Nigeria’s local debt market is witnessing renewed foreign investor interest as bond yields surge and the naira holds steady, making the country one of Africa’s top high-yield destinations.
The rebound follows the Central Bank of Nigeria’s decision in September to ease its monetary stance slightly, cutting the benchmark interest rate by 50 basis points to 27 percent. It was the first-rate reduction in several Monetary Policy Committee meetings, signalling cautious confidence that inflationary pressures are beginning to moderate. The adjustment, combined with a relatively stable naira, has helped draw portfolio investors back into the market.
Renaissance capital report flags inflows, questions data
A new “Africa Jollof Economics” report by Renaissance Capital, released on October 3, 2025, confirmed a sharp rise in foreign inflows into Nigeria’s local debt market. The firm noted that the inflows mark a reversal of years of outflows during the 2020–2022 currency crisis.
“Foreign inflows into Nigerian debt have picked up markedly,” the report said, describing Nigeria as one of the highest-yielding emerging markets this year. Renaissance Capital’s findings underscore a turning point in investor sentiment, confidence that had been eroded by years of policy uncertainty and currency restrictions.
However, the firm raised concerns over the credibility of Nigeria’s inflation figures, the key metric investors use to calculate real returns. Official data show inflation easing to 20.1 percent in August, but Renaissance Capital suggested these figures likely understate actual price pressures, particularly with food costs rising faster.
Independent surveys place food inflation between 35 percent and 40 percent in several northern and central states. If accurate, Nigeria’s real-yield advantage may be smaller than advertised, potentially clouding investor optimism.
Reforms strengthen market confidence
Analysts say recent policy reforms are reinforcing investor optimism. Yemi Kale, group chief economist and managing director of Afreximbank, said at ‘The Platform Nigeria’ event in Lagos that Nigeria’s reform drive has helped improve the investment climate.
He noted that the country is “no longer compelled to sell scarce foreign exchange at subsidised rates,” freeing exporters from the penalties of an overvalued currency.
Kale added that the introduction of a more flexible exchange-rate regime has acted as a shock absorber, allowing the naira to adjust gradually to oil price movements or global headwinds instead of triggering sudden crises.
Foreign-exchange reserves rose from $32.9 billion at the end of 2023 to more than $42 billion by mid-2025, a three-year high that signals renewed market confidence and the clearing of verified FX backlogs.
Yields shine, but risks linger
Nigeria’s naira bonds have been among Africa’s best performers this quarter, buoyed by investor appetite for high returns and faith in near-term currency stability. Central Bank data show foreign holdings of local debt rose nearly 20 percent between May and August.
Analysts say the rally reflects confidence in monetary management and the belief that high interest rates will hold. But the assumptions are fragile.
“Investors are essentially betting that the currency won’t adjust again soon,” said Oyekan Idris, a capital-market analyst. “Those are risky assumptions.”
High returns, domestic pain
While the debt rally has attracted foreign capital, it comes at a domestic cost. Borrowing rates exceeding 30 percent on some tenors have slowed private-sector credit growth to 2.1 percent year-on-year, down from 8 percent in 2022. Small and medium-sized businesses reliant on bank lending have been particularly affected.
On paper, Nigeria’s high yields look appealing. In reality, they reveal a difficult trade-off: investors enjoy positive real returns, while domestic borrowers bear the weight of tight monetary policy.
Hot money and structural risks
For policymakers, foreign inflows provide short-term relief, helping to defend the naira and finance fiscal gaps. Yet dependence on volatile portfolio flows adds fragility to the system. A sudden reversal, triggered by doubts over inflation credibility or renewed devaluation pressure, could quickly unwind recent gains.
Renaissance Capital’s conclusion is cautious: the inflows are real, but so are the risks. The rally buys Nigeria time, not transformation. Without credible data and continued structural reforms in energy, governance, and productivity, stability will remain fleeting.
