Nigeria’s reforms to devalue the naira have unleashed a rush by international investors to lend to the country’s government in its own currency over the past year.
The investors — along with Nigeria’s own banks, insurers and pension funds — can tap some of the world’s highest yields in return, at about 20 per cent over a year. But for Nigeria’s credit-starved private businesses, TLG Capital is aiming to do better, longer term.
TLG, operator of Nigeria’s first ever naira-denominated fund for lending private credit to small businesses, pitches the country’s institutional investors on returns three to five percentage points above 10-year naira debt to address “a vacuum of long-duration capital for businesses”, Zain Latif, the London-based fund’s founder, says.
The rise of private credit in Nigeria is a sign of how quickly the country’s capital markets are changing. It is also a sign of how high interest rates on its short-term government bills, while attracting global investors, have overshadowed lending for businesses to expand.
Global market fallout over the Iran war shook the trade, but international investors are estimated to have held, just before the conflict, about $15bn to $16bn of Nigeria’s domestic debt. That is compared to gross central bank reserves — which provide a buffer for outflows offshore — of just over $50bn, or $34bn on a net basis as of December.
These offshore holdings have grown quickly, up from less than $6bn at the start of last year, following the devaluations of the naira.
The interest from foreign funds partly reflects the weakening US dollar and a long rally in the domestic bonds of larger emerging markets. Both have pushed investors into the currencies of frontier markets with higher yields.
But the appeal of the trade also reflects that “Nigeria is finally managing to benefit more from the oil industry” for generating hard currency, after key reforms, says Luis Costa, global head of emerging markets strategy at Citi. “They struggled for many years with investment in production . . . [but] you are starting to see the generation of dollar supply through the oil industry.”
The Nigerian federal government’s domestic debts, which totalled N77.8trn ($52.7bn) as of the end of September, rely on short-term refinancing. Nigeria is trying to push tax collection from a low base to well above 10 per cent of GDP — still low by developing country standards — and rarely issues dollar debt.
Short-dated government debt has also been a bulwark for Nigerian banks, which still largely rely on short-term deposits for their funding due to lack of access to global bond markets for longer-term borrowing. “In this backdrop, Nigerian sovereign securities offer attractive yields, short maturities, and carry relatively low regulatory capital charges,” Latif says. “The corporate sector, though, often requires a mix of longer-term financing to anchor capex and shorter-term financing to anchor working capital.”
Separately, Nigeria’s growing pool of institutional investors such as insurers and pension funds need long-term assets to match against their own liabilities. “Nigeria’s pension system alone manages more than N20trn in assets, roughly $14bn equivalent in dollar terms,” he says. These investors are exploring private credit allocations “as they seek duration, diversification and exposure to the real economy”.
As a result, TLG lends to Nigerian businesses by working with local banks on guarantees as collateral — including a recent $10mn deal to lend to Falcon Aerospace, a Nigerian aviation firm. “It allows us to source opportunities across the country while designing financing solutions that are rooted in how local markets actually function,” Latif says.
The fallout from the Iran war has meanwhile been a warning about how quickly foreign capital can rush out of domestic government bonds in a global market downturn.
Even more than Nigeria, international investors have bought up Egypt’s domestic debt in the past year, thanks to a similar story of double-digit yields. Investors pulled out billions of dollars in response to the war, triggering a sharp drop in the Egyptian pound. But during the sell-off, the naira also fell against the dollar in what investors say was an aftershock of the Egyptian outflows. This is despite the potential benefit to Nigeria of higher oil prices.
“I think that’s likely because of an unwind of other popular carry trades like Egypt, that Nigeria [saw] the naira weaken,” says Richard Briggs, portfolio manager at Netherlands-based asset manager Robeco. “But fundamentally, higher oil should be supportive for the currency longer term.”
Nigeria’s naira debt is still a long way from its heyday among international investors. It was once part of a global index for local currency bonds of the world’s largest emerging markets. The country was only the second African nation after South Africa to join JPMorgan’s GBI-EM benchmark in 2012. But in 2015, the US bank excluded Nigeria after a global slump in oil prices sucked liquidity from the market and made it harder to trade naira bonds.
Investors are betting that turmoil in the global economy is unlikely to stop a key pillar of the trade — falling inflation. The figure fell from close to 25 per cent in January 2025 to about 15 per cent in January 2026 (although there has been a change in methodology) and supported a cut in interest rates from 27 per cent to 26.5 per cent in February.
“We think the Central Bank of Nigeria may calibrate the magnitude of cuts given pressure on [the currency] and still-ample domestic liquidity,” says Nafez Zouk, emerging market debt sovereign analyst at Aviva Investors. “But it’s a question of ‘how much’ to cut, not ‘whether’ to cut.”
