In 2023, the value of the Nigerian Naira dropped from 460/$ to just under 1,500/$, a decline of more than 70%. With exports becoming more competitive and the nation’s Trade surplus hitting a record ₦16.9 trillion in 2024, this major Devaluation has raised Nigeria’s trade competitiveness to a 25-year high. Due to expanded capacity for refining and crude oil production, analysts expect that this upward trend may continue till 2025. These trade surplus benefits, however, could be impacted by any decrease in currency volatility. Nigeria’s balance of payments has improved despite the depreciating value of the naira, and its foreign reserves now exceed $40 billion.
By eliminating Fuel Subsidies and other fiscal changes, the budget deficit has decreased from 6.4% of GDP in early 2023 to 4.4% in early 2024. At least 129 million Nigerians live in poverty, and while devaluation has helped commerce and international capital inflows, it has also made things worse for many of them. Nigeria’s long-term economic recovery still depends heavily on foreign direct Investment (FDI), but the nation has had difficulty bringing in more than $2 billion in net FDI per year. Some argue that a stronger naira would help reduce inflationary pressures, which fell from 34% at the end of 2024 to 24% at the beginning of 2025.
The naira’s volatility has created a great deal of risk for businesses.
Strengthening the currency, however, might undo the benefits of economic reforms. Nigeria must retain a competitive currency and enhance business environment by implementing regulatory changes, reducing corruption, and boosting infrastructure, according to the research. Due to increased Inflation and decreased purchasing power, the notable devaluation of the Nigerian naira has had a severe negative impact on individuals and businesses alike. Nigerians’ ability to maintain their level of living and pay for essentials was significantly impacted by the 56% decrease in their purchasing power between 2021 and 2023.
As a result of the naira’s depreciation, the price of imported goods—including necessities like food and fuel—has significantly increased. For the fourth consecutive month, Nigeria’s inflation rate increased to 34.80% as of December 2024. This spike was mostly caused by increased demand throughout the holiday season, with food and non-alcoholic drinks playing a big role. The naira’s Volatility has created a great deal of risk and uncertainty for businesses, particularly those that depend on imported raw commodities. Profit margins have been pressured by the rising cost of imports, which has caused businesses to either raise prices, which would further fuel inflation, or absorb costs, which would reduce profitability.
To draw in productive capital, it is crucial to keep the naira competitive.
Business confidence has been undermined by this climate, according to Standard Bank’s Africa Trade Barometer, which found that the elimination of fuel Subsidies and currency volatility caused the biggest drop in business mood in Nigeria. Nigeria needs to implement a multipronged strategy that encompasses social safety nets, Monetary Policy strengthening, business environment improvement, and Economic Diversification in order to attain long-term economic stability. Economists stress that in order to draw in productive capital and promote exports, it is critical to keep the currency competitive.
They do, however, issue a warning against over-devaluation, which can result in uncontrollable inflation and civil instability. It is recommended that policymakers enact Structural Reforms that boost governance, increase productivity, and foster an atmosphere that is favourable to enterprises. For example, “one of the worst things that businesses detest is uncertainty because they need some level of certainty to be able to plan what they are doing,” said Dr Muda Yusuf, CEO of the Centre for the Promotion of Private Enterprise.
Related Article: Inflation, weak naira dampen business outlook
Although the devaluation of the naira has made exports more competitive and boosted Nigeria’s trade surplus, it is unclear how long this surplus will last. Crucial responsibilities are played by elements including domestic production capacity, international commodities pricing, and naira stability. Furthermore, even if inflows of foreign money have grown, they are still susceptible to outside shocks and investor opinions of Nigeria’s economic stability. Once the short-term advantages of devaluation wear off, there is a chance that economic downturns will return if underlying structural problems are not addressed.