Emmanuel Ochayi
The Nigerian naira is projected to depreciate further, potentially reaching N1,804.45 per dollar by 2025, according to a recent report by Afrinvest, a Lagos-based investment and research firm.
The report titled “Beyond The Rhetorics: Transforming Reforms to Tangibles” outlines key factors driving this anticipated decline.
Join our WhatsApp ChannelNaira Faces Persistent Volatility
Afrinvest’s analysis suggests that despite Nigeria’s foreign reserves crossing the $40 billion mark, exchange rate volatility is expected to persist in 2025. The report highlights that much of the recent foreign reserve growth comes from “inorganic sources” with strict usage conditions, limiting the Central Bank of Nigeria’s (CBN) capacity to stabilize the market.
“Our projection is that the CBN may struggle to meet market demand consistently,” the report states.
Federal Budget Assumptions
The Nigerian government’s 2025 budget assumes an exchange rate of N1,400/$1. However, analysts warn that this estimate might be overly optimistic. The report attributes the naira’s potential fall to structural issues in the economy, including dependency on foreign inflows and insufficient export diversification.
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Key Trends Driving the Naira’s Performance
- FX Reserve Dynamics: The inflow of funds into Nigeria’s reserves largely stems from foreign loans and other stringent sources, which may restrict their usability.
- CBN Policies: The floating of the naira and recent devaluations have increased market transparency but contributed to the naira’s steep decline.
- Oil Exports: A rebound in crude oil production could provide temporary relief for the naira but remains uncertain due to fluctuating global oil prices.
- Diaspora Remittances: Increased remittances could ease forex pressure, but their impact depends on consistent inflows.
- Structural Reforms: Economic reforms implemented by the government will influence the naira’s trajectory, with emphasis on expanding net reserves.
- Global Market Trends: International market conditions, including rising global interest rates, continue to impact Nigeria’s forex demand and supply.
- Parallel Market Activities: The naira’s gap between official and parallel markets remains a significant concern.
- Economic Growth: Slower economic recovery could reduce Nigeria’s forex earnings and worsen exchange rate pressures.
- Non-Oil Exports: Diversifying export revenue is crucial to easing forex shortages and stabilizing the naira.
- Public Debt: Rising debt levels, particularly in foreign currencies, could exacerbate exchange rate instability.
- Interest Rate Policies: Domestic interest rate adjustments by the CBN will affect foreign investment inflows.
- Geopolitical Risks: Global tensions may indirectly affect forex markets and the naira’s stability.
- Inflation Pressures: Rising inflation in Nigeria weakens purchasing power and puts additional pressure on the naira.
- Technological Innovation: Initiatives like EFEMS aim to enhance market transparency, but their long-term impact is yet to be seen.
- Policy Implementation: The pace and effectiveness of government policy changes will play a pivotal role in shaping the naira’s value.
2024 Trends Offer Mixed Signals
In 2024, the naira experienced significant challenges, plunging to nearly N2,000/$1 in the parallel market earlier in the year. However, it showed slight recovery toward the end of December, closing at N1,534/$1, driven by measures such as the introduction of the FX BMatch system.
Can the Naira Rebound?
While Afrinvest’s report paints a cautious picture, it does not rule out a potential rebound for the naira. Increased inflows from crude oil exports, foreign investments, and diaspora remittances could stabilize the currency. “Significant organic inflows could provide the needed boost for a naira recovery,” the report concludes.
Emmanuel Ochayi is a journalist. He is a graduate of the University of Lagos, School of first choice and the nations pride. Emmanuel is keen on exploring writing angles in different areas, including Business, climate change, politics, Education, and others.
