What the fake agency scandal means for FDI in Nigeria

What the fake agency scandal means for FDI in Nigeria 13 Aug 2026

Since the 2015 election cycle, assessments of Nigeria’s economic performance have sharply diverged. Partisan polarisation has fractured any shared sense of the country’s economic trajectory. Today, official narratives emphasise improving macroeconomic indicators, most recently the rise in gross foreign reserves managed by the Central Bank of Nigeria (CBN), which reached $51.89 billion in mid-July 2026, largely driven by inflows of Foreign Portfolio Investment (FPI).

Independent analysts and political opposition figures highlight the widening gap between FPI and Foreign Direct Investment (FDI). While FPI is expanding, FDI remains stagnant at low levels. High yields on government securities attract portfolio inflows, but they also raise the benchmark cost of capital, constraining real‑sector investment that generates jobs, bolsters economic growth, and fosters long‑term stability. This dynamic is often attributed to monetary and fiscal policy. However, whereas the CBN sets the anchor interest rate – now at a sky-high 26.5% – government bond yields reflect a market‑driven signal of elevated long‑term investment risk.

Yet the recent scandal involving a fictitious federal agency – the Presidential Foreign Investment Promotion Council (PFIPC) – suggests that Nigeria’s core investment challenge may stem from systemic institutional failure. Policy flaws do some damage, but they are secondary to pervasive governance decay. The PFIPC allegedly secured office space in the Federal Secretariat, opened an account with the CBN, obtained a N1.3 billion allocation in the 2026 budget, and even registered a .gov.ng domain. The fake agency has been linked to Femi Gbajabiamila, Chief of Staff to President Bola Ahmed Tinubu, who denies any involvement.  

President Tinubu has directed the Independent Corrupt Practices and Other Related Offences Commission (ICPC) to investigate the matter. However, the probe is underway while Mr Gbajabiamila remains in office. Meanwhile, the Senate has declined to initiate its own inquiry, despite the alleged budgetary allocation that raises questions about legislative oversight. By refusing an independent investigation that could enhance its credibility, the Senate now risks undermining public confidence in the ICPC’s eventual findings. Although the perpetrators of the scam penetrated bureaucratic and budgetary systems with audacity, the government’s response has lacked the truly independent enquiry required to rebuild public trust.

What does this mean for the government’s investment agenda? For foreign portfolio investors, the scandal heightens sensitivity to domestic governance risks, but dramatic reactions from them are unlikely. Their risk premia already reflect Nigeria’s institutional volatility. External shocks – such as interest rate hikes by the US Federal Reserve or the European Central Bank, or a global risk‑off event – would have a more immediate impact on the “hot money” driving Nigeria’s FPI.

The most significant impact will be felt in FDI and reinvestment decisions by multinational firms operating in Nigeria’s real sector. The scandal will not halt inflows entirely, but it will significantly constrain Nigeria’s true FDI potential. To secure major investments, the government will increasingly rely on offering extraordinary incentives. This inevitability, given the prevailing circumstances, shaped the structure of the recent $20 billion deepwater agreement with Shell Plc for the long‑delayed Bonga Southwest Aparo project. After nearly two decades of stalled progress, the federal government approved an unprecedented $11.50‑per‑barrel production‑linked tax credit – more than double the standard rate under Nigeria’s baseline petroleum regulations.

Such incentives are unlikely to remain isolated. The administration has signalled that similar terms may be extended to other International Oil Companies (IOCs), including ExxonMobil, Chevron, and TotalEnergies. Unfortunately, this approach risks structurally diluting Nigeria’s deepwater revenue model. Historically, Nigeria’s fiscal framework imposed higher upfront state‑take requirements than peers, including Angola. Now, the country is resorting to aggressive, ad hoc tax credits to compete with more investor‑friendly jurisdictions. Yet deals driven by executive discretion carry political‑risk concerns that international investors cannot ignore.

Deals like the one secured by Shell ultimately reduce future public revenue. Increasingly, the government is pledging tomorrow’s earnings to secure financing and investment it struggles to attract today. Such arrangements entail steep discounts on direct fiscal returns, as the treasury trades predictable near-term tax income for uncertain long-term economic multiplier effects. This trade-off will recur across sectors. Even major domestic investors now demand expanded public concessions, from tax breaks to import restrictions to de facto monopoly status, to offset the costs of weak governance, inadequate infrastructure, and insecurity before committing capital.

Nigeria’s investment climate now offers empirical validation of core principles of New Institutional Economics. When institutions are weak, transaction costs rise sharply. As Nobel laureate economist Douglass North argued, economic growth falters when the state cannot enforce low‑cost, credible contracts. Projects proceed only when governments compensate for governance risk through tax holidays, subsidies, or sovereign guarantees. The state must offer heavily subsidised “sweetheart deals” to multinational firms and indigenous conglomerates.

It should be a matter of public concern that the government has disregarded public calls for a more credible inquiry into the PFIPC fraud. Leading economists, such as James Buchanan and Gordon Tullock, have long shown that when governments operate without effective constraints, political gatekeepers inflate the cost of doing business through opaque, discretionary controls. These costs ultimately fall on citizens, who bear the burden of a system in which institutional weakness functions as a direct economic tax.

The scandal indicts the government for institutional failure, but it also presents an opportunity to strengthen oversight and administrative integrity. Whether the administration seizes this moment with transparency and urgency remains uncertain.

Jide Akintunde is the Managing Editor of Financial Nigeria publications. He is the author of the new book, Youth Breed: How Generations of Nigerian Youth Impact Their Country, available for order on www.youthbreed.com.