The naira has once again taken centre stage in Nigeria’s economic discourse. After months of turbulence, the local currency is now showing signs of resilience, due largely to the Central Bank of Nigeria’s reforms and rising foreign inflows. The naira appreciated 1.1 per cent last week, closing at N1,520/$, after a $50m injection by the Central Bank of Nigeria and higher foreign portfolio inflows from Open Market Operation auctions. The short-term gains reflect improved liquidity, with analysts pointing to stronger inflows as a key factor behind reduced volatility.
Data from the National Bureau of Statistics show that capital importation reached $5.64bn in the first quarter of 2025, compared to $3.37bn in Q1 2024, representing a 67.1 per cent increase. The banking sector attracted $3.1bn, equivalent of 55.44 per cent of total inflows. Portfolio investment accounted for $5.2bn, or 92.25 per cent of total inflows, while foreign direct investment was only $126.29m.
For the Association of Bureaux De Change Operators of Nigeria, the trend points to long-term benefits. Its President, Dr Aminu Gwadabe, said that with more foreign exchange inflows into the economy, the long-term stability of the naira is expected.
However, foreign direct investments into Nigeria dropped sharply by 70.06 per cent quarter-on-quarter to $126.29m in the first quarter of 2025, down from $421.88m recorded in the final quarter of 2024. The steep decline in FDI occurred despite an overall increase in capital importation into the country, indicating that foreign investors are favouring short-term, high-yield financial instruments over long-term, productive commitments in the Nigerian economy.
On a year-on-year basis, FDI posted a modest growth of 5.97 per cent compared to $119.18m recorded in the same period of 2024. However, this marginal increase has done little to shift the broader trend of dwindling interest in long-term investment. The data show that FDI made up only 2.24 per cent of total capital imported into the country in Q1 2025, down from 8.29 per cent in the preceding quarter and below the 3.53 per cent recorded in Q1 2024.
Although the headline rise in capital importation might suggest renewed investor confidence, a closer examination reveals that over 90 per cent of these inflows were directed into short-term money market instruments, such as government bonds and treasury bills, rather than equity or direct investments. These instruments, while important for managing liquidity and stabilising the naira, do not contribute meaningfully to industrial growth, employment generation or infrastructure development.
Nevertheless, Nigeria’s foreign exchange reserves rose to $41bn on August 19, 2025, the highest level recorded in 44 months, according to data from the CBN.
This marks the highest level since December 3, 2021, and signals a significant recovery following months of depletion, mainly due to pressure from external debt repayments.
The reserves have experienced a strong rally in August, increasing by $1.46bn month-to-date, from $39.54bn on August 1 to $41bn on August 19. This represents a 3.69 per cent increase in less than three weeks. The growth has been steady across the period, with only minor pauses.
The surge began in early August when reserves crossed the $40bn mark on August 7, after closing July at just under $39.4bn. By August 12, reserves had reached $40.5bn, and the momentum continued, pushing reserves past $41bn just a week later.
On average, the reserves have grown by $81m per day in August, reflecting an improvement in foreign exchange inflows relative to outflows. This increase is a positive development for the CBN, strengthening its ability to stabilise the naira and manage liquidity in the official market. It also enhances the bank’s capacity to defend against speculative pressures. Cordros Securities, in a market report, noted that the reserve accretion provides a stronger buffer for interventions and reflects an improvement in FX supply.
Analysts have projected that Nigeria’s external reserves would rise to about $45bn by the end of the year, thus strengthening the ability of the CBN to provide a buffer for the foreign exchange market and general economy. According to the analysts at Cowry Assets Management in their weekly market report, the momentum of reserve growth appears likely to continue, supported by steady offshore inflows and potential external borrowings planned by the government.
“The combination of these factors should keep the reserves on an upward trajectory in the coming months. Our projection suggests that Nigeria’s reserves could rise to about $45bn by the end of 2025, provided global risk conditions remain broadly supportive and offshore flows are not significantly disrupted. With the reserves position strengthening, the CBN will have greater flexibility to sustain its interventionist approach in the FX market. This, in turn, should help to maintain relative stability in the naira across both official and parallel markets,” the analysts at Cowry Assets said.
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