US President Donald Trump?s threat to launch a military invasion of Nigeria could raise the risk premium on Nigerian assets while threatening to erode recent gains achieved by the nation?s reforms.

Trump had, on Friday, designated Nigeria as a ?Country of Particular Concern,? following it up on Saturday with a threat to cut off all US aids to the nation and invade it to ?wipe out Islamic terrorists? allegedly committing a genocide against Christians.

The threat, issued through the president?s official X handle, came as Trump ordered the Pentagon to ?prepare for a possible action? as a lethal response to the alleged killings.

Analysts say these fiery comments could upend the recent reforms gains and undermine efforts of the government to court foreign investors and, by extension, rattle the newly found stability of the naira.

?It may slow down the speed of the recent gains, but it won?t have so much impact unless it comes with sanctions. Some impact investors might exit, so not so great for the gains from the reforms,? said Bosun Obembe, a Lagos-based treasury analyst.

Africa?s top oil crude producer was recently removed from Financial Action Task Force (FATF) grey list after two years, a move that is expected to boost investment and lure in private capital into the country, but the remarks by Trump could slow down or potentially wipe out that hope.

Christopher Akinbobola, a Lagos-based finance policy analyst and tax expert, said the statement issued by the US president may likely lead to a pull back by foreign portfolio investors, causing heightened equity volatility, wider bid?ask spreads, and rising bond yields. He further said that foreign direct investment may be strained too.

?Foreign direct investment may also be more vulnerable than before. The severity of the allegations creates reputational risk, prompting multinational firms to delay or suspend investment decisions across sectors such as energy, telecoms, agribusiness and fintech,? Akinbobola said. ?The naira may face notable downward pressure as outflows intensify, potentially forcing heavier CBN intervention.?

The escalation may also complicate the Central Bank of Nigeria (CBN)?s efforts to stabilise the naira and anchor inflation expectations. The regulator has been courting portfolio inflows through high-yield securities and reforms in the FX window, but heightened global risk aversion could limit the impact.

Though the naira, for the first time in decades, defied the volatility of oil prices to remain firmer all through the year, its stability remains fragile due to the now heightened political and diplomatic risks.

The rare stability of the naira, which closed October at N1,421.7 per US dollar with a gain of N33.50, has been largely supported by series of policies by the central bank. Portfolio inflows are projected to hit $16.08 billion by the end of the year.

The US president?s remarks could also have a significant impact on Nigeria?s plans to issue Eurobonds worth about $2.3 billion later this year as investors may perceive the country as one with high risk, thereby dampening their sentiments.

Analysts say the bigger threat lies in perception. ?When political risk headlines mention words like ?sanctions? or ?intervention,? fund managers start to reprice frontier-market exposure,? said Kemi Akinyemi, an emerging-markets strategist at Lagos-based consultancy firm. ?Even if no action follows, the premium Nigeria pays to attract capital goes up.?

Nigeria depends on the U.S. and its allies for security assistance and humanitarian funding worth more than $7.8 billion in the past decade, according to the U.S. US Foreign Assistance. A freeze or suspension of that support could widen the country?s fiscal gap and increase borrowing needs, particularly with oil revenues underperforming.

?Fiscal stability may weaken as outflows push domestic yields higher, raise borrowing costs, and worsen the currency?debt service dynamic. The international amplification of Trump?s remarks further threaten Nigeria?s image, influencing multilaterals and rating agencies,? Akinbobola said. (BusinessDay)

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