Nigeria’s external financial position is improving. Foreign exchange reserves have strengthened, refined petroleum exports have increased, and international rating agencies are becoming more positive about the economy.
These are encouraging developments. They may improve investor confidence and create new opportunities for Nigerian businesses.
However, the cost of capital remains high. Energy and shipping routes are under pressure. Interest rates may rise again, while tax and regulatory changes are altering business costs across African markets.
A business opportunity may be commercially attractive and still become a poor investment if it is financed badly.
Management should separate two questions:
- Is this a good business opportunity?
- Is this the right time and financing structure for pursuing it?
The answers will not always be the same.
Cheaper capital is no longer certain
Many companies entered 2026 expecting global interest rates to decline. That expectation influenced borrowing plans, acquisitions, property developments and major capital projects. Some investment cases assumed that expensive debt taken today could soon be refinanced at a much lower rate.
That assumption has become more risky.
On 28 August, United States Federal Reserve Chair Kevin Warsh said the Federal Reserve would still have “work to do” if underlying inflation did not move convincingly toward its 2% target.
Markets reacted immediately. The estimated probability of a September interest-rate increase rose from about 35% before the speech to 60%. The two-year US Treasury yield increased to approximately 4.34%. Reuters reported the change in market expectations.
Higher US Treasury yields influence the rates used to price dollar loans, bonds, private credit and other forms of international financing. For African companies, this means dollar funding may remain expensive or become even more expensive.
A company should not abandon a strong project simply because interest rates are high. However, management should be careful about approving a project whose success depends on an uncertain future reduction in borrowing costs.
A responsible investment model should test three possibilities:
- Interest rates remain unchanged.
- Interest rates increase further.
- Interest rates eventually decline.
If the project only becomes viable under the third scenario, the board should treat that as a warning.
Separate the business opportunity from its financing
A company may identify a market with strong demand, attractive margins and good growth potential. That does not automatically mean the company should invest immediately.
The financing structure can change the entire outcome.
Consider a project expected to generate a 20% return. It may appear attractive. But the effective cost of debt may be close to that return after interest, fees, foreign exchange exposure and refinancing risk are included. The project may generate more revenue without creating meaningful value for shareholders.
For every major investment, management should answer the following questions:
- Does the project remain viable at the current cost of capital?
- What happens if borrowing costs rise by another 100 or 200 basis points?
- Is the loan currency matched to the project’s revenue?
- Will the project generate cash early enough to service the debt?
- Can the investment be completed in stages?
- Would equity be more suitable than debt?
- Can strategic investors or development-finance institutions reduce the financing risk?
- What happens if the company cannot refinance the debt when expected?
Is this a good project under the financing terms available to us?
Nigeria is becoming more investable, but borrowing is still expensive
Nigeria received an encouraging signal on 28 August when Moody’s changed the country’s sovereign outlook from stable to positive while maintaining its B3 rating.
Moody’s referred to stronger foreign exchange reserves, better-than-expected economic growth and a sizeable current-account surplus supported by oil and rising exports of refined petroleum products. It also identified weak government revenue and poor debt affordability as continuing concerns. Reuters reported Moody’s assessment of Nigeria.
Nigeria can become more attractive to international investors without domestic borrowing immediately becoming affordable for Nigerian companies.
This process takes time. It will also benefit some companies more than others.
Businesses with audited financial statements, strong governance, predictable cash flows and credible growth plans will be in a better position to benefit. Companies with weak reporting, unresolved tax exposures, poor controls or unclear ownership structures may see little immediate improvement in their access to capital.
A better sovereign outlook creates an opportunity, but corporate readiness determines which companies can benefit.
Nigeria’s refining story is becoming an industrial export story
Nigeria’s seaborne petroleum-product shipments averaged approximately 561,000 barrels per day during the second quarter of 2026. The annual average was only 79,000 barrels per day in 2023.
About 350,000 barrels per day were exported during the quarter, compared with 46,000 barrels per day in 2023. Seaborne imports also fell from nearly 400,000 barrels per day in 2023 to below 130,000 barrels per day in the second quarter of 2026. The US Energy Information Administration published the analysis.
This is bigger than the story of one refinery. Nigeria is beginning to move away from exporting crude oil and importing large quantities of finished fuel. It is refining more petroleum locally and supplying domestic, regional and international markets.
This change creates opportunities in marine transportation, petroleum storage, inland depots, pipelines, product trading, working-capital finance, insurance, testing, maintenance, petrochemicals, regional distribution and port infrastructure.
It also raises a larger question:
Which other products can Nigeria manufacture competitively for West and Central Africa?
Possible areas include fertilizer, pharmaceuticals, food processing, industrial materials, construction inputs, energy equipment and selected consumer products.
However, the size of the market does not prove that an investment will succeed. Companies will still need reliable electricity, efficient logistics, suitable financing, competitive production costs and access to regional markets.
Look beyond the headline return
Major investments can also be weakened by risks that are missing from the headline return. A business may rely too heavily on one customer, bank, supplier, port, currency or source of funding. Energy, freight, customs administration and access to international payment channels can also change the cash required to complete a project.
Cross-border projects require particular care. African markets have different tax systems, currency conditions, financing costs, regulations and rules for moving cash. A regional growth plan therefore needs a separate financial model for each country.
The same principle applies to a holding-company location. Mauritius, the UAE, Hong Kong and Singapore offer different combinations of investors, banks, regulation, talent and market access. The correct structure should support the company’s commercial and capital strategy, rather than being chosen mainly for a lower tax rate.
Before approving an investment, the board should ask:
- Where could cash become trapped or arrive late?
- Which customer, supplier, bank, route or currency creates the largest concentration?
- Have energy, freight, tax and compliance costs been modelled properly?
- Does each country require a different pricing, funding or working-capital assumption?
- Does the corporate structure support investors, banking and a possible future sale or listing?
The board must preserve the company’s ability to change direction
The current environment does not require companies to stop growing. It requires them to become more selective about where and how they grow.
Before approving a major investment, acquisition or expansion, boards should request at least four downside tests:
- Dollar interest rates increase by 100 basis points.
- The naira loses 10% of its value.
- Fuel and freight costs increase by 20%.
- Customer volumes decline by 10%.
Management should also prepare an upside case in which Nigeria’s foreign exchange position and sovereign outlook continue to improve.
The purpose is not to predict the future perfectly. It is to decide in advance what management will do if events develop differently from the original business plan.
Must doInvestments required to protect operations, comply with regulations or preserve essential revenue.
Strategic optionInvestments that create an important long-term advantage but can be completed in stages.
Can waitInvestments whose returns depend heavily on cheaper financing, stronger demand or optimistic foreign exchange assumptions.
The executive conclusion
Nigeria’s improving external position and growing exports of refined petroleum products provide genuine reasons for optimism. But optimism should not replace financial discipline.
The cost of capital remains high. Energy routes remain vulnerable. Tax administration can quickly change working-capital requirements. International banking relationships can also be affected by geopolitical developments.
The strongest companies will not be those that predict every economic event correctly. They will be those that maintain enough liquidity, information and financing flexibility to make good decisions even when their original assumptions prove wrong.
Do not abandon growth. Demand stronger evidence before committing capital, protect liquidity and keep your financing options open.