Market News

By Ayobami Oyalowo

Two years ago Nigeria’s foreign exchange system was under extreme pressure. The naira had collapsed to historic lows, multiple exchange rates encouraged arbitrage, and a $7 billion backlog of unmet obligations threatened investor confidence.  Today, foreign reserves have climbed above $40 billion, covering more than nine months of imports, while net foreign reserves are at their strongest point in three years.

This turnaround reflects the Central Bank of Nigeria’s deliberate policies under Olayemi Cardoso, supported by the Tinubu administration’s broader exchange rate reforms. When Cardoso assumed office, he inherited a system weakened by distortions and opacity.  His response was firm. He unified the exchange rate to restore transparency, cleared billions in FX obligations to signal credibility, and raised interest rates to 27.5 per cent to curb inflation.

More importantly, the CBN reduced short-term liabilities like swaps and forwards, giving clarity to what reserves Nigeria actually controls. These steps were politically and economically difficult, but they restored investor confidence. The results are visible. Gross reserves stood at USD 40.11 billion in July 2025. Even more telling, net reserves reached USD 32.87 billion, a clear reflection of the actual financial buffer now available to policymakers.

As Cardoso put it, “this improvement in our net reserves is not accidental; it is the outcome of deliberate policy choices aimed at rebuilding confidence, reducing vulnerabilities, and laying the foundation for long-term stability. We remain focused on sustaining this progress through transparency, discipline, and market-driven reforms.”

With stronger net reserves, the CBN can defend the naira, absorb shocks, and assure investors it can meet obligations without scrambling for emergency funding.

The naira’s adjustment came with costs. The currency plunged to about N1,600 per dollar in 2024, fueling inflation and public frustration. Yet the devaluation also worked as intended: it boosted export competitiveness and improved the balance of payments.

Remittances, long a lifeline, surged. Monthly inflows rose from around $250 million in early 2024 to $600 million by September. By the end of 2024, Nigeria recorded $20.93 billion in diaspora inflows; the highest in five years. The CBN now targets $1 billion a month through new instruments like diaspora bonds.

Investor capital has also returned. In Q1 2025, Nigeria attracted $5.2 billion in portfolio investments, more than 92 per cent of total capital importation. Of this, $4.2 billion went into money market instruments.  Overall capital importation hit $5.64 billion, a 67 per cent increase compared with the same period in 2024. These inflows signal that reforms are working, and Nigeria is regaining investor confidence.

Why net reserves matter deserves emphasis

Gross reserves offer a headline number but include funds tied up in liabilities. Net reserves reflect the resources Nigeria truly commands. Stronger net reserves mean the country can stabilise the naira, manage external debt and reassure investors without compromising credibility. For businesses, this translates into a more stable operating environment, and for policymakers, it means greater freedom to plan beyond immediate crises.

Nigeria is now moving from crisis management toward relative stability. A market-aligned naira has made Nigerian goods and services more attractive abroad. Stronger reserves provide a cushion for shocks and create a base for sustainable investment. Cardoso’s stewardship has turned short-term volatility into a foundation for recovery through disciplined management and clearer communication.

Still, the next stage of reforms must go beyond monetary policy. Nigeria cannot rely indefinitely on oil or remittances to strengthen reserves. Fiscal policy must drive industrialisation, expand non-oil exports and deepen diversification. Manufacturing, services, and technology must grow to generate export earnings and jobs.

Remittances should be captured more effectively through official channels, and fiscal authorities must work in lockstep with the CBN to consolidate stability.