Market News

BY  Hope Moses-Ashike 

The naira now trades within a narrow, stable range as the Central Bank of Nigeria’s sweeping foreign exchange (FX) reforms continue to reset price discovery and restore discipline to the market.

The once-wide gap between the official and parallel market rates has compressed to under two percent, down from more than 60 percent, according to Olayemi Cardoso, governor of the CBN, who said the reforms have helped create a more transparent, market-driven FX system that is attracting capital and boosting confidence.

He said, “The introduction of the Nigerian Foreign Exchange Code has established clear rules for transparency, ethics, governance, and fair dealing among authorised dealers while the deployment of the Electronic Foreign Exchange Management System (EFEMS) system, powered by Bloomberg BMatch, has transformed FX trading through mandatory order submission, real-time regulatory visibility, and enhanced price discovery. Together, these reforms have reduced opacity and manipulation, and restored discipline to the market. The naira now trades within a narrow, stable range. The once-substantial gap between the official and parallel markets has shrunk to under 2 percent, down from over 60 percent.”

The naira has recorded a significant gain of N209.26 against the dollar in the official foreign exchange market, marking a full year since the commencement of the Electronic Foreign Exchange Management System (EFEMS).

Data published by the Central Bank of Nigeria (CBN) showed that the naira appreciated by 14.4 percent to N1,451.86 on Tuesday, December 2, 2025, compared to N1,661.12 quoted on December 2, 2024, which was the first trading day under the EFEMS framework. This improvement underscores the currency’s gradual strengthening since the revised trading architecture came into effect.

The CBN’s flexible FX regime, expanding non-oil exports, rising services trade, and new surveillance tools, such as the Electronic Forex Market Surveillance System and the Electronic Foreign Exchange Management System are shifting Nigeria gradually toward an economy less dependent on oil while improving the country’s capacity to earn foreign exchange through multiple channels. The transition to a single, market-determined exchange rate and enhanced risk-based supervision in the banking sector have also strengthened monetary transmission and macroeconomic stability.

The push for diversification is yielding results, with oil contributing a smaller share to Gross Domestic Product (GDP), accounting for roughly 33 percent of government revenue and 51 percent of exports. After nearly a decade in which real GDP growth averaged just about two percent, the reform momentum appears to have restored confidence. The economy expanded by 4.23 percent in the second quarter of 2025, the fastest pace in four years, driven by improved performance in telecommunications, financial services, and oil output.

Part of this stability has come from the enforcement of clear rules. The introduction of the Nigerian Foreign Exchange Code has helped strengthen transparency, ethics, governance, and fair dealing among authorised dealers. The EFEMS platform, powered by Bloomberg BMatch, has transformed FX trading through mandatory order submission, real-time visibility for regulators, and stronger price discovery. Together, these reforms have curbed opacity and manipulation, reinforcing market discipline.

Capital flows have responded positively. Foreign inflows rose to US$20.98 billion in the first 10 months of 2025, representing a 70 percent increase over full-year 2024 and a 428 percent jump from the US$3.9 billion recorded in 2023. Cardoso said this reflects a resurgence in investor confidence driven by a more predictable FX regime and improved macroeconomic fundamentals. He reiterated that the naira is now trading within a narrow, stable band across markets, with the gap between the official and parallel markets shrinking to under two percent.

Nigeria’s external buffers have strengthened as well. The current account surplus rose by over 85 percent to US$5.28 billion in the second quarter of 2025, up from US$2.85 billion in the first quarter. External reserves climbed to US$46.7 billion by mid-November, the highest in nearly seven years, providing over ten months of import cover. Cardoso stressed that unlike previous cycles, reserves are being rebuilt organically, through stronger non-oil exports, improved market functioning, and higher capital inflows, rather than through borrowing.

While oil production has improved to between 1.45 and 1.52 million barrels per day in 2025, the standout performance has come from the non-oil sector. Non-oil exports grew by more than 18 percent year-on-year, underpinned by greater exchange-rate flexibility and reforms that have boosted the competitiveness of Nigerian exporters. Diaspora remittances have risen by about 12 percent this year as confidence returns to official channels, aided by better transparency, faster settlement, and the rollout of the Non-Resident Bank Verification Number (BVN) framework, which is expected to see wider adoption in 2026.

Cardoso said the CBN will continue to maintain a flexible exchange-rate framework that allows the naira to serve as a shock absorber while limiting excessive volatility. He disclosed that the Bank will soon release a revised FX Manual designed to expand market participation, tighten documentation requirements, and enhance EFEMS surveillance to ensure consistent implementation and avoid policy reversals.

Nigeria’s reform agenda has also received strong backing from international rating agencies. Fitch upgraded Nigeria from B- to B (stable), citing the restoration of market discipline, FX reforms, and monetary tightening. Moody’s raised its rating from Caa1 to B3 in May, while S&P recently affirmed B-/B with a positive outlook, underpinned by rising reserves, stronger fiscal coordination, and sustained reform momentum. The ratings, analysts say, signal improving creditworthiness and a more resilient macroeconomic outlook.

“These endorsements have translated into lower borrowing costs and stronger investor appetite,” Cardoso said, noting that Nigeria successfully issued US$2.35 billion in Eurobonds this month, attracting a record US$13 billion in orders.

Economist and consultant, ’Abiodun Adedipe, said Nigeria’s economic trajectory reflects major policy shifts across FX management, fuel subsidy reforms, bank recapitalisation, and fiscal consolidation. He said the removal of petrol subsidies eliminated a wasteful annual burden of about US$10.7 billion, while bank recapitalisation is positioning lenders to support Nigeria’s ambition of becoming a US$1 trillion economy. He also noted that the tax reforms underway have the potential to create regional competition and stimulate broad-based growth, similar to China’s economic transformation model.

Adedipe cited Nigeria’s demographic and structural strengths, including a large, youthful population, rapid urbanisation, deepening internet penetration, and rising digital adoption, as fundamentals that will support long-term growth. He added that improved infrastructure and expanding local refining capacity would further reduce pressure on FX demand and enhance competitiveness.

The CBN said the alignment between monetary and fiscal authorities has strengthened the credibility of macroeconomic policy and helped stabilise the economy. The discontinuation of direct deficit financing from the Bank underscores the commitment to fiscal discipline, while reforms such as the Revenue Optimisation framework, a proposed National Revenue Agency, and enhancements to the Treasury Single Account are boosting public financial management.

Cardoso said greater coordination will be critical as Nigeria transitions toward a full-fledged inflation-targeting regime, ensuring that both fiscal and monetary policies reinforce each other in the pursuit of durable price stability.

Meanwhile, the Nigerian National Petroleum Company Limited (NNPC Ltd) reported that revenue rose to N5.08 trillion in October 2025, from N4.27 trillion in September, driven by stronger operations and cost optimisation. Profit after tax jumped to N447 billion in October, compared with N216 billion in September. Gas production and sales improved sharply, although crude oil production dipped slightly to 1.58 million barrels per day from 1.61 million barrels per day.

With global oil prices hovering just above US$63 per barrel, well below Nigeria’s budget benchmark of US$75, analysts warn that revenue shortfalls could widen the fiscal deficit to between six and seven percent of GDP. Bismarck Rewane of Financial Derivatives Company said the grim forecast by the Wall Street Journal that oil may fall below US$50 per barrel by the end of 2025 underscores the need for stronger buffers and more aggressive diversification.

The CBN said it is already working to mitigate the risk by promoting non-oil exports, strengthening backward integration to reduce import dependence, and improving the flow of diaspora remittances. Businesses, the Bank said, must adopt export-oriented strategies, invest in domestic production, and shift from exporting raw materials to processed goods to boost foreign exchange earnings. The apex bank added that Nigeria’s competitive exchange rate provides a strong foundation for export-led growth, echoing lessons from China’s development strategy.