THE naira strengthened to 1,474.78 to a dollar in the official market on Friday, January 31, as speculators moved to the black market, also known as the parallel market, to leverage the wide spread between the official and the parallel market.
The naira ended January at N1,474.78/$, representing N11.17 or 0.75 percent from N1,485.95/$ seen on Thursday, January 30, at the Nigerian Foreign Exchange Market (NFEM), also known as the official market.
The naira rebound may be attributed to the decline in dollar demand at the Nigerian foreign exchange (forex), driven by low petrol importation and higher forex inflows.
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The naira rebound, which now characterises the official market, is not seen at the black market, where the local currency ended January at N1,620/$. This reflects the spread or difference of N145.22/$ between the official and parallel markets. The N145.22/$ explains why speculators have abandoned the official market to leverage the opportunity at popular parallel markets such as Zone 4 in Abuja and the airport axis in Lagos.
“What is happening is that the official market is no more attractive due to the introduction of Electronic Foreign Exchange Matching System (EFEMS). EFEMS has brought some transparency in the official market but has also forced speculators to move to the black or parallel market where it is “lucrative” for them to ply their trade. This is generally helping the naira,” said the United Kingdom-based currency expert, Dr Henry Uwabobua.
EFEMS is a fully electronic system that provides real-time pricing and visibility of ‘buy’ and ‘sell’ orders. It helps to ensure that transactions occur at the most competitive prices available.
The naira was buffeted by extremely high demand in the previous years. It was described as one of the worst currencies globally by the World Bank last July due to its high level of uncertainty and volatility. At a point in 2013, the naira closed near 2000/$, spooking investors who were uncertain how much it could lose in a day. But that appears to have changed as the naira has seen some stability in the last two months owing to a raft of central bank policies, including payment of forex backlogs.
Why is naira getting stronger?
The naira is getting stronger due to a number of reasons. One is the availability of local petrol refineries. Petrol imports make up 20-25 percent of the dollar demand in Nigeria’s forex market, according to PricewaterhouseCoopers (PwC).
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Petrol imports into Nigeria fell to an eight-year low of 110,000 barrels-a-day between January 1 and 24, 2025, data compiled by Bloomberg from analytics firm, Vortexa Limited, said. Dangote’s giant 650,000 barrels per day plant in Lagos pumps enough petrol to go round Nigeria, reducing dollar demand for fuel imports.
Also, the Nigerian government raised over $900million from the first-ever domestic Federal Government of Nigeria (FGN) US dollar bond issue in 2024, which was 180 percent oversubscribed due to its 9.75 percent interest rate – 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.
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.
These inflows mean more dollars for the Nigerian economy. Hence they help to increase dollar supply into the Nigerian economy and thus strengthen the naira.
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 (Q1) 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.
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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.
“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,” said CBN Governor, Mr Olayemi Cardoso, while addressing Harvard Club of Nigeria Lagos in October 2024.
