Foreign direct investment (FDI) into Nigeria’s manufacturing sector fell to its lowest level in nine years in the first three quarters of 2025, even as domestic capital markets expanded sharply, suggesting a shift in how industrial activity is being financed.
Data from the National Bureau of Statistics (NBS) show that manufacturers attracted $463.52 million in foreign capital between January and September 2025, down 118.1 percent from $1.01 billion in the same period of 2024. The inflow marks the weakest performance since 2017, when roughly $445 million was recorded.
The drop comes during a period when policymakers have sought to stabilise the naira and restore investor confidence through macroeconomic reforms. While headline capital importation into Nigeria totalled $6.01 billion during the review period, manufacturing accounted for just 8 percent of that figure, trailing financial services, telecommunications and oil and gas.
Analysts say the decline does not necessarily reflect a contraction in manufacturing activity but rather a rebalancing of capital sources.
Ayo Teriba, chief executive of Economic Associates, said the fall in foreign inflows may indicate that local liquidity is increasingly substituting for offshore funding. “If overall capital available to manufacturing increased, then a drop in imported capital is not a contraction but a substitution,” he said.
Nigeria’s equity market has expanded rapidly over the past year. Market capitalisation on the Nigerian Exchange Group rose from N62.7 trillion at the end of 2024 to N99.38 trillion by Dec. 31, 2025. The increase reflects significant equity issuance and valuation gains, including capital raises by banks and industrial firms.
Stronger domestic participation in equity and debt markets has provided manufacturers with alternative financing channels at a time when global investors are prioritising sectors perceived to offer quicker returns and lower operational risk.
Infrastructure bottlenecks and security concerns continue to weigh on foreign investor appetite, industry groups say. Sola Obadimu, director general of the Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture (NACCIMA), cited logistics constraints and elevated production costs as deterrents.
Currency depreciation has also increased input costs in local currency terms, complicating demand forecasts amid pressure on household purchasing power, he said.
Local manufacturers warn that foreign investment plays a role beyond capital provision. International investors often bring technical expertise, supply-chain integration and export market access, factors that can accelerate industrial scaling.
“Foreign partners help local firms integrate into global value chains,” a manufacturing association official said. “A sustained decline in inflows could slow competitiveness and industrial expansion.”
Recent data suggest mixed performance within the sector. According to the Manufacturers Association of Nigeria (MAN), its CEO Confidence Index edged up to 50.7 in the third quarter of 2025 from 50.3 in the previous quarter, reflecting modest improvements in business conditions, employment and output.
Figures from NBS show manufacturing output grew 1.25 percent year on year in the third quarter of 2025, compared with 0.8 percent in the same period of 2024. However, the sector’s real contribution to gross domestic product slipped to 7.62 percent in the third quarter, from 7.82 percent a year earlier.
Segun Ajayi-Kadir, director general of MAN, said that while disinflation and exchange-rate stability had improved sentiment, key indices remain below the 50-point expansion threshold in several areas. Inflation, borrowing costs and currency volatility continue to constrain activity, he said.
Foreign exchange data underscore the complexity of the picture. According to the Central Bank of Nigeria, manufacturers’ demand for foreign currency rose to $1.8 billion in the first nine months of 2025, the highest level in five years. The increase suggests continued imports of raw materials and machinery, consistent with capacity expansion plans.
The rise in FX demand alongside lower foreign capital inflows indicates that manufacturers may be relying more heavily on domestic financing to fund production inputs.
Professional services firm PwC said in its 2026 outlook that manufacturers increased adoption of digital systems in 2025, including automation tools, predictive maintenance technologies and connected factory platforms. The firm projected output growth of about 3.1 percent in 2026, supported by tax reforms and greater automation, though it cautioned that high borrowing costs could limit large-scale expansion.
Similarly, Muyiwa Oni, head of research at Stanbic IBTC, said January 2026 purchasing managers’ index data showed broad-based business activity growth across agriculture, manufacturing and services. He pointed to government efforts in infrastructure development and trade facilitation as supportive factors.
Not all indicators are positive. The Cost of Doing Business Monitor compiled by the Lagos Chamber of Commerce and Industry showed its industrial sector index, which covers manufacturing, mining and oil and gas, declined from 77.7 in the third quarter of 2025 to 64.5 in the fourth quarter, signalling rising operational pressures.
Taken together, the data portray a sector in transition. Foreign capital inflows into manufacturing have weakened to levels last seen nearly a decade ago. Yet domestic capital markets have deepened, corporate fund-raising has accelerated and foreign exchange demand for production inputs has climbed.
The shift suggests that Nigeria’s manufacturers are increasingly tapping local sources of finance to sustain operations and expansion, even as foreign investors remain cautious.
Whether domestic capital can fully replace the scale and ancillary benefits of foreign participation will depend on continued macroeconomic stability, infrastructure improvements and the trajectory of interest rates. For now, the balance of financing in one of Africa’s largest economies appears to be tilting inward.