The Nigerian currency, the naira, might experience a more favorable situation in 2025, according to various financial experts. They predict that Nigeria will see an increase in foreign money coming into the country and a decrease in the need to import petrol and food. This combination could help strengthen the naira.
Uche Uwaleke, who is in charge of the Institute of Capital Market Studies at Nasarawa State University, believes that the naira’s value will improve in 2025. He attributes this positive outlook to two main factors: the expected reduction in importing petrol and food, and an increase in exporting fuel. Uwaleke explains that as Nigeria becomes better at refining its own oil, it will need to import less fuel. This will lessen the demand for foreign currency, which should help the naira gain value.
Additionally, he notes that if Nigeria increases its fuel exports, it will bring more foreign money into the country, which would also support the naira. Another factor that could help is a rise in local food production, which would mean less reliance on food imports.
Uwaleke also points out the importance of foreign investments and money sent back home by Nigerians living abroad. These remittances and investments can provide much-needed cash flow into the Nigerian economy, which is crucial for supporting the naira’s value.
He emphasizes that having strong foreign reserves is essential. Good reserves can protect the economy from unexpected shocks and boost confidence among investors.
Recently, the naira has shown some signs of improvement against the US dollar, gaining a bit of value. It closed at N1,541 to $1, up from N1,545 just a few days earlier. In the black market, it stabilized at N1,660 to $1.
Zeal Akaraiwe, the CEO of Graeme Blaque Advisory, shares a similar optimistic view, suggesting that 2025 could be a turning point for the naira. He believes that improvements in Nigeria’s overall economic situation could help reverse some of the difficulties the naira has faced in recent years.
It’s important to note that the naira has lost about 70% of its value against the dollar over time, and in October, it was ranked as one of the worst-performing currencies globally. However, Olaolu Boboye, an economist at CardinalStone Securities, believes that the naira is entering a phase where it could improve.
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Several factors are contributing to the hopeful outlook for the naira. For instance, Nigeria’s oil production has recently increased to its highest level since April 2021, producing 1.69 million barrels per day. This increase is likely to bring in more money from oil sales.
The introduction of the Electronic Foreign Exchange Matching System (EFEMS) has also been beneficial for the naira by reducing speculation and increasing transparency in the foreign exchange market. However, after initially improving, the black market for currency has seen a decline.
The existence of a black market for currency highlights some ongoing challenges. Akaraiwe points out that this situation indicates either a mismatch between the laws and the realities people face or a failure to enforce existing laws. To address these issues, the Central Bank of Nigeria (CBN) has relaxed restrictions on certain items, allowing more legitimate foreign currency transactions to occur through official channels.
Razia Khan, an economist at Standard Chartered Bank, mentions that the approval of $2.21 billion in external borrowing could help boost Nigeria’s foreign reserves and enhance confidence in the stability of the currency.
Olayemi Cardoso, the CBN governor, has committed to maintaining consistent policies and providing support to the markets to build trust. He emphasizes that trust is essential for effective central banking and that improving transparency in forex transactions is a key goal.
Foreign currency inflows into Nigeria have significantly increased recently, surpassing the total inflows from the previous year by 136% in the first quarter of 2024. The CBN has actively sold dollars to support liquidity in the forex market.
Despite these efforts, there has been volatility in the currency market. Akaraiwe explains that one reason for price fluctuations is the lack of reliable information available to all market participants, which can lead to confusion and distortions in currency valuation.
Abdulrauf Bello, a portfolio manager, believes that the current distortions in exchange rates are due to a lack of confidence in the forex market. He suggests that the CBN needs to intervene more actively to stabilize the situation.
Bello remains optimistic that the naira will eventually appreciate, although he does not expect it to return to previous levels below N1,000 to $1. He believes that a more realistic range for the naira, given the current economic challenges, would be between N1,000 and N1,200 to $1. Overall, while there are still hurdles to overcome, many experts are hopeful about the naira’s future in 2025.
