The Nigerian naira plunged to an unprecedented low of N1,541.36 per dollar on January 2, marking a rocky start to 2025 in the official foreign exchange (forex) market. The development highlights Nigeria’s escalating forex challenges, with manufacturers and businesses grappling with deepening uncertainty.
Data from the Central Bank of Nigeria (CBN) revealed the figure, reflecting a 0.36 percent drop from the official closing rate of N1,535.82 per dollar at the end of 2024. While the parallel market showed a slight improvement, with the naira trading at N1,655 per dollar compared to N1,670 a day earlier, the overall outlook remains grim.
A Year of Decline
The naira’s decline is part of a broader trend that saw it lose 40.9 percent of its value in 2024, closing the year at N1,535.82 per dollar officially. This significant depreciation contrasts sharply with its rate of N907.11 per dollar at the end of 2023, a period marked by heightened optimism following the implementation of forex reforms.
“Despite several efforts by the CBN to stabilize the market, the naira has continued its downward spiral, leaving businesses in a precarious position,” said financial analyst Temitope Adeyemi.
In June 2024, the CBN adopted a floating exchange rate policy to improve transparency and attract foreign investments. However, these measures have so far failed to deliver the desired results. The lingering dollar scarcity and weak investor confidence have continued to undermine the naira’s stability.
Manufacturers Feeling the Heat
The forex crisis has hit Nigeria’s manufacturing sector particularly hard. Import-dependent manufacturers now face higher production costs, eroding their competitiveness in both local and international markets.
A Lagos-based textile producer, who asked not to be named, lamented the situation: “We can’t plan effectively. The cost of importing raw materials has more than doubled in the last year. If this trend continues, many of us will shut down.”
According to the Manufacturers Association of Nigeria (MAN), forex volatility has led to a reduction in factory output, with many operators unable to meet obligations due to the exorbitant cost of securing dollars.
Parallel Market Dynamics
The parallel market, often referred to as the “black market,” has also experienced turbulence. While the naira appreciated slightly to N1,655 per dollar on January 2, down from N1,670 a day earlier, the gap between the official and parallel market rates remains alarmingly wide.
This disparity creates opportunities for arbitrage and complicates efforts to unify the exchange rates. “Without a consistent supply of dollars in the official market, these gaps will persist,” explained Adeyemi.
CBN’s Policy Woes
The CBN has introduced several initiatives aimed at addressing the forex crisis, including dollar auctions and incentives for diaspora remittances. However, experts argue that these policies have fallen short due to structural issues such as low foreign reserves, weak export revenue, and a high import dependency.
Nigeria’s foreign reserves dropped from $37 billion in early 2024 to $33.5 billion by December, reflecting the country’s struggle to meet its forex obligations. The oil sector, traditionally the mainstay of Nigeria’s foreign exchange earnings, has been underperforming due to theft, sabotage, and reduced production levels.
“The government must address underlying issues such as oil revenue shortfalls and diversify the economy to ease pressure on the naira,” said economist Bayo Ogunleye.
Reactions and Outlook
The naira’s depreciation has sparked widespread concern among Nigerians, with many questioning the effectiveness of government policies. Traders and small business owners, who rely on the parallel market for foreign exchange, are particularly vulnerable.
“It’s tough,” said Blessing Okoro, a trader at Lagos’s popular Balogun Market. “Prices keep rising because of the dollar, and customers are buying less. We’re all struggling.”
Experts warn that unless decisive actions are taken, the forex crisis could worsen. “The naira’s stability hinges on Nigeria’s ability to attract foreign investments, boost non-oil exports, and manage its reserves effectively,” Ogunleye emphasized.
Looking Ahead
As Nigeria navigates 2025, the government and CBN face mounting pressure to stabilize the naira and restore confidence in the economy. The floating exchange rate policy, while aimed at transparency, needs to be complemented by robust measures to address the root causes of the forex crisis.
