Nigeria attracted more than $3.37bn in foreign capital in the first quarter of 2024, almost three times the amount recorded a year earlier, but foreign direct investment accounted for only a small share.

National Bureau of Statistics data show capital importation rose from $1.13bn in Q1 2023 to $3.376bn in Q1 2024. Portfolio investment contributed $2.076bn, or 61.48 per cent, while FDI amounted to $119.18m, just 3.53 per cent.

Against that backdrop, Auburn University researcher Jude C. Ugwuoke examined why increases in external capital do not necessarily produce corresponding improvements in economic growth.

His sole-authored paper, “The Impact Analysis of the Relationship Between Foreign Aid and Economic Development in Nigeria,” was published on August 15 in the International Journal of Business and Economics Research.

Using annual data from 1981 to 2022, Ugwuoke applied an Ordinary Least Squares model to FDI, trade openness, unemployment, inflation, corruption, population growth and other variables.

The results complicate the assumption that more foreign investment automatically means faster growth. FDI returned a positive coefficient of 0.3713 and trade openness 0.0235, but neither carried a statistical-significance marker in the principal regression table.

Inflation and corruption differed. Inflation had a negative coefficient of -0.1473 and was significant at one per cent, while corruption returned -0.5368 and was significant at five per cent. The adjusted R-squared was 0.328, meaning the variables explained part, but not all, of the variation in growth.

Ugwuoke’s principal regression therefore did not establish a statistically significant relationship between FDI and Nigeria’s GDP growth rate during the period examined.

The paper is not entirely consistent on this point. Its abstract and conclusion describe FDI as making a significant contribution to development, while the main regression table and results discussion do not report the coefficient as statistically significant. The statistical result should therefore be distinguished from the broader interpretation elsewhere in the paper.

Inflation is one example. NBS reported headline inflation of 33.40 per cent in July 2024, compared with 34.19 per cent in June and 24.08 per cent in July 2023. Those figures fall outside Ugwuoke’s dataset, which ends in 2022, but provide contemporary context.

The study associates higher inflation with weaker growth. Ugwuoke argues that rising prices can weaken purchasing power, make costs and returns harder to predict and increase uncertainty. Foreign capital may enter an economy, but investment decisions still occur within that macroeconomic environment.

Corruption presents a similar problem. The regression found a negative and statistically significant relationship between the corruption variable and growth, while Ugwuoke links corruption to distorted resource allocation, weaker institutions and less efficient investment.

A national survey released in July by the NBS and United Nations Office on Drugs and Crime estimated that about 87 million bribes were paid in Nigeria in 2023, averaging 0.8 bribes for every adult and 5.1 payments among those who paid bribes. These figures also fall outside Ugwuoke’s study period but illustrate the continuing relevance of institutional quality.

The study also examined trade openness. International markets can create opportunities for exports, technology transfer, investment and competition, but the regression found a positive coefficient without a statistically significant effect on GDP growth. The result cautions against treating greater trade exposure as an automatic route to faster development.

One methodological choice is especially important. The paper uses FDI as a proxy for foreign aid, although FDI and official development assistance are different forms of international finance.

FDI generally involves cross-border investment through a lasting interest in an enterprise, while ODA is official concessional financing primarily intended to promote development and welfare.

Because Ugwuoke expressly uses FDI as his proxy for foreign aid and external capital, the results should be read principally as evidence about the FDI variable in the regression.

A separate 2024 study by Stanislav Rojík, Mansoor Maitah, Karel Malec and Kamal Tasiu Abdullahi examined ODA to Nigeria from 1980 to 2019 using an Autoregressive Distributed Lag model and concluded that ODA had not contributed positively to economic progress over that period.

The studies are not directly interchangeable. They examine different forms of external finance, use different methods and cover different periods, showing how conclusions depend on what is measured, when it is measured and which domestic conditions are included.

Ugwuoke’s model also underwent diagnostic testing. Variance inflation factor values were below the conventional threshold for serious multicollinearity, while a Breusch-Pagan test produced a p-value of 0.398, interpreted as showing no statistically significant evidence of heteroscedasticity.

These tests do not establish that the model captures every factor affecting Nigeria’s economy, and the adjusted R-squared shows substantial variation remained unexplained.

Nigeria’s recent performance provides further context. GDP grew by 3.19 per cent year-on-year in Q2 2024, compared with 2.98 per cent in Q1 and 2.51 per cent in Q2 2023. Services remained the largest contributor, accounting for 58.76 per cent of GDP.

The economy was therefore expanding while inflation remained above 30 per cent and FDI represented only a small share of imported capital.

Ugwuoke’s model does not prove that inflation or corruption alone causes changes in growth, nor that increasing FDI will necessarily increase GDP. Regression results identify relationships within a particular model and dataset, not independent causal effects.

The study instead focuses on the economic and institutional environment surrounding foreign capital, including inflation, regulation, infrastructure, labour markets and governance.

Ugwuoke ultimately emphasises macroeconomic stability, governance, institutional integrity and policy coherence as conditions affecting Nigeria’s ability to obtain stronger benefits from foreign investment and other external resources.

Foreign resources may expand available capital, but cannot by themselves remove structural constraints or guarantee sustained growth.

Nigeria is recording economic growth, capital importation increased sharply in the first quarter, inflation remains high and FDI accounts for only a small share of inflows. That combination captures the problem examined in Ugwuoke’s research.

Attracting foreign capital is one objective. Creating the conditions in which it can be converted into productive activity is another. For Nigeria, attracting the capital may therefore be only the beginning.