By Adedapo Adesanya
Veriv Africa, a data insights company, has forecast that Nigeria’s exchange rate will remain largely volatile in 2025, extending challenges facing the local currency this year.
In its new Nigeria Macroeconomic Outlook 2025, the firm said this would be driven by internal and external economic conditions and geopolitical dynamics amid challenges including high inflation and high cost of capital.
It noted that Nigeria’s heavy reliance on imports and the underdevelopment of key real economy sectors such as agriculture and manufacturing, have played an underlying role in shaping the exchange rate trend.
Business Post reports that so far in 2024, the Naira has dropped 72 per cent on the Dollar at the Nigerian Autonomous Foreign Exchange Market (NAFEX), which is recognised at the official rate. It currently trades around the N1,650/$1 mark.
Key contributors to the Naira’s depreciation include its devaluation carried in the early days of President Bola Tinubu’s administration in June 2023, sluggish economic growth, weak export base, and ongoing geopolitical tensions, which also contribute to the volatility in crude oil prices.
The company disclosed that Nigeria’s failure to meet its 1.5 million barrels per day crude oil output quota from the Organisation of the Petroleum Exporting Countries (OPEC) has also disrupted its trade balance, further straining the Naira.
For next year, Veriv Africa believes that speculations will continue to play a part in the exchange rate dynamics.
The Central Bank of Nigeria (CBN), the Economic and Financial Crimes Commission (EFCC), and the Office of the National Security carried out some unorthodox moves to curb speculation earlier this year, but this only brought about a short-lived support for the local currency.
“A high inflationary environment will continue to feed into the dampening of non-oil exports, which could exacerbate the depreciation of the Naira. Poor aggregate supply and limited export potentials have limited external reserves and foreign exchange inflow,” the report shared with this newspaper noted.
In the near term, there are also no indications that the Naira will appreciate, the report said, adding that unless there is a marked increase in foreign exchange inflow and external reserves. Nigeria currently has less than $40 billion in its reserves.
The report also pointed out that despite various policy interventions from the Central Bank of Nigeria (CBN), including inflation targeting to stabilise the Naira, these measures have been ineffective due to external factors affecting exchange rate dynamics and internalstructural challenges.
“Without significant improvement in the abovementioned conditions, the lacklustre performance recorded this year will likely be repeated in 2025,” it added.