Nigeria's Naira Shows Strength Amid Economic Reforms
The Nigerian currency, the naira, has demonstrated remarkable resilience in recent weeks, experiencing a sustained period of appreciation against the US dollar. This positive trend is attributed to a combination of factors, including comprehensive regulatory reforms, a bolstering of foreign exchange reserves, and a resurgence of investor confidence in the Nigerian economy.
The naira's performance has been particularly notable in the official Nigerian Foreign Exchange Market, where it has traded around N1,487 to the dollar. This improvement has been widely acknowledged by economists and market analysts as a direct result of strategic foreign exchange reforms implemented by the Central Bank of Nigeria (CBN), coupled with a decrease in speculative trading activities and the aforementioned rise in foreign exchange reserves.
Official data indicates that during a recent week, the naira fluctuated between N1,498 and N1,507 against the dollar, a considerable improvement compared to its opening rate of N1,526.09 in September. The parallel market mirrored this positive movement, with the naira strengthening to a range of N1,515 to N1,517 against the dollar.
Key Drivers of the Naira's Rebound
Several key factors have contributed to the naira's resurgence. Investment firm Commercio Partners has identified three core drivers:
- Increased Demand for Naira: A stronger demand for the Nigerian currency within local markets has played a significant role in its appreciation.
- Reduced Speculative Trading: The curbing of speculative trading, which previously contributed to market volatility, has helped stabilize the naira's value.
- Improved Foreign Reserves: A significant increase in Nigeria's foreign reserves, which reached $41.69 billion as of September 12, 2025, has provided a crucial buffer for the currency.
According to Ifeanyi Ubah, Head of Research at Commercio Partners, the steady growth of these reserves in recent weeks has strengthened Nigeria's external financial position. He emphasized that the current rally appears to be more sustainable than previous cycles, underpinned by strong oil earnings, reduced speculative activity, and growing reserves.
Cautious Optimism and the Need for Continued Discipline
Despite the positive momentum, economists are urging caution, emphasizing that sustaining the naira's strength will require consistent macroeconomic discipline, increased crude oil production, and a broader diversification of export earnings. These measures are crucial to ensure long-term stability and prevent future vulnerabilities.
Impact on Imports and the Broader Economy
The strengthening naira is already having a tangible impact on trade and commerce, particularly in relation to import costs. Previously inflated by high exchange rates, import costs are gradually decreasing. Given that Nigeria's import duties and levies are calculated based on the Cost, Insurance, and Freight (CIF) value of goods, which is directly influenced by prevailing exchange rates, a stronger naira translates to lower import prices.
In 2024, Nigeria's imports totaled $40.97 billion, with China, Belgium, and India being the primary trade partners. Data from the National Bureau of Statistics (NBS) revealed that in the first quarter of 2025 alone, Nigeria imported food and beverages worth N1.67 trillion ($1 billion), representing a 5% increase compared to the same period in 2024. The stabilization of the naira is expected to alleviate pressure on inflation and improve household purchasing power by reducing import-related expenses for businesses.
Rebasing of GDP and Economic Outlook
In addition to the naira's positive performance, Nigeria's economic data has undergone a significant update with the rebasing of the nation's Gross Domestic Product (GDP). This rebasing provides a more accurate reflection of the economy's current size and structure. According to Afrinvest West Africa Limited, Nigeria's rebased GDP now stands at N372.8 trillion. Achieving the target of a $1 trillion economy by 2031 would require an annual growth rate of 21.9% at an exchange rate of N1,500 per dollar.
The Statistician-General, Adeyemi Adeniran, explained that the rebasing process captured new economic activities and emerging sectors, including entertainment, technology, and updated consumption patterns, offering a more comprehensive picture of national output.
Between 2019 and 2024, rebased GDP figures increased from N205.09 trillion to N372.82 trillion, demonstrating consistent growth and highlighting the evolving structure of the Nigerian economy. The agriculture and services sectors have expanded, while the industrial sector's share has decreased.
Economist Aliyu Ilias emphasized that rebasing not only attracts foreign investors but also provides a clearer framework for policy and planning. It enables the government to allocate resources more strategically, identifying structural strengths and untapped opportunities within the economy.
CBN's Foreign Exchange Reforms: A Catalyst for Change
Access to foreign exchange had been a significant obstacle for businesses in Nigeria. Limited official availability forced many to resort to the parallel market, fueling speculation and widening arbitrage gaps. The current administration, in collaboration with CBN Governor Cardoso, implemented bold reforms aimed at addressing these challenges. These reforms include:
- Liberalization of the foreign exchange market
- Phasing out CBN financing of fiscal deficits
- Fuel subsidy reforms
- Strengthening revenue collection
- Implementing inflation control measures
These measures have helped restore investor confidence, improve access to foreign exchange, and facilitate Nigeria's return to international capital markets. Rating agencies have responded positively, and domestic refiners are now operating within a fully deregulated oil market, further enhancing stability.
Increasing Foreign Exchange Reserves: A Sign of Progress
A key indicator of progress has been the substantial increase in Nigeria's foreign exchange reserves. When Governor Cardoso assumed office, reserves were burdened by over $7 billion in unfulfilled commitments and a fragmented exchange rate system. Since then, gross reserves have strengthened, with the Net FX Reserve rising to $23.11 billion, the highest level in three years. This represents a significant increase from $3.99 billion at the end of 2023 and $8.19 billion in 2022.
The Net FX Reserve (NFER) adjusts gross reserves to account for near-term liabilities, providing a more accurate assessment of external buffers. According to Governor Cardoso, this improvement is a direct result of deliberate reforms aimed at unifying exchange rates, rebuilding confidence, and reducing vulnerabilities.
Diversifying Foreign Exchange Inflows
Beyond oil, Nigeria is actively pursuing new sources of foreign exchange inflows. Diaspora remittances, estimated at $23 billion annually, are being leveraged more effectively. The CBN has introduced new product developments to facilitate diaspora transfers, issued licenses to additional International Money Transfer Operators (IMTOs), implemented a willing buyer-willing seller model, and enhanced liquidity frameworks for IMTOs.
Aminu Gwadabe, President of the Association of Bureaux De Change Operators of Nigeria, commended these initiatives, highlighting Governor Cardoso's creativity and persistence in boosting inflows. He stated that these efforts have resulted in a stronger and more transparent reserves position, enabling Nigeria to better withstand external shocks.
Sustaining the Momentum: Key Conditions
While the progress is encouraging, experts emphasize that sustaining the naira's rally is not guaranteed. Maintaining momentum depends on several critical factors:
- Macroeconomic Discipline: Continued tight fiscal and monetary coordination is essential.
- Oil Production Stability: As crude oil remains a dominant source of foreign exchange earnings, maintaining stable oil production is crucial.
- Export Diversification: Diversifying exports will help shield Nigeria from commodity price volatility.
The CBN has committed to transparent reporting, prudent reserve management, and market-driven reforms. Economists emphasize the need for broad-based growth that extends beyond the services and agricultural sectors. Nigeria's aspiration to achieve a $1 trillion economy by 2030-2031 is ambitious but attainable. The rebased GDP provides a clearer perspective, and the sustained rally of the naira could serve as a cornerstone of that journey.
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