Will the naira, which was on a freefall in 2024, strengthen to N1,000 or N1,300 to a dollar or weaken to N1,700 to N2,000 in 2025? Economists, finance experts and finance-focused institutions have answers to this question.
These answers are different, as the experts used various metrics to arrive at them. While some used the historical or behavioural metrics to arrive at their answers, others deployed averages.
A United Kingdom-based currency expert, Dr Henry Uwabobua, believes that the naira will weaken moderately to N1780/$ by the end of 2025, hinging his projection on possible higher foreign exchange inflows in 2025 and reduced pressure on the local currency.
“There will be less pressure on the foreign exchange market in 2025 due to the refineries that are up and running. Hence with Dangote, Warri and Kaduna refineries that are now on, the desire to source dollars to import petrol and other similar fuels will be low or non-existent,” said Dr Uwabobua, who is also an economist and visiting professor, said.
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“Secondly, the government sold the dollar bond last year and we might begin to see some measure of its benefits this year. Also, the Central Bank of Nigeria (CBN) measures are beginning to work. The newly-introduced Electronic Foreign Exchange Matching System (EFEMS) is also helping the naira.”
EFEMS helps to enhance governance, transparency and facilitate a market-driven that will be accessible to the public, according to the CBN.
According to Cardinalstone Research, the naira will hover around N1,720.88/$ in 2025 due to several factors such as the CBN introduction of the EFEMS platform, rising foreign reserves, increasing foreign portfolio inflows, greater access to dollar-denominated debt and a positive current account balance.
Afrinvest Research, on the other hand, believes that the naira could depreciate to N1,804.45 in 2025 owing to issues around volatility, noting that the CBN will struggle to meet dollar demands this year.
“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 firm said.
A finance expert, Mr Adekunle Wahab, noted that the naira will likely remain around N1,780/$ or N1,800/$, noting that his projection is based on the time effect of policy change.
“There is always a lag between when a policy is made and when its impact is felt by the people. This is why I believe that we may not be able to feel the impact of some of the positive steps taken by the government last year. So, I assume that we will begin to see such impacts in 2026 and 2027,” he said.
Contrary Projection
However, a development economist, Mr John Bashua, believes that the exchange’s worst period is over, projecting that it will settle around N1000/$ to N1300/$ this year.
“We will likely see the naira hover around 1,000/$ to !,300/$ this year. The pressure from petrol imports will be less considering that we now have functional refineries. That, alone, will take a lot of burden off the naira or the exchange rate market,” he said, sounding optimistic.
However, an economist, Ms May Brathwaite, is not so optimistic. She believes the naira will strengthen in 2025 but not anything below 1500/$.
“I foresee the naira around 1,500/$ this year due to the refineries and the EFEMS. I do not see the naira returning to 1,000/$ threshold but at least it should be around 1,500/$ or 1,450/$,” she said.
Dollar bonds, EFEMS, portfolios
In 2024, the Nigerian government raised over $900million from the first-ever domestic Federal Government of Nigeria (FGN) US dollar bond issue, which was 180 percent subscribed due to its 9.75 percent interest rate, which is considered attractive.
“The 180 percent subscription and the broad participation in the bond reflect confidence in our economy,” Nigeria’s Finance Minister and Coordinating Minister of the Economy, Mr Wale Edun, said after the transaction.
“Better days lie ahead for the Nigerian economy as we diversify our funding sources and continue to deepen our capital markets.”
Nigeria also issued two new tranches of Eurobonds in the international capital market totaling $2.2 billion, comprising 6.5-year notes maturing in 2031 and 10-year, due in 2034.
The $700 million and $1.5 billion notes were placed in the 2031 and 2034 maturities, respectively, priced at coupon and re-offer yields of 9.625 percent and 10.375 percent respectively.
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Unsurprisingly, the deal attracted more than $9 billion subscription from investors from multiple jurisdictions, including the United Kingdom, North America, Europe, Asia, Middle East.
“The outcome underscores the growing confidence of investors and the resilience of the Nigeria credit, and evidence of our improved liquidity position and continued access to international markets to support the financing needs of the government,” said CBN Governor, Mr Cardoso, after the transaction.
More so, foreign investment in Nigeria’s equities markets stood at $150 million in the second quarter (Q2) of 2024, representing a 204 percent jump from $49.4 million recorded in the first half of 2024, the National Bureau of Statistics (NBS) said.
Foreign portfolio in Nigeria generally stood at $1.4 billion in Q2 of 2024 from $107 million reported in the corresponding period of 2023.
Foreign portfolio investors bet on stocks, bonds, treasury bills (T-bills) and other market instruments. They are mostly driven by high returns (yields) and good policies. Yields on Nigerian T-bills have been attractive, hovering between 23 percent and 30 percent in 2024.
The CBN recently introduced the Electronic Foreign Exchange Matching System (EFEMS). EFEMS, kicked-off last Monday, is an electronic platform introduced to tackle speculation and improve transparency in Nigeria’s FX market. It matches buy and sell orders automatically, and helps to boost transparency and fairness in the forex market.
“Without credibility, no policy, however well-intentioned, can succeed. Floating the
naira, a decision met with considerable public criticism, was necessary to bring the official exchange rate closer to market reality. The disparity between the official and parallel rates had encouraged arbitrage and speculation, eroding trust in the market,” Mr Cardoso said while addressing Harvard Club of Nigeria Lagos in October 2024.