Foreign investment in trade is declining rapidly due to pressure from foreign exchange and inflation. Analysts believe that carefully navigating Nigeria’s policy shift to local sourcing will bring balance, ARINZE NWAFOR writes
Foreign investment inflows into Nigeria’s trading sector have plummeted, with the first quarter of 2025 recording one of the sharpest declines in recent years. Analysts posit that the sector has become increasingly less attractive to foreign investors due to macroeconomic headwinds amid the country’s pivot to local sourcing.
Capital importation figures show that trade attracted $34.39m between January and March 2025, representing a 93 per cent fall from $494.93m in the first quarter of 2024.
According to the National Bureau of Statistics, the inflows into trade in the first quarter of 2025 accounted for only 0.61 per cent of the total $5.64bn capital importation recorded across the economy. The numbers extend a trend that began in the third quarter of 2024, when capital importation into trade fell steeply to $67.01m from $569.22m in the preceding quarter.
While trade remains a critical pillar of Nigeria’s economy, its contribution to real Gross Domestic Product has slipped. Data show that the sector contributed 18.21 per cent to the country’s N49.34tn GDP in Q1 2025, down from 18.45 per cent a year earlier.
Growth has also slowed. The trade sector’s year-on-year growth rate of 1.78 per cent in Q1 2025 was 0.53 percentage points lower than the 2.31 per cent recorded in the same period of 2024 and 0.26 percentage points lower than the 2.04 per cent growth rate of Q4 2024. On a quarter-on-quarter basis, trade contracted 14.92 per cent.
The data signal that foreign appetite for Nigeria’s trading sector, long dominated by foreign-owned retail chains and large distributors, has thinned drastically.
Analysts say the plunge reflects the legacy effects of inflation, exchange rate volatility, prohibitive import tariffs, and a deliberate shift in government policy towards local sourcing, production, and consumption.
In separate virtual interviews with The PUNCH, experts noted that while capital importation into trade has collapsed, the decline should not be read as a blanket loss of investor confidence in Nigeria’s economy. Instead, they argue that the trend points to a realignment of capital inflows towards sectors such as agriculture, banking, and selected areas of manufacturing that align more closely with the Federal Government’s drive to reduce import dependence and expand domestic capacity.
Why investors are pulling back
The Director of the Centre for Promotion of Private Enterprise, Dr Muda Yusuf, said the fall in inflows was not surprising. He explained that foreign investors in trade, mostly large retail outlets and shopping malls, had been squeezed by the country’s unstable currency and high import costs.
Yusuf explained, “Capital importation in the trading sector, which comprises global or continental retail outlets, shopping malls, and big supermarkets that are owned by foreign investors, over time, has been declining because of the challenge of foreign exchange.
“International companies and most of what they sell are also imported. Business has not been as lucrative as it used to be because of the exchange rate depreciation. The cost of sales has increased, demand has dropped, turnover has dropped, and when they remit their returns, by the time they convert into dollars, it is not anything significant.”
He added that prohibitive import tariffs and outright bans on certain consumer goods had further disincentivised foreign players.
“Some of the items that have been sold are attracting very high tariffs. Some of those items are also under import prohibition, like fabrics and dresses,” the CPPE director said.
The effect has been visible in the exit or downsizing of major chains. “That’s why even some, like Pick n Pay, have had to leave. Even Shoprite had to scale down its investments in Nigeria because of all these forex issues,” Yusuf noted.
The rise of local competition has also contributed. Yusuf added, “Today, especially in the cities, you find supermarkets owned by Nigerians that have standards comparable to what you have in the bigger shopping malls. Their prices are good, and the quality is good. So that has reduced the demand for products in the bigger malls because people now have options close to their residence.”
How inflation, currency woes affect retail
The Director of the Africa Retail Academy at Lagos Business School, Prof. Uchenna Uzo, highlighted inflation and exchange rate volatility as the most punishing factors for retail investors.
Uzo said, “It shouldn’t be surprising that there’s been a decline in how trade capital importation is behaving in the Nigerian markets. We know how inflation and exchange rate volatility have had their effects on the economy. And this is something investors are looking at. Particularly in the trade sector, which is mainly retail, they’ve been harder hit than some of the other sectors of the economy, because they rely on capital, and a lot of them rely on debt to grow their businesses.”
Uzo observed that the rising cost of imports has reshaped the business model of many operators, stating, “We also know the effects that the economic situation has had on overall importation, where it is a lot more expensive to import than it was before. And so, we’re gradually seeing a transition from a heavy reliance on imported products to an increase in local sourcing of raw materials and products.”
He stated that this “Made-in-Nigeria” shift, while painful in the short term, could strengthen the trade sector in the long run.
“There is a movement towards made-in-Nigeria or made-in-Africa products that is beginning to have an effect, which we hope eventually will be positive,” he explained.
Uzo expressed cautious optimism: “As time goes on, we expect to see a marginal improvement, because the rate of inflation, at least the rate of growth of inflation, has slowed down in Nigeria. And also, the exchange rate is becoming more stable. If we add what is happening with local sourcing of materials, we are likely to see an uptick in foreign direct investments into trade and retail.”
Meanwhile, the Africa Retail Academy director also flagged logistics as a persistent burden. “Let’s not forget that the rise in oil prices and how those are affecting logistics also has a role to play,” Uzo stressed.
Nigeria’s policy shift towards local production
Former President of the Chartered Institute of Bankers of Nigeria, Prof. Segun Ajibola, noted that the decline in trade inflows must be seen within the context of government policy to prioritise local production and reduce import dependence.
“In the trade sector, if there’s any capital that is imported to promote export-import business, they will qualify. But if the figures are in decline, then we’ll see less emphasis on imports because local capacity has increased and is not fully utilised,” Ajibola said.
He added, “Products are being manufactured locally for local consumption, and that will affect the volume of imports. The country is also encouraging export activities to increase non-oil foreign exchange earnings.
So, it’s like a shift from reliance on imported items to creating opportunities for local production and consumption.”
He said the key question was whether the decline in trade capital importation was offset by increases elsewhere, adding, “If there is less emphasis on trade, there should be more emphasis on some other sectors. The capital importation that is declining in trade, is it going somewhere else? Is it going into manufacturing or oil and gas for local production? We need to have an idea of the global picture.”
The economist noted that the net capital importation data suggest the economy remains attractive overall. Ajibola observed that inflows declined in manufacturing but increased in agriculture and banking, and net capital importation into the country increased by 67.12 per cent.
“So, it means it’s just a question of a shift in emphasis, not a loss of confidence.”
Nigeria must balance the policy shift
Analysts agree that the collapse in trade inflows reflects both Nigeria’s macroeconomic realities and its strategic pivot towards self-reliance. But they warn that policy must remain balanced to avoid starving the retail sector of much-needed capital.
CPPE director Yusuf argued that a healthy retail ecosystem still matters. “Competition has become intense, and local supermarkets are filling the gap. But foreign capital also brings standards, technology and integration into global value chains. We must ensure that as we push for local sourcing, the sector remains attractive enough to retain some level of foreign participation,” he said.
African Retail Academy director, Uzo, shared a similar caution, stating, “This transition is necessary, but investors will only return when they see predictability. Inflation must be controlled, exchange rates must remain stable, and logistics costs must be addressed. If these fundamentals improve, we will see renewed interest.”
Former CIBN president Ajibola insisted that the broader capital inflow picture should guide interpretation. He added, “Since net capital importation is positive, what we are seeing is not a capital flight problem but a reallocation. The key is whether that reallocation strengthens Nigeria’s capacity to produce, consume, and export competitively.”
