurdles or corruption as deterrents, then structural reforms become essential. Streamlining processes, improving transparency, and establishing a more predictable legal environment can help rebuild investor confidence. Additionally, enhancing the ease of doing business can play a significant role in attracting foreign capital.
Moreover, the government may consider fiscal incentives to encourage foreign participation in key sectors. Tax breaks, subsidies for start-ups, or facilitating access to credit for foreign investors can stimulate renewed interest in the Nigerian market. Such measures would not only help mitigate the adverse effects of the sell-off but also foster an attractive ecosystem for future investments.
Another significant implication of the sell-off relates to exchange rate pressures. The withdrawal of foreign capital can lead to currency depreciation, which not only affects the stability of the Naira but also has a cascading effect on inflation rates. As foreign investors sell off their investments, they may convert their holdings back into stronger currencies, raising the demand for dollars and further weakening the Naira.
A depreciating currency leads to higher import costs, leading to inflationary pressures that can erode consumer purchasing power. For a country like Nigeria, where a substantial portion of goods is imported, this inflation can be particularly damaging, influencing food prices and basic commodities. In turn, inflation can prompt the Central Bank of Nigeria to raise interest rates in an attempt to stabilize the currency, creating a challenging environment for borrowers and consumers.
The long-term ramifications of such mass sell-offs are significant for the investment landscape in Nigeria. Foreign investment tends to come with not just capital but also expertise, modern technologies, and access to global markets. The exit of foreign investors raises questions about Nigeria’s attractiveness as a destination for future investments.
To reinstate itself as an appealing market for foreign capital, Nigeria needs to address these challenges comprehensively. Building strong institutional frameworks that safeguard investor rights and promote fair competition is crucial. Encouraging public-private partnerships could also provide a pathway for innovative solutions to infrastructure challenges and stimulate economic opportunities.
Moreover, engaging in active dialogue with foreign investors to understand their concerns and expectations can help establish confidence. Creating forums where investors can meet with policymakers to discuss regulations, economic trends, and industry standards may foster a more conducive investment environment.
The sell-off of ₦576 billion worth of stocks by foreign investors within just six months is a stark reminder of the fragility of our economic landscape. The implications of this divestment extend far beyond the stock market, affecting economic growth, investor confidence, and the overall trajectory of the Nigerian economy.
In the face of declining foreign direct investment, the Nigerian government must take decisive actions to address the structural issues that deter investment. By reforming regulatory frameworks, ensuring macroeconomic stability, and actively engaging with investors, Nigeria can work towards restoring confidence and fostering a more sustainable investment environment. As the government continues its drive for FDIs, it stands at a crossroads—one that holds the potential for revitalization or stagnation, depending on the decisions made in response to these recent events. The road ahead will be challenging, but with strategic foresight and concerted efforts, Nigeria can reclaim its position as a desirable destination for foreign investment.