Nigerians are not doing well economically. In 2023, President Bola Tinubu promised during his election campaign to restore the “renewed hope” he once offered the country, but he only brought despair. Be it the removal of fuel subsidies (which raised the price of petrol by nearly 500% within one year) or the liberalisation of the foreign exchange market (that resulted in an over 100% depreciation in the value of the domestic currency between October 2023 and October 2024), Tinubu’s reforms have met with domestic upheavals.
To rein in inflation, which stood at 24.48% in January 2025, the Central Bank of Nigeria has been pursuing a contractionary monetary policy, an attempt to fend off inflation by reducing the money supply. The apex financial body maintained its benchmark lending rate at 27.50% in its latest meeting.
However, these policies have reduced the living standards of Nigerians. People are now paying higher prices for food, transportation, energy, health, and education. And this benchmark lending rate has also ensured yields and borrowing costs are rising in step with each round of monetary policy tightening, thereby establishing Governor Olayemi Cardoso’s reputation as a fiscal tightening hawk.
However, a rare sweet spot has been the country’s growing yield market, on which the African Banker recently reported: “At a 13 October Treasury bills auction by the central bank under its open market operations aimed at controlling liquidity, the regulator closed the deal at 24.3%. Dealers said the central bank chose that stop rate to keep the transaction to the ₦500 billion on offer and avoid oversubscription.”
Health of Nigerian yield market
On October 15, Treasury and Open Market Operations bills were trading with yields between 21% and 25.96%, with bills due in June 2025 leading the pack. Yields on federal government bonds have been slightly more subdued, ranging from 16.73% to 23.71%, according to data on the Financial Market Dealers Association’s FMDQ platform.
“Commercial papers, through which companies raise short-term financing for working capital and other uses, have led the way toward higher rates. Dufil Prima Foods, which manufactures the popular Indomie noodles brand, is among the first companies to sell commercial papers since the latest central bank rate increase. An offer repayable in April 2025, at 27%, opened on 10 October, with subscribers given a week to take up the offer. One of the first issuers to reach the 30% mark for yields is SKLD Integrated Services Ltd., with 270-day notes that closed on 4 September. A separate 180-day duration offer had an interest rate of 28%,” the African Banker stated.
The ₦5 billion, 270-day commercial papers offered by C&I Leasing two days after the Central Bank decision had a yield of 29%. The Lagos-based company, which is engaged in equipment leasing and logistic services in Nigeria and Ghana, closed the offer on 4 October.
Similarly, two tranches of commercial papers issued by investment bank DLM Capital Group for ₦5 billion, with durations of 180 days and 270 days, attracted yields of 26.9% and 29%, respectively. Both offers closed on 26 September, two days after the central bank raised its key rate.
When Dangote Cement, Africa’s largest manufacturer of building materials and one of Nigeria’s most profitable companies, sold 177- and 266-day commercial papers in May 2024 for ₦150 billion, the yield was 5% and 6%, respectively. However, Dangote Sugar, with less formidable credentials in the same group, raised two tranches a month earlier for a total of ₦42.79 billion at 23% for the shorter tenor and 25% for the longer tenor, indicating that less risky issuers can still raise funds more cheaply.
In December 2024, foreign portfolio investments (FPIs) in Nigerian equities reached their highest post-COVID level, as the investments totalled $284 million in the first nine months of the year. This marked a 19% appreciation from the $239.2 million recorded in the corresponding period in 2023, according to the Capital Importation Data for Q3 2024 provided by the National Bureau of Statistics (NBS).
The positive trend also represented the highest level of interest in Nigerian equities since the first nine months of 2020, when foreign portfolio investment (FPI) in the market reached approximately $737 million.
Comparatively, FPI stood at $168.5 million in 2021, declined to $51.7 million in 2022, and rebounded to $239.2 million in 2023. With an FPI of $84.7 million in Q3 2024, it also represented the highest foreign investment in Nigerian equities in the third quarter of the year since 2019.
Before COVID-19, Nigerian equities attracted significant interest from foreign portfolio investors, with FPI inflows reaching approximately $1.89 billion in 2019 and $2.36 billion in 2018. In Q1 2020, before the pandemic-triggered lockdown, FPI in equities stood at $639 million but plunged sharply to $53.2 million in Q2. The FPI in equities in Q3 2024 represented a 912% growth from the $8.4 million recorded in Q3 2023. However, it represented a 43.5% decline from the $149.9 million recorded in Q2 2024.
In 2024, Nigeria’s economy also exhibited characteristics of a “hot money” hub, with foreign portfolio investments accounting for approximately 61% of the country’s total capital importation in the first nine months of the year.
Short-term money market instruments accounted for $3.43 billion of the $4.38 billion in foreign portfolio investments recorded in the first nine months of 2024. In fact, in the same year, the NGX also provided a year-to-date return of 31.34%, underperforming the country’s inflation rate and 2023’s returns.
Despite the African country experiencing its highest inflation since 1996 and benchmark interest rates surging to a record 27.5%, the increased foreign interest in Nigerian equities can be attributed to significant improvements in the country’s foreign exchange system. The current foreign exchange system also offers greater fluidity, enabling investors to seamlessly invest in Nigerian stocks and repatriate their USD returns without the need for lobbying.
The Nigerian market has also offered appealing returns, with stocks like Seplat Energy, which is also listed on the London Stock Exchange (LSE), appreciating by 147% in 2024. Airtel Africa, which also got dual-listed, recorded a 14% return year-to-date, while Oando, listed on the Johannesburg Stock Exchange, posted a remarkable 499% return.
Have foreign investors found a winning formula?
The high yields on debt have proved to be an effective bait for foreign portfolio investors seeking higher returns. Foreign capital flows into Nigeria surged in the first half of 2024 to $5.98 billion, over double the $2.16 billion recorded for the same period in 2023, according to data provided by the National Bureau of Statistics.
With the first rate hike of 400 basis points in February 2024, there was an inadequate response time for investors, who brought in more than $1 billion by the end of March of that year. Inflows in Q2 reached $2.6 billion, more than double the figures for the preceding three months.
“At least $3.48 billion, or 58.2%, of the funds that came in between January and June of 2024 have gone to portfolio investments, a more-than-threefold increase from the $750 million spent on the same category of items during the comparable period last year. Out of the funds that went into portfolio investments, $2.68 billion went to money market instruments, $598 million went to bonds, and equities attracted $199 million. The money market investments targeted mainly Treasury bills, open-market-operations bills, and commercial papers,” the African Banker stated.
The naira kicked off 2025 with its strongest rally in 13 years, mirroring an early surge in 2024. Since December 2024, the naira has gained 9%, strengthening from ₦1,662/$ on December 2 to ₦1,509/$ on February 13, the biggest gain among African currencies, according to BusinessDay data.
In January 2025 alone, the currency appreciated 4% (₦63.14), hitting a seven-month high of ₦1,478.22/$. The last time such upward movement was seen was in 2012. Although the rally has cooled slightly in February, with the naira stabilising around ₦1,500/$, its strength in the parallel market has continued. It climbed to ₦1,545/$, up from ₦1,620/$ at the start of the month.
As per market insiders, the sharp reversal can be attributed to a decline in dollar supply and profit-taking by foreign investors. Many had entered the Nigerian market at ₦1,600/$, only to exit when the rate dropped to ₦1,300/$, locking in gains. Those who invested in Nigerian bonds, after the CBN adjusted rates to align with inflation, saw even higher returns upon exiting.
Analysts widely expect the currency to remain largely stable throughout 2025. Total foreign exchange inflows into the Nigerian autonomous foreign exchange market (NAFEM) increased by 53% to USD 4.7 billion at the end of January, up from USD 3.1 billion recorded in December 2024, according to data from the FMDQ.
Rate hike and a $500 million domestic bond
As Nigeria faces threats from severe inflation and exchange-rate pressures, the Tinubu administration has decided to stick to a tighter monetary policy rate while attracting foreign portfolio flows to help ease the pressure on the naira.
Under this approach, the African country sold its first foreign-currency domestic bond in September 2024, a $500 million offer that got a total of $900 million in subscriptions at 9.75%. Nigeria’s foreign reserves jumped 12.74% from the end of June 2024 to $39.12 billion as of 11 October, reversing the depletion of recent years.
Banks have emerged among the major beneficiaries of the current high-interest-rate regime. Guaranty Trust Holding, which operates Nigeria’s largest bank by market value, recently reported a threefold increase in net income for the first half of the year to ₦899.9 billion ($543.7 million). In all, the country’s top 12 banks combined recorded a 100% growth in profit before tax in the first six months compared with 2023.
Talking about the African country’s first-ever $500 million domestic dollar bond, whose issuance got oversubscribed to $900 million, it had local investors, pension funds, and the Nigerian diaspora as top subscribers and has provided a valuable source of hard currency amid ongoing dollar shortages and naira devaluation pressures. The “landmark transaction” also reflected Nigeria’s strategy to diversify funding sources and reduce reliance on international markets, where borrowing costs are higher.
The proceeds from the transaction are already supporting critical sectors of the economy, with plans to list the bond on local exchanges to enhance tradability. In addition to the annual interest rate of 9.75%, the $500 million bond is eligible for tax exemption for pension funds and other investors. The Central Bank of Nigeria has also granted it liquid asset status, meaning that banks can use it when calculating their liquidity ratios.
Market consensus described the bond pricing as highly attractive, with reports further suggesting the pricing was in alignment with the current yield of Nigeria’s Eurobond of equivalent tenor. Nigeria’s Eurobond of between three and five years currently yields between 9.662% and 10.03%; thus, the mid-point pricing of 9.75% was considered attractive.
A major advantage of the bond route pursued by Nigeria lies in the fact that the mechanism is the best alternative to borrowing to fund developmental projects and programmes, with no financial obligations on the government.
According to the Trust Deed for the bond, the Federal Government has pledged an irrevocable commitment that it shall keep fidelity to the nature of the bond as a dollar-based issuance, with both the principal and the coupon to be paid in the same currency.
Banks accelerate capital-raising further
Some five banks have rounded off preliminary documentation and approval processes to raise more than ₦1 trillion ($616.8 million) in the second wave of capital-raising as part of the ongoing banking recapitalisation exercise.
The banks—United Bank for Africa (UBA), Stanbic IBTC Holdings, Wema Bank, Premium Trust Bank, and Jaiz Bank—have reached advanced stages in their pre-offer processes, with the two largest banks within the cluster expected to headline the capital-raising this quarter.
Recently, another five banks raised more than ₦1.5 trillion ($925.2 million) in a momentous opening to the Central Bank of Nigeria’s directed programme. These institutions were Guaranty Trust Holding Company (GTCO), Access Holdings, Zenith Bank International, Fidelity Bank, and FCMB Group.
The African country’s Securities and Exchange Commission is already considering applications from the banks. While some six offers are undergoing the regulatory approval process, UBA, which has its shareholders’ approval for a multi-instrument capital-raising programme, is expected to start with a rights issue, under which the bank plans to raise more than ₦384 billion ($236.8 million).
According to reports, Stanbic IBTC Holdings, which had launched a ₦550 billion ($339.2 million) capital-raising process, has also reached an advanced stage for the first tranche of its multi-instrument capital-raising. The company is also headlining its equity-raising with a rights issue, a favourite method under the recapitalisation programme.
The holding company’s ₦550 billion ($339.2 million) capital-raising includes a rights issue of ₦150 billion ($92.5 million) and a ₦400 billion ($246.7 million) debt instrument. Shareholders of the company also authorised the board “to raise additional equity capital of up to ₦150 billion ($92.5 million) by way of a rights issue or offer for subscription on such terms, tranches, conditions and dates as may be determined by the directors.”
Wema Bank, with a national banking licence, is concluding its pre-issuance processes to raise ₦200 billion ($123.3 million) in new equity funds, in a bid to preserve the 79-year-old bank as a standalone entity post-recapitalisation. With a share capital and share premium of ₦15.13 billion ($9.33 million), the venture reportedly has one of the smallest starting points among Nigerian banks.
“In March 2024, the CBN released its review of the minimum capital requirements for commercial, merchant, and non-interest banks. It increased the minimum capital for commercial banks with an international affiliation, otherwise known as mega banks, to ₦500 billion ($308 million); for commercial banks with national authorisation, to ₦200 billion ($123.3 million); and for commercial banks with a regional licence, to ₦50 billion ($30.8 million). Other new thresholds apply to merchant banks at ₦50 billion ($30.84 million); non-interest banks with a national licence at ₦20 billion ($12.33 million); and any non-interest bank with a regional licence will now be required to have ₦10 billion ($6.16 million) minimum capital. The 24-month timeline for compliance ends on 31 March 2026,” African Banker concluded.