Market News

The naira has maintained remarkable stability despite the high-travel summer season, falling oil prices, and declining external reserves.

Nigeria’s foreign currency reserves have dropped by 8.8 percent year-to-date, marking a $3.6 billion decline to $37.28 billion as of July 8, 2025, from $40.88 billion at the start of the year, according to data from the Central Bank of Nigeria (CBN).

Latest figures also show that the price of Bonny Light crude fell by 14.5 percent in the first quarter of 2025, from $80.76 per barrel in January to $69.07 per barrel in April. It stood at $78.62 p/b.

Local crude oil production also dipped slightly by 3.2 percent to 1.49 million barrels per day in April, from 1.54 million barrels per day in January. Similarly, crude oil export volumes fell by 4.6 percent to 1.04 million barrels per day over the same period, from 1.09 million barrels per day in January 2025.

In spite of these macroeconomic headwinds, the naira has appreciated against the U.S. dollar. In the official market, the currency gained 1.4 percent year-to-date as of Wednesday, with the dollar exchanging at N1,520.74, compared to N1,541.36 at the start of the year.

In the parallel market, the naira appreciated even more significantly by seven percent, trading at 1,550 on Wednesday, compared to 1,660 at the beginning of the year.

Analysts attribute the trend to reduced demand for dollars and a shift toward local alternatives. Dollar demand has remained relatively subdued despite the summer travel season, reflecting both reduced international travel and a more disciplined approach to foreign exchange.

“The elevated exchange rate has made international vacations far more expensive, with family trips now costing up to N20 million, well beyond the reach of many Nigerians,” Ayokunle Olubunmi, head of Financial Institutions Ratings at Agusto & Co, said.

He noted that this, combined with reforms introduced by the Central Bank of Nigeria (CBN), including exchange rate unification, have helped to curb speculative demand that previously inflated the market. “What we’re seeing now is a more genuine and transparent demand for dollars. The arbitrage that fuelled spurious demand in the past has been mostly eliminated,” Olubunmi explained.

Funmi Adebowale, head of Research at Parthian Partners, noted that the subdued dollar demand reflects a combination of demand- and supply-side dynamics. “On the demand side, household incomes remain under pressure, leading to more cautious spending and a scaling back of discretionary expenses, including international travel,” she said. “Even during this year’s Hajj, activity appeared relatively subdued, with fewer advertisements and travel campaigns compared to previous years.”

On the supply side, Adebowale noted that liquidity in the FX market has improved, supported by increased foreign portfolio inflows. “Investor confidence has strengthened on the back of Nigeria’s economic reforms, particularly those promoting transparency and liberalisation in the FX market,” she noted. These combined factors, she explained, have helped to ease pressure on the naira during a period that typically sees heightened demand.

Analysts say several structural changes have helped to support the local currency. A key driver is the significant reduction in foreign exchange demand for the importation of Premium Motor Spirit (PMS), following increased domestic refining capacity, especially from the Dangote Refinery. This has reduced pressure on FX reserves that previously went into fuel imports.

Another critical factor has been the steady inflow of foreign portfolio investments. Improved investor sentiment, backed by market-friendly reforms from the current administration, including fiscal tightening and FX liberalisation, has helped to boost capital inflows and stabilise the naira. “These inflows have been instrumental in sustaining exchange rate stability despite global and domestic pressures,” said Olubunmi.

Beyond financial markets, businesses are increasingly sourcing inputs locally due to the high cost of imports. This shift towards import substitution is not only helping firms manage costs but also reducing demand for foreign exchange. “Both individuals and companies are now questioning the necessity of foreign transactions. This behavioural shift is driving FX stability and fostering a more sustainable market,” Olubunmi said.

Muda Yusuf, CEO of the Centre for the Promotion of Private Enterprise (CPPE), said the exchange rate has dampened appetite for foreign travel. “Going for summer vacations is not as easy as it used to be. The cost has become significantly elevated as a result of the exchange rate situation. It takes the upper middle class and the super-rich to still continue this culture of vacation abroad,” he said.

Yusuf said the situation presents a compelling case to invest more in domestic tourism and hospitality. “People should look inwards for their vacation. They should look at locations within our country… not only for raw materials, but even for things like going for vacation, medical tourism, and education tourism,” he advised. A cultural shift, he argued, could help boost local economic activity.

He also cited geopolitical and policy issues, including immigration policies in key destinations, as a deterrent to international travel.

Read also: Naira firms up after banks resume international usage of local currency cards

“There’s a lot of unpredictability, a lot of embarrassment. Some of these things can put people off,” he said, referring to the recent U.S. visa policy change reducing validity from five years to three months. “That, for me, is even an embarrassment to our country.”

Yusuf said the nation has some level of net reserves to support the currency.

“Even the dollar itself is weakening. If the benchmark currency is weakening, that may be a reason why our exchange rate is remaining stable,” he said.

He concluded that autonomous inflows of foreign exchange from diaspora remittances, portfolio investors, and other sources have remained steady. “These inflows, supported by the liberalisation of the FX market, have been instrumental in ensuring the naira’s resilience. But the trend remains vulnerable to shocks from falling oil prices or tightening global financial conditions,” Yusuf warned.