MARKET NEWS

The long-term stability of the naira has been projected, buoyed by rising inflows of foreign capital and a steady surge in Nigeria’s foreign reserves. Analysts believe the local currency will remain broadly stable, supported by robust FX liquidity and a more efficient foreign exchange market.

Market watchers point to sustained inflows from foreign portfolio investors (FPIs), stronger non-oil exports, and limited incentives for naira speculation as the key drivers of stability.

Last week, the naira appreciated slightly by 0.23 percent (N3.47) to close at N1,531.57 per dollar in the Nigerian Autonomous Foreign Exchange Market (NAFEM). In the parallel market, the currency also gained 0.97 percent week-on-week to settle at N1,540.00 per dollar.

The recent appreciation has been underpinned by the Central Bank of Nigeria’s (CBN) $50 million intervention, alongside increased FPI inflows following the Open Market Operation (OMO) auction.

Aminu Gwadabe, president of the Association of Bureaux De Change Operators of Nigeria (ABCON), noted that with stronger FX inflows into the economy, the outlook for long-term naira stability remains positive.

Data from the National Bureau of Statistics (NBS) revealed that capital inflows into the economy reached $5.6 billion in the first quarter of 2025. Notably, the banking sector alone accounted for $3.1 billion, or 55.44 percent of total inflows, reflecting investor confidence in the sector.

Analysts at Cordros Securities, who also predicted naira stability, highlighted that gross FX reserves climbed to their highest level since December 2021, rising by $353.47 million week-on-week to $41.08 billion on August 21, before inching further to $41.10 billion on August 22.

CBN data shows that reserves hit $40.72 billion on August 13, supported by rising forex inflows and a marginal increase in crude oil output. The gross reserves moving average was $39.3 billion on August 1, $39.5 billion on August 6, and $40.2 billion on August 8.

This sustained reserve accretion, alongside easing inflation, a decline in commodity prices, and steady currency stability, reflects the positive outcomes of ongoing government economic reforms.

In July, Nigeria’s inflation rate eased to 21.88 percent, extending a downward trend. Analysts attribute this to FX reforms championed by the CBN under Olayemi Cardoso, governor of the CBN, as well as federal government policies aimed at boosting local production, reducing import dependence, and curbing domestic price pressures.

Gwadabe of ABCON emphasised that the apex bank has been cultivating multiple FX sources to bolster dollar inflows, ensuring wider access for manufacturers and retail users.

“From moves to improve diaspora remittances through new product development, granting licenses to new International Money Transfer Operators (IMTOs), implementing a willing buyer–willing seller FX model, and enabling timely access to naira liquidity for IMTOs, the apex bank has simplified dollar inflow channels for authorised dealers and other players in the value chain,” Gwadabe explained.

Reform-Driven Progress

The CBN has in recent years implemented bold reforms to attract foreign capital, restore market stability, and strengthen investor confidence.

In 2023, under Cardoso, the apex bank liberalised the FX market, halted central bank financing of fiscal deficits, and supported government-led reforms, including fuel subsidy removal and stronger revenue collection. These measures helped reduce inflationary pressures, stabilise the exchange rate, and attract global capital.

Read also: From Devaluation to domination: How Tinubu’s exchange rate reforms turned the Naira into Nigeria’s export engine

Since the reforms, international reserves have strengthened, while access to FX in the official market has improved significantly. Nigeria also returned to the international capital markets in December 2024 and subsequently earned credit rating upgrades.

The unification of multiple exchange rate windows and the clearance of over $7 billion FX backlog further boosted investor sentiment, with multilateral institutions such as the World Bank praising the reforms as bold steps to secure long-term macroeconomic stability.

As a result, Nigeria’s sovereign risk spread fell to its lowest since January 2020, reversing premiums accumulated during the COVID-19 pandemic and other shocks.

Rising Foreign Capital Inflows

According to the NBS “Capital Importation Q1 2025” report, Nigeria attracted $5.64 billion in the first quarter of 2025, a 67.12 percent year-on-year increase compared to $3.37 billion in Q1 2024. This also represented a 10.86 percent increase from $5.08 billion recorded in Q4 2024.

Portfolio investments dominated with $5.2 billion (92.25 percent of total inflows), followed by other investments at $311.17 million (5.52 percent). Foreign Direct Investment (FDI) was the least contributor at $126.29 million (2.24 percent).

Sectoral analysis showed that the banking sector led with $3.1 billion (55.44 percent of total inflows), followed by the financing sector with $2.09 billion (37.18 percent), and production/manufacturing with $129.92 million (2.30 percent).

Capital inflows largely originated from the United Kingdom, which contributed $3.68 billion, or 65.26 percent of total inflows.

Afrinvest West Africa Limited, in a note to investors, explained that portfolio investment flows rose by 30.1 percent quarter-on-quarter and 150.8 percent year-on-year to $5.2 billion, with most of the inflows channelled into money market instruments ($4.2 billion). Bonds attracted $877.4 million, while equities received $117.3 million.

GDP Opportunities

Nigeria’s goal of achieving a $1 trillion economy by 2030 is expected to draw significant support from the financial sector.

Adeyemi Adeniran, Statistician-General noted that the rebased GDP figures better reflect the economy’s true scale. Nominal GDP rose from N205.09 trillion in 2019 to N372.82 trillion in 2024, representing an average increase of around 36 percent annually over the period.

He added that the rebasing exercise provides a more accurate picture of the economy, supporting improved policymaking and planning. “It’s not just about a bigger number but about accurate, timely data that supports smarter policy and economic planning,” he explained.

Economists note that Nigeria’s economic structure is shifting, with services and agriculture accounting for greater shares of output, while the industrial sector’s contribution has declined.

Development economist Aliyu Ilias pointed out that the rebasing also highlights previously underreported sectors, such as entertainment, offering new opportunities for investment and policymaking.

Banking Sector Preparedness

CBN Governor Olayemi Cardoso has urged banks to recapitalise in preparation for the government’s $1 trillion GDP target. He warned that current bank capitalisation levels are insufficient to support an economy of that size.

“Will Nigerian banks have sufficient capital relative to the financial system’s needs in servicing a $1 trillion economy in the near future? In my opinion, the answer is no, unless we take action. That action is the ongoing recapitalisation of banks, meant to prepare them for expansion and attract big-ticket transactions to support economic growth,” Cardoso said.

The Policy Advisory Council has also stressed the need for recapitalisation, noting that a stronger banking system will be central to achieving Nigeria’s growth ambitions.

Global Confidence in Reforms

Global portfolio managers and analysts remain optimistic about Nigeria’s reform-driven recovery.

“Nigeria appears to be back in business as long-awaited economic reforms take shape,” said Emre Akcakmak, portfolio manager at East Capital. “Key measures include improved currency liquidity, leeway for investors to repatriate profits, and the stable naira.”

Samir Gadio, head of Africa strategy at Standard Chartered Plc, told Bloomberg that portfolio inflows have been supported by improved confidence amid structural reforms, better FX market functioning, moderating naira volatility, and robust yield buffers.

“Besides, Nigeria’s local market is seen as less correlated with global risk conditions than more liquid emerging-market peers,” Gadio added.

Outlook

Looking ahead, the CBN expects reserves to continue rising, supported by improved oil production, stronger non-oil export growth, and diversified external inflows.

The apex bank reiterated its commitment to prudent reserve management, transparent reporting, and policies aimed at stabilising the exchange rate, attracting investment, and building long-term resilience for the naira and the Nigerian economy.