Nigeria's External Sector Under Pressure Despite Growth Prospects—What European Investors Need to Know

Nigeria faces a critical paradox in early 2026: while the International Monetary Fund projects the country will overtake South Africa as Africa's leading contributor to global economic growth this year, the nation's external financial position is deteriorating rapidly. For European entrepreneurs and investors with operations or exposure in Nigeria, this disconnect demands careful scrutiny.

The numbers tell a sobering story. Nigeria's Balance of Payments surplus collapsed by 38.1% year-on-year to just $4.23 billion in 2025, down from $6.83 billion in 2024. More alarming is the 26% decline in the current account surplus, which fell to $14.04 billion from $19.03 billion in the previous year. These figures represent a fundamental weakening of Nigeria's external liquidity position at precisely the moment when the country is supposed to be strengthening its economic footing.

The culprit is Nigeria's energy dependence. Crude oil exports—the country's primary foreign exchange earner—declined 14.41% to $31.54 billion in 2025. Simultaneously, foreign portfolio investments (FPI) contracted by a staggering 48.3% to just $8.04 billion, signalling reduced investor confidence in Nigerian financial markets. This capital flight is particularly significant. While global oil prices have surged (as evidenced by the naira's relative stability against the dollar in mid-March), Nigeria's oil production volumes remain constrained, limiting the currency-support benefits that higher prices typically provide.

On the positive side, the naira has demonstrated surprising resilience. In mid-March 2026, the currency strengthened to N1,345/$ at the official market—its best level in a month—reflecting the impact of oil price gains and reserve accumulation. The parallel market rate held around N1,403/$, suggesting controlled depreciation expectations. The Central Bank's aggressive Treasury Bill issuance, raising N3 trillion in just two weeks, indicates proactive liquidity management and confidence in domestic debt markets.

The broader context matters for investor decision-making. Nigeria is allocated 5% of GDP to industrial financing under its new Industrial Policy, a structural reform aimed at reducing manufacturing costs and attracting investment. The Pan African Manufacturers Association has lauded this commitment. Additionally, marginal inflation declines are offering "cautious optimism" according to the Lagos Chamber of Commerce and Industry, though underlying risks remain.

However, the security crisis continues to drain resources. Over the past 15 years, Nigeria has allocated N32.88 trillion ($81+ billion USD equivalent) to defence spending—roughly 12.5% of national budgets—yet insecurity persists. Recent terror attacks in Maiduguri and successful military operations against ISWAP indicate ongoing instability that deters large-scale foreign investment and raises operational risks for existing ventures.

The university labour disputes (SSANU threats and ASUU strikes) and the N10 billion fraud case involving Kogi State officials further underscore governance challenges that concern institutional investors.

For European investors, the picture is mixed: growth potential is genuine, but external sector weakness, capital flight, and security risks require heightened due diligence and hedging strategies.