Nigeria’s Investment Paradox: Strong Reforms, Rising Stocks, But Foreign Funds Stay Away

By FIDELUS ZWANSON

Nigeria’s Reform Story Faces Its Confidence Test

NIGERIA is gradually rebuilding its image among international investors, but the return of confidence has not yet produced a corresponding return of foreign capital.

That is the central message emerging from Cordros Securities’ engagement with global fund managers.

According to the investment firm, foreign investors now assess Nigeria more positively than they did in 2023. Major reforms have changed the country’s economic narrative and convinced many investors that Nigeria is attempting to address long-standing structural weaknesses.

Yet, international funds have remained cautious.

The Nigerian equity market has delivered nearly 60 per cent year-to-date gains, but many foreign portfolio investors continue to sell more Nigerian stocks than they buy.

The contrast exposes a fundamental weakness in Nigeria’s investment environment.

Economic reforms can improve the outlook. Strong corporate performance can create opportunities. Rising share prices can attract attention.

However, uncertainty can still prevent investors from committing money.

The Tax Question That Investors Want Answered

The implementation of Nigeria’s new 30 per cent capital gains tax has become one of the most significant concerns among international fund managers.

The tax regime took effect in January 2026, but investors are seeking greater clarity about its practical application.

For global funds, investment decisions involve more than identifying profitable companies.

They also involve calculating taxes, transaction costs, currency risks and possible returns when an investor decides to sell.

Uncertainty at any point in that calculation can make a market less attractive.

Cordros said investors expressed frustration about the limited clarity and communication surrounding the implementation of the capital gains tax.

The concern highlights a weakness that often affects reform programmes.

Governments may design new policies with legitimate economic objectives. However, investors also need sufficient time and information to understand how those policies will affect their investments.

A lack of communication can therefore produce uncertainty even when the policy itself may be economically justifiable.

For Nigeria, the challenge is becoming increasingly clear: reform must be accompanied by transparency.

Confidence Matters More Than Valuation

The performance of Nigerian equities suggests that foreign investors are not staying away because they believe the market is too expensive.

Cordros said international investors did not consider Nigerian stocks overvalued despite the market’s strong gains.

This means the obstacle lies elsewhere.

Confidence has become the central issue.

Global fund managers are assessing whether tax rules will remain stable. They are examining the direction of banking regulations. They are considering political risks ahead of the 2027 elections.

They are also asking whether reforms introduced today will remain in place tomorrow.

These questions may appear separate, but they all lead to the same concern: predictability.

Foreign investors can operate in challenging markets. They can manage economic risks and currency fluctuations.

What becomes more difficult to manage is uncertainty about the rules of the market itself.

Banking Reforms Bring Opportunities & Risks

Nigeria’s banking sector remains one of the areas attracting investor interest.

However, regulatory developments have also created new questions.

Fund managers have reportedly expressed concern about the 45 per cent cash reserve requirement and rules surrounding holding-company recapitalisation.

The government and financial regulators have pursued these policies as part of efforts to strengthen the banking system and improve its ability to support economic growth.

Yet, investors are evaluating the possible impact on profitability and liquidity.

High reserve requirements can reduce the funds banks have available for lending and investment. For shareholders, this could affect earnings and returns.

The challenge for policymakers is to maintain financial stability without creating unnecessary uncertainty over the commercial environment in which banks operate.

A strong banking sector can attract capital.

However, investors need to understand the regulatory conditions under which that sector will function.

2027 Becomes an Economic Issue

The approaching 2027 general elections are also shaping investment decisions.

For foreign fund managers, political transitions are not merely political events. They can directly influence investment strategies.

The concern is whether the economic reforms associated with the current administration will survive after the election.

Nigeria has undertaken significant policy adjustments, including reforms affecting the exchange rate, government revenues and fiscal management.

These measures have improved perceptions of the country’s economic direction.

However, international investors want greater assurance that future governments will not reverse or weaken the reforms.

This reflects a deeper challenge.

Sustainable economic reform requires institutions.

When investors believe policies depend heavily on a particular political administration, they may delay long-term commitments until the future direction becomes clearer.

Nigeria therefore faces a test of policy durability.

The country must demonstrate that its reform programme belongs to the economy rather than to one government.

Attractive Sectors Still Draw Global Attention

Despite their caution, international fund managers continue to see opportunities in Nigeria.

Cordros identified banking, telecommunications, oil and gas and consumer stocks among the sectors attracting investor interest.

The appeal is understandable.

Nigeria possesses one of Africa’s largest consumer markets. Its population supports long-term demand for telecommunications, financial services and consumer products.

The digital economy continues to expand, while the energy sector offers opportunities despite persistent structural challenges.

Banking-sector reforms and consolidation could also create stronger institutions capable of supporting economic growth.

These strengths explain why foreign investors continue to study Nigeria closely.

The country has not lost its investment appeal.

Instead, it faces a problem of conversion.

Interest has not yet become investment.

From Reform Announcements to Investor Certainty

Nigeria’s experience offers an important lesson about modern economic reform.

Investors no longer respond only to announcements.

They examine implementation.

A government can introduce tax reforms, currency reforms and fiscal adjustments. Yet, international capital will assess whether the policies are transparent, predictable and sustainable.

The next stage of Nigeria’s reform programme must therefore focus on institutional confidence.

Tax authorities must provide clarity. Regulators must communicate consistently. Policymakers must reduce uncertainty.

The government must also demonstrate that reforms have broad institutional support capable of surviving political transitions.

This will become increasingly important as Nigeria approaches 2027.

Nigeria’s Opportunity & Its Warning

Nigeria currently stands at an important economic crossroads.

The country’s reform agenda has improved perceptions among international investors. The equity market has delivered strong returns. Several sectors continue to offer attractive long-term opportunities.

Yet, foreign capital remains cautious.

The problem is not simply that investors doubt Nigeria’s potential.

Many appear convinced that Nigeria possesses significant potential.

The problem is whether the policy environment will remain stable enough for investors to take the risk of committing capital.

The difference between attention and investment often comes down to confidence.

Nigeria has succeeded in attracting attention.

Its next challenge is to earn lasting confidence.

Until investors receive clearer answers on taxation, regulation and the future of economic reforms after 2027, the country may continue to experience an unusual investment paradox: strong market performance, improving economic perceptions and substantial foreign interest — but foreign funds still waiting at the door.

For policymakers, that should serve as both encouragement and warning.

The reforms have changed the conversation.

Now Nigeria must provide the certainty that turns conversation into capital.