•••Invisible transactions drop significantly.
By Anastasia John E.
Nigeria’s currency has strengthened significantly, appreciating by N125 to the dollar within a month of the launch of the Electronic Foreign Exchange Matching System (EFEMS). This positive trend has sparked optimism among analysts, who believe the naira is poised for a sustained rebound in 2025.
The Central Bank of Nigeria (CBN) data reveals that the naira strengthened by 8 percent, trading at N1,535 to the dollar on January 3, 2025, compared to N1,660 on December 2, 2024, the official launch date of EFEMS. This system, designed to enhance transparency and efficiency in the foreign exchange market, was introduced following a series of reforms aimed at unifying Nigeria’s exchange rate.
CBN Governor Olayemi Cardoso emphasized the significance of these reforms, stating, “Over the past year, we have undertaken critical reforms to unify Nigeria’s exchange rate, eliminating distortions and restoring transparency.”
Ayodele Akinwunmi, a senior relationship manager at FSDH Merchant Bank, attributed the naira’s appreciation to a combination of factors, including increased foreign exchange supply, improved market transparency, and reduced demand, particularly during the Christmas holiday season.
Aminu Gwadabe, president of the Association of Bureaux De Change Operators of Nigeria (ABCON), stressed the importance of the CBN’s interventions in EFEMS and advocated for increased BDC involvement in the market to enhance stability.
While acknowledging the positive developments, Muda Yusuf, chief executive of the Centre for the Promotion of Private Enterprise (CPPE), cautioned that the unregulated black market continues to pose challenges. “The measures taken by the CBN are yielding some positive results, but it is a work in progress,” Yusuf stated.
Invisible Transactions Decline
Foreign exchange utilization by various sectors of the Nigerian economy declined by 11 percent to $5.7 billion in the third quarter (Q3) of 2024 from $6.4 billion in the second quarter (Q2), primarily driven by a significant drop in invisible transactions, such as travel, insurance, and remittances. This category witnessed a 32 percent decline, falling to $2.2 billion in Q3 2024 from $3.3 billion in Q2 2024.
Merchandise Imports Increase
Conversely, foreign exchange demand for merchandise imports increased by 10.4 percent quarter-on-quarter, reaching $3.45 billion in Q3 2024 from $3.12 billion in Q2 2024.
Naira Rebound in 2025
Zeal Akaraiwe, CEO at Graeme Blaque Advisory in an interview with Business.ng expressed optimism about the naira’s trajectory in 2025, citing improvements in Nigeria’s macroeconomic environment, including increased domestic refining capacity and potential export earnings from petroleum products.
Key Takeaways:
-The naira has appreciated significantly since the launch of EFEMS, driven by increased foreign exchange supply and reduced demand.
-Invisible transactions, particularly in the financial sector, have witnessed a substantial decline.
-Merchandise imports have shown a modest increase.
-Analysts are optimistic about the naira’s prospects in 2025, citing factors such as increased domestic refining capacity and potential export earnings.
- Challenges remain, particularly from the unregulated black market.
