Back on June 3, 2024, the naira was trading at 1,485.99/$ in the Nigerian Foreign Exchange Market (NFEM). Fast forward eight months, and the currency has gained strength due to several factors, including increased local petrol refining capacity, higher dollar inflows, and the Central Bank of Nigeria (CBN) taking quick action on policies over the past 17 months.
The Dangote Petroleum Refinery, which can refine 650,000 barrels of petrol daily, started operations in September 2024, helping to ease the fuel crisis in the country.
By January 1-24, petrol imports had plummeted to their lowest in eight years, with shipments down to about 110,000 barrels a day, according to data from Bloomberg and Vortexa Ltd.
A report from PwC indicates that petrol imports account for 22% to 25% of Nigeria's forex demand.
Ike Ibeabuchi, an emerging markets analyst, noted that the market pressure has eased since fuel importers no longer need as many dollars for petrol imports. Additionally, the CBN has addressed the forex backlog, and there were inflows from Eurobond and dollar bond last year.
In the third quarter of 2024, dollar demand across various sectors in Nigeria dropped by 11% to $5.7 billion, down from $6.4 billion in the second quarter, mainly due to a decrease in invisible transactions.
Uche Uwaleke, director of the Institute of Capital Market Studies at Nasarawa State University, predicts a positive outlook for the naira in 2025, citing lower petrol and food imports and an increase in fuel exports as key factors.
He emphasized that the decline in petroleum product imports is a significant reason for the naira's recovery.
“With increased domestic refining capacity, we expect a significant decline in fuel imports, which will ease pressure on foreign exchange demand and strengthen the naira,” he said.
He also pointed out how increased earnings from petroleum product exports could make a big difference.
“As Nigeria boosts its export capacity, foreign exchange inflows will improve, supporting the local currency,” Uwaleke mentioned.
Effects of higher inflows
In the first quarter of 2024, Nigeria saw foreign exchange inflows that were about 136 percent of what was recorded for the entire year of 2023.
In a significant move, the federal government secured over $900 million through a dollar bond in 2024.
By December 2024, the Nigerian government kicked off a dual-tranche Eurobond offering as part of its Global Medium Term Note Programme to cover the country’s fiscal deficit for 2024.
The Eurobond consisted of two parts: a 6.5-year bond with a coupon rate of 10.125 percent and a 10-year bond with a coupon rate of 10.625 percent.
Wale Edun, the finance minister, stated: “The first objective is to complete the federal government’s external borrowing programme with the approval of the $2.2 billion financing package, which will include access to the international capital market through a combination of Eurobonds and Sukuk bonds—approximately $1.7 billion from the Eurobond offer and $500 million from Sukuk financing.”
After trading last Thursday, the naira saw a boost of 1.67 percent, gaining N24.8 as the dollar was priced at N1,485.95, down from N1,510.72 on Wednesday, according to data from the FMDQ Securities Exchange Limited.
Authorized currency dealers reported dollar prices ranging from N1,516 to N1,470 at the NFEM.
In the black market, the naira appreciated by 0.9 percent or N15, with the dollar going for N1,620 on Friday, down from N1,635 on Thursday and N1,625 on Wednesday.
To improve the forex market, the CBN rolled out the Electronic Foreign Exchange Matching System (EFEMS) back in December.
Additionally, last Tuesday, the CBN launched a new Foreign Exchange (FX) Code designed to boost market liquidity, transparency, and provide guidance for participants in Nigeria’s forex sector.
Muda Yusuf, the CEO of the Centre for the Promotion of Private Enterprise (CPPE), shared his thoughts on the situation, saying “I think the whole idea is just to ensure that there is a lot more sanity in the foreign exchange market because those characters have really created a whole lot of problems over the years in the foreign exchange market,”
“For me, I think that is what the CBN is trying to do and the more we’re able to sanitise the markets, I think the more stability it will achieve in the foreign exchange market,” he said.