The liberalisation of the foreign exchange market, which has led to relative stability in the exchange rate, appears to have renewed investors’ confidence in the country’s economy, FELIX OLOYEDE reports
Investors strongly abhor uncertainty because it complicates planning. This was the scenario when the country’s foreign exchange market experienced volatility due to a severe dollar shortage. This shortage was a result of a significant decline in both crude oil production and prices.
The situation resulted in the Central Bank of Nigeria’s inability to meet foreign exchange obligations, leading to a backlog exceeding $7bn. Manufacturers struggled to fund their letters of credit, causing many to shut down due to a lack of raw materials. Additionally, numerous foreign companies operating in the country were unable to repatriate their profits, which led some of them to exit Nigeria.
Despite ongoing global and domestic challenges, the liberalisation of Nigeria’s forex market has significantly reduced the volatility that plagued it before the reforms implemented in June 2023.
Investors can now easily access forex due to a willing buyer, willing seller regime. The apex bank has successfully cleared over $7 bn in backlog and manufacturers are funding their letters of credit without much hassle.
The local currency, which depreciated to N1,609/$ on May 9, strengthened to N1590.75/$ on Wednesday, May 28, indicating a positive outlook and stability in recent months.
In addition to the stability that the reform has provided to the forex market, it has also contributed to reducing the disparity between the exchange rates in the official and alternative markets, enhancing transparency and tackling the issue of roundtripping in the market.
The naira exchanged at 1,625/$ at the black market and 1590.75/$ at the official market, the Nigerian Foreign Exchange Market, on Wednesday.
Yields on Nigeria’s $1.5bn eurobond, maturing in 2034, have decreased to 9.69 per cent, the lowest level since its launch in early December. Additionally, a recent domestic debt auction was oversubscribed three times, with Open Market Operation bills being allotted at 21.45 per cent compared to the previous rate of 22.65 per cent. This trend indicates a renewed confidence among investors in Nigeria’s economy.
Meanwhile, through strategic interventions—such as the recent $190.4m injection—analysts anticipate the naira will maintain its short-term stability, supported by easing global pressures and diminishing trade tensions.
In an email to investors, the Head of Research at Commercio Partners, Dr Ifeanyi Uba, explained that CBN Governor Yemi Cardoso defended the naira’s performance by stating that Nigeria’s currency performed better than many peers during this period of uncertainty.
“Despite this, there’s a silver lining: the CBN’s foreign exchange reforms are clearly yielding results. One of the most notable successes has been the reduction in exchange rate volatility. Although the naira has depreciated, it has done so in a more orderly and predictable manner,” he said.
He added that the gap between the official and parallel market exchange rates remains narrow—a notable shift from the wide discrepancies observed in previous years.
“Daily fluctuations in the exchange rate have also moderated significantly when compared to 2024, signalling growing market confidence and increased transparency in forex operations. This improved stability is not just a statistical detail, it matters deeply to investors. Exchange rate volatility is a major risk consideration for foreign investors looking to enter any emerging market.
“As Nigeria continues to rein in this volatility, it enhances its attractiveness as a destination for foreign capital. Should these reforms persist and deepen, they may lay the groundwork for a more sustainable and investment-friendly forex environment, potentially setting the stage for renewed inflows and a more stable naira in the long run,” he enunciated.
Nigeria’s sovereign risk spread has now dropped to its lowest level since January 2020, effectively reversing the premium built up during the pandemic and the economic pressures that followed.
Despite the widening trade war initiated by US President Donald Trump, Nigeria has managed to remain stable among emerging markets. The country has attracted foreign investment, thanks to currency reforms and other measures aimed at revitalising the economy of Africa’s most populous nation.
According to a portfolio manager at East Capital, Emre Akcakmak, Nigeria appears to be back in business as long-awaited economic reforms take shape, noting that key measures include improved currency liquidity, leeway for investors to repatriate their profits, and a stable naira.
“We feel the Central Bank of Nigeria will continue to stem any sharp appreciation of the naira to limit profit taking from the fast money community,” Akcakmak mentioned.
According to Bloomberg, the Head of Africa Strategy at Standard Chartered Plc, Samir Gadio, indicated that portfolio inflows have likely been bolstered by growing investor confidence.
He stated that this optimism stemmed from key structural reforms, improved functioning of the foreign exchange market, and a decline in dollar-naira volatility, adding that the nominal yield buffer has remained robust, further supporting inflows.
“Besides, Nigeria’s local market is seen as less correlated with global risk conditions than more liquid EM peers,” he asserted.
The Governor of the CBN, Olayemi Cardoso, expressed confidence that the measures implemented by his administration will soon yield tangible benefits, positively impacting every Nigerian.
He expressed the need for reassurance regarding the expected outcomes of the policy measures being implemented by the CBN. This need arises from the increasing challenges faced by Nigerians due to the further deterioration of key macroeconomic indicators, particularly inflation and exchange rates. These issues fall within the responsibility of the monetary policy authority and have worsened since he took office in September of last year.
The Managing Director of Afrinvest West Africa Limited, Ike Chioke, stated that Nigeria’s successful $2.2bn Eurobond issuance significantly enhanced dollar liquidity, strengthening the naira’s exchange rate position.
“We anticipate the Naira to regain more ground against the dollar, driven by aforementioned factors,” he emphasised.
He outlined other key policies of the apex bank that contributed to the naira’s rally, including the clearance of the $7bn forex backlog and the resumption of sales of Open Market Operation bills to Foreign Portfolio Investors at market-reflective rates.
Uba noted that, despite a difficult start to the year, Nigeria’s external reserves have started to rebound—a promising shift that underscores evolving market dynamics and the apex bank’s strategic initiatives to rebuild economic confidence
“While early 2025 saw some drawdown in the reserves due to heightened demand for foreign exchange—driven by debt servicing obligations, import-related FX needs, and direct CBN interventions—the tide began to turn from late April,” he said.
As of May 16, Nigeria’s external reserves were around $38.9bn, which the CBN indicates is adequate to cover 7.6 months’ worth of imports for goods and services.
This recovery in reserve accumulation came alongside a strong endorsement from the international financial community. In April, Fitch Ratings upgraded Nigeria’s Long-Term Foreign-Currency Issuer Default Rating from ‘B-’ to ‘B’, while maintaining a stable outlook.
What makes this upgrade particularly noteworthy is its timing—it arrives amid heightened global uncertainty, with escalating U.S. tariffs and widespread investor caution weighing on emerging markets. That Fitch proceeded with an upgrade under such conditions sends a clear signal: Nigeria’s economic reforms are gaining international credibility.
This recognition extends beyond Fitch; several other external institutions have also acknowledged Nigeria’s improving macroeconomic outlook. A crucial factor in this restored confidence is the CBN’s efforts to enhance transparency and credibility, especially among foreign investors who have long been concerned about data opacity and unpredictable policies.
Nigeria’s recent macroeconomic performance reveals a country navigating turbulence with a clear reform-driven strategy. Inflation is easing not by chance, but through a deliberate blend of tight monetary policy and complementary fiscal measures.
The naira, though tested by global and domestic forces, has avoided the kind of chaos once feared, thanks in large part to targeted CBN reforms that have restored a measure of stability and reduced volatility.
With rising external reserves, greater transparency from the central bank, and fresh efforts to mobilise the diaspora, Nigeria is not just recovering—it’s repositioning for long-term economic resilience.
In response to ongoing global headwinds, Cardoso stressed the urgency of reinforcing reforms to fortify the economy against external shocks. Achieving this, he noted, demands sustained efforts to reduce inflation, uphold fiscal discipline, and accelerate economic diversification.
“Upon assuming office in October 2023, we prioritised reforms to rebuild Nigeria’s economic buffers and strengthen resilience. Inflation, which had surged to 27 per cent, was one of the most pressing challenges, partly driven by excessive money supply growth. “While our GDP growth had stagnated at a meagre 1.8 per cent over the previous eight years, money supply expanded rapidly, averaging about 13 per cent growth annually,” he stated.
The CBN governor highlighted that this imbalance not only drove inflation but also led to a sharp depreciation of the naira. Inflation, as widely recognised, breeds uncertainty for households and businesses, functioning as a silent tax that diminishes purchasing power and escalates living costs.
Analysts believe Nigeria’s economy and businesses will have many reasons to cheer in 2025 as the impacts of economic reforms in the FX market, currency exchange, and significant budget outlays begin to pay off.
The Managing Director of Financial Derivatives Company Limited, Bismarck Rewane, projected that Nigeria would begin to emerge from the most painful phase of its reform adjustment process in 2025. He emphasised that sustained recovery hinges on effective policy implementation and robust institutional reforms.
He noted that although the fundamentals of Nigeria’s exchange rate suggest that the naira should be stronger, achieving stability relies on an efficient and well-managed forex system.
He added that the main challenge was not the reforms themselves, but rather their management, citing poorly sequenced policy changes and inadequate structural reforms as significant obstacles to stability.
Rewane stated, “Revenue alone is not enough. Investment is key, but it will be influenced by confidence, transparency, and the right policies.”
He also highlighted ongoing challenges, including inefficiencies in power supply and a lack of transparency in the oil and gas sector, emphasising the urgent need for structural reforms to address these issues.
Financial experts believe that early signs, such as the stability observed in the forex market following the introduction of the electronic foreign exchange matching system, indicate that there is, indeed, hope for our country.
They argue that the timing of these developments has bolstered optimism about the Nigerian economy.
