Market News

BY  Joseph Inokotong

Nigeria’s foreign exchange reforms are gaining traction, with fresh capital inflows, rising reserves, and improving investor sentiment driving renewed confidence in the naira’s long-term stability. Analysts and industry stakeholders say the Central Bank of Nigeria’s (CBN) market-oriented policies, coupled with fiscal adjustments by the Federal Government, are positioning Africa’s largest economy for greater resilience, growth, and global competitiveness.

Improved confidence in the Central Bank of Nigeria’s (CBN) policies, coupled with stronger non-oil exports and limited incentives for currency speculation, is reinforcing optimism among investors and policymakers.

Signs of stability have started emerging. Over the past week, the naira appreciated by 1.1 percent to close at N1,520/$ in the official market. The gains were supported by a $50 million intervention from the CBN and increased foreign portfolio inflows following the successful conduct of Open Market Operation (OMO) auctions.

The uptick in inflows reflects stronger confidence among investors who had, until recently, remained cautious due to exchange rate volatility and inflationary pressures. According to the National Bureau of Statistics (NBS), total capital importation into Nigeria stood at $5.64 billion in the first quarter of 2025, representing a 67 percent increase compared to the same period in 2024.

Foreign Portfolio Investment (FPI) dominated inflows, accounting for $5.2 billion or 92.2 percent of the total, with the banking sector attracting the lion’s share at $3.1 billion.

“The long-term stability of the naira is now more likely given the stronger pipeline of inflows, rising reserves, and limited incentives for currency speculation,” said Dr. Aminu Gwadabe, President of the Association of Bureaux De Change Operators of Nigeria (ABCON).

Analysts from Cordros Securities observed that Nigeria’s gross external reserves have steadily risen to the highest level since December 2021. As of August 22, reserves stood at $41.1 billion, up from $40.7 billion in mid-August and $39.3 billion at the start of the month. The week-on-week increase of $353.5 million signals not only stronger inflows but also more effective reserve management by the apex bank.

The reserves accretion, coupled with a decline in inflation, which eased to 21.88 percent in July, underscores the impact of wide-ranging reforms introduced since 2023. These include the unification of exchange rates, removal of fuel subsidies, liberalisation of the FX market, and stricter fiscal discipline that ended the practice of deficit financing by the CBN.

“These reforms have provided a more transparent, rules-based system that is attracting investors and stabilising macroeconomic conditions,” said Cordros Securities in a note to clients. The reforms are driving the turnaround.

Governor Olayemi Cardoso’s CBN has pursued a deliberate strategy to simplify forex inflows, deepen liquidity, and boost investor confidence. Key measures include: Adoption of the willing buyer, willing seller FX model. Clearance of over $7 billion FX backlog, a move described by the World Bank as bold and confidence-restoring.

Introduction of policies to channel diaspora remittances more efficiently, including granting licences to new International Money Transfer Operators (IMTOs). Improved access to naira liquidity for IMTOs and authorised dealers. Reduced reliance on direct interventions in the forex market in favour of market-driven pricing.

“These initiatives have created multiple channels for dollar inflows and ensured timely access to foreign exchange by manufacturers and end-users,” noted Dr. Gwadabe.

Nigeria’s return to the international capital markets in December 2024, after years of absence, signaled renewed confidence in its economic reforms. Credit rating agencies responded positively, with upgrades that helped reduce Nigeria’s sovereign risk spread to its lowest level since January 2020.

Data from the NBS show that FPI flows were concentrated in money market instruments ($4.2 billion), bonds ($877 million), and equities ($117 million), reflecting strong appetite for Nigerian assets among global investors.

Afrinvest West Africa Limited reported that portfolio flows surged 150 percent year-on-year, driven by both higher yields and stronger confidence in Nigeria’s reform momentum.

The optimism is also supported by recent rebasing of Nigeria’s Gross Domestic Product (GDP). According to Statistician-General Adeyemi Adeniran, the rebased nominal GDP rose from N205 trillion in 2019 to N372.8 trillion in 2024, reflecting a structural shift toward agriculture and services.

“This rebasing is not just about a larger number but about presenting a more accurate picture of the economy,” Adeniran said. “It allows policymakers to identify untapped sectors, such as entertainment and mining, and better allocate resources.”

Development economist Aliyu Ilias agreed, noting that the exercise would improve Nigeria’s visibility to foreign investors and uncover opportunities in emerging industries.

With President Bola Tinubu’s administration targeting a $1 trillion economy by 2030, the CBN has initiated fresh recapitalisation of banks to prepare them for bigger ticket transactions and to support growth.

Governor Cardoso stressed that current bank capitalisation is insufficient to serve an economy of that scale. “Will Nigerian banks have sufficient capital to service a $1 trillion economy in the near future? The answer is no, unless we take bold action,” he said.

Analysts agree that a well-capitalised banking sector will be critical to financing infrastructure, industrial expansion, and private sector growth necessary to achieve the ambitious GDP target.

Nigeria’s reforms have also positioned it more favourably in global markets, even as other emerging economies face turbulence.

“Nigeria appears to be back in business as long-awaited reforms take shape,” said Emre Akcakmak, portfolio manager at East Capital. He highlighted improved currency liquidity, stability of the naira, and freer repatriation of investor profits as key factors attracting foreign capital.

Samir Gadio, head of Africa strategy at Standard Chartered Plc, added: “Portfolio inflows have likely been supported by improved confidence amid key structural reforms, better FX market functioning, and moderating dollar-naira volatility.” The relative insulation of Nigeria’s market from global shocks compared to other emerging economies has also been cited as a factor driving inflows.

While the outlook for the naira appears stable, sustained progress depends on consistent policy implementation. Analysts caution that external risks, such as fluctuations in oil prices or global monetary tightening, could test Nigeria’s resilience.

The CBN, however, has reiterated its commitment to prudent reserve management, transparent market operations, and continued reforms to strengthen non-oil exports and diversify foreign exchange earnings. Improved oil production, growing gas exports, and deliberate efforts to boost non-oil sectors such as agriculture, technology, and services are expected to expand Nigeria’s forex base.

Nigeria’s economy is showing signs of recovery and resilience, supported by rising capital inflows, strengthening reserves, moderating inflation, and a more stable naira. The Cardoso-led CBN’s market-oriented reforms and the Federal Government’s fiscal adjustments are gradually reshaping investor perception of Nigeria as a credible and attractive investment destination.

For a nation long hobbled by currency instability, inflation, and investor scepticism, the reforms represent a decisive shift. If sustained, they could provide the foundation for achieving Nigeria’s ambition of becoming a $1 trillion economy by 2030, anchored on a stable naira, stronger banks, and a more diversified export base.