The Nigerian naira is projected to weaken further, reaching a value of N1,804 in 2025, according to Afrinvest’s latest report titled “Beyond the Rhetorics: Transforming Reforms to Tangibles.” Despite recent positive movements in the exchange rate, the report indicates continued volatility.
Afrinvest, a Lagos-based investment and research firm, attributes the anticipated depreciation to persistent challenges in meeting foreign exchange (FX) market demand. While Nigeria’s foreign reserves have risen above $40 billion, the report highlights concerns about the sources and usability of these reserves.
“Our prognosis is hinged on the belief that the CBN would be constrained from adequately meeting market demand on a sustained basis, as the recent FX reserves accretion were largely driven by inflows from inorganic sources, including those with stringent conditions on usability,” the report states.
This outlook contrasts sharply with the assumptions of Nigeria’s 2025 budget, which projects the naira stabilizing at N1,400 against the dollar.
Despite Afrinvest’s projections, the naira appreciated this week, closing at N1,534/$1 on Friday, December 27, 2024, compared to N1,548/$1 earlier in the week. This improvement follows the introduction of measures such as the FX BMatch payment system and the Central Bank of Nigeria’s (CBN) mandate for banks to adopt the Electronic Foreign Exchange Matching System (EFEMS), which has enhanced market transparency.
Historical Context
In February 2024, the naira experienced its worst decline, trading at nearly N2,000/$1 in the parallel market due to radical economic reforms, including floating the naira and two significant devaluations. These measures resulted in a 40% depreciation of the currency within one year.
Afrinvest analysts note the possibility of a rebound if Nigeria sees substantial foreign inflows, including crude oil exports, non-oil exports, foreign capital investments, and diaspora remittances.
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“We do not rule out the possibility of a significant rebound in the naira, especially if accretion from crude oil & non-crude oil exports, foreign capital flows, and diaspora remittances takes a significant leap,” the report concludes.
While the naira’s future remains uncertain, sustained reforms, improved foreign exchange liquidity, and strategic economic measures could mitigate the predicted depreciation.
