Reported by Simon yusuph,| Journalist at wengglobal
Nigeria’s recent surge in foreign exchange (FX) market turnover may appear to signal renewed investor confidence and improved market liquidity, but leading private-sector economist and former President of the Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture (NACCIMA), Dele Oye, has cautioned that the impressive figures conceal deeper structural weaknesses that could expose the naira to future instability.
Oye argued that while the Central Bank of Nigeria (CBN) has recorded significant progress in improving transparency and activity within the foreign exchange market, sustained currency stability cannot be achieved through trading volumes alone. Instead, he maintained that Nigeria must address longstanding structural challenges that continue to undermine economic resilience.
His remarks come at a time when the CBN has highlighted increased participation in the official FX market and stronger turnover following a series of reforms designed to improve price discovery, attract investment, and restore confidence in the naira. Governor Olayemi Cardoso has repeatedly stated that interventions by the apex bank now represent only a small fraction of overall market activity, describing the current framework as more market-driven than in previous years.
Strong Trading Activity Does Not Guarantee Currency Stability
According to Oye, a healthy foreign exchange market should be supported by robust economic fundamentals rather than temporary liquidity improvements.
He explained that record FX turnover could easily create an illusion of strength if it is not backed by increased export earnings, diversified sources of foreign exchange, stronger industrial production, improved productivity, and sustainable fiscal management.
“The market may be recording higher transactions today, but unless Nigeria strengthens the real economy, the naira remains susceptible to future shocks,” Oye argued, stressing that genuine confidence in a currency is built on economic fundamentals rather than short-term market performance.
Economic analysts note that Nigeria’s dependence on crude oil exports continues to expose the country to fluctuations in global commodity prices. Although reforms have helped improve transparency in the FX market, external shocks—including declining oil revenues, global financial tightening, or geopolitical uncertainties—could once again place significant pressure on the domestic currency.
Structural Weaknesses Continue to Challenge the Economy
Oye identified several vulnerabilities that require urgent policy attention.
Among them are Nigeria’s heavy dependence on imports, limited export diversification, inadequate manufacturing capacity, persistent infrastructure deficits, high inflation, and weak productivity growth.
These structural issues, he argued, continue to limit the country’s ability to generate stable foreign exchange earnings outside the oil sector.
He further observed that improvements in the foreign exchange market must be matched by reforms that stimulate domestic production, encourage value-added exports, expand industrial capacity, and improve investor confidence.
Without these measures, any gains recorded in FX turnover may prove temporary.
Private Sector Growth Remains Critical
The former NACCIMA president reiterated that the private sector must remain at the centre of Nigeria’s economic transformation.
According to him, sustainable currency stability depends on creating an environment where businesses can thrive, expand exports, attract long-term investment, and generate employment.
He has consistently argued in previous policy interventions that excessive government involvement in commercial activities often crowds out private investment and weakens economic efficiency. Instead, government should focus on creating enabling policies, strengthening institutions, improving infrastructure, and ensuring regulatory certainty.
Analysts generally agree that stronger private-sector productivity would increase non-oil exports, improve foreign exchange inflows, and reduce pressure on the naira over the medium term.
CBN Reforms Show Progress
Since introducing major reforms to Nigeria’s foreign exchange framework, the Central Bank has sought to improve transparency, eliminate multiple exchange rates, and encourage more efficient price discovery.
Governor Cardoso recently disclosed that direct CBN interventions now account for only about 1.2 to 1.3 percent of total FX turnover, suggesting that market participants are increasingly driving transactions rather than relying on continuous central bank support.
Financial experts believe these reforms have helped restore some investor confidence, narrowed distortions between official and parallel markets, and improved liquidity.
However, many economists caution that monetary reforms alone cannot resolve deeper structural weaknesses affecting Nigeria’s economy.
Building Long-Term Economic Resilience
For Nigeria to maintain lasting exchange-rate stability, economists argue that fiscal reforms must complement monetary policy.
Measures such as expanding non-oil exports, improving agricultural productivity, modernising manufacturing, investing in energy infrastructure, strengthening tax administration, and promoting regional trade under the African Continental Free Trade Area (AfCFTA) could significantly enhance foreign exchange earnings over time.
Diversifying export revenues would also reduce dependence on crude oil, making the economy more resilient during periods of external volatility.
Oye’s warning therefore reflects a broader concern shared by many policy analysts: that strong FX market statistics should not distract policymakers from addressing the deeper structural reforms needed to sustain long-term economic growth.
Outlook for the Naira
The naira’s future performance is likely to depend on several interconnected factors, including continued monetary discipline, prudent fiscal management, global oil prices, foreign investment inflows, export competitiveness, and broader macroeconomic stability.
While recent improvements in foreign exchange turnover represent an encouraging development, experts believe that lasting currency stability will ultimately depend on strengthening Nigeria’s productive economy rather than relying solely on financial market performance.
As policymakers continue implementing reforms, the challenge remains ensuring that stronger market indicators translate into tangible economic benefits for businesses, investors, and ordinary Nigerians.
Only by addressing structural constraints can Nigeria build a more resilient economy capable of withstanding future global market shocks while supporting sustainable growth across Africa’s largest economy.
Sources
- Reuters
- Bloomberg
- Nairametrics
- BusinessDay Nigeria
- THISDAY
- Vanguard
- The Guardian Nigeria
