Nigeria’s oil and gas sector is set to witness a surge in investments in 2025, following significant reforms in the energy industry.
While Foreign Direct Investments (FDI) into Nigeria rose sharply by 248 percent in the third quarter (Q3) of 2024 to $103.82 million, experts argue that this remains insufficient to stimulate the economic growth necessary to revitalize the investment-starved economy.
“The FDI will be coming from the energy sector, the petroleum, and the oil and gas sector because of the reforms that the president announced or implemented. I think more investment will come to that sector.”
Adeola Adenikinju, President of the Nigerian Economic Society (NES)
Despite the increase, FDI, which is critical for long-term economic development, hit a record low of $29.8 million in the second quarter (Q2) of 2024, following a modest $119 million in the first quarter (Q1).
The unexpected rebound in Q3, however, has been linked to the transformative reforms in the energy sector implemented by President Bola Tinubu, according to Adeola Adenikinju, President of the Nigerian Economic Society (NES).
One of the notable factors boosting investor confidence is the relative stability in the oil-rich Niger Delta, historically plagued by unrest and sabotage.
Coupled with the full liberalization of the oil sector, experts believe these developments will create a conducive environment for sustained growth in direct investment.
“I expect that more investment will flow towards gas and the refinery sector,” Adenikinju added. “That sector is likely to be very bullish in the future, very likely to grow.”
Earlier in 2024, TotalEnergies pledged a $500 million investment in a joint venture with the state-owned Nigerian National Petroleum Company (NNPC) Limited to develop the Ubeta onshore field.
With a projected output of 300 million cubic feet per day, the project is poised to bolster gas supply to the Nigerian Liquefied Natural Gas (NLNG) plant, a critical infrastructure for Nigeria’s energy export ambitions.
Policy Reforms Underpin Growth Prospects
Since assuming office in May 2023, President Bola Tinubu has prioritized addressing inefficiencies in the oil and gas sector.
The administration’s efforts include signing two executive orders aimed at improving operational efficiency and introducing a new policy framework to attract up to $10 billion in new investments for deep-water gas exploration.
Tax incentives and regulatory reforms have been central to this strategy, enhancing Nigeria’s appeal to foreign investors.
“The growth in FDI demonstrates investor confidence in the economy,” noted Samson Simon, CEO and chief economist at ARKK Economics and Data Limited.
However, Simon highlighted the need for more robust growth, adding, “A country of over 200 million people attracting a little over $100 million in a quarter is not an impressive performance.”
Simon’s sentiments reflect a broader concern that, while the uptick in FDI signals positive momentum, the scale of investment remains far below the levels required to unlock Nigeria’s economic potential.
The capital importation report by the National Bureau of Statistics (NBS) revealed that equity accounted for $97.12 million of the total FDI recorded in Q3, with capital contributing just $6.71 million.
Despite the increase in FDI, portfolio investment saw a decline, falling to $899 million from $1.4 billion in the previous quarter. Overall, FDI accounted for only 8.29 percent of total capital importation during the period under review.
The report underscored the need for sustained efforts to diversify Nigeria’s investment inflows and reduce reliance on portfolio investments, which are more volatile and less impactful on long-term economic development.
Future Investment Opportunities
Experts believe the energy sector holds the key to unlocking Nigeria’s FDI potential. Beyond oil, there is growing interest in gas investments, which are seen as critical for addressing Nigeria’s energy needs and expanding its export capacity.
The Tinubu administration’s push for deep-water exploration and refinery development aligns with global trends towards cleaner energy and gas as a transitional fuel.
“Gas is going to be a major area of growth,” said Adenikinju. “With the reforms and increasing global demand for gas, Nigeria is well-positioned to attract significant investments in this area.”
“While the reforms are commendable, more needs to be done to improve the overall investment climate.
“This includes tackling corruption, streamlining regulatory processes, and ensuring political stability.”
Adeola Adenikinju, President of the Nigerian Economic Society (NES)
Ultimately, whether Nigeria can translate these opportunities into meaningful economic development will depend on its ability to address systemic challenges and maintain investor confidence.
For now, the resurgence in FDI provides a glimmer of hope in an economy that has long struggled to fulfill its vast potential.
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