Investment firm Comercio Partners has forecasted that the naira will weaken to between ₦1,700 and ₦1,800 per dollar by the middle of 2025. This projection was shared in the company’s 2025 macroeconomic outlook report titled “Looking Forward to the Future,” presented at its Lagos headquarters.
Despite the recent appreciation of the naira, which stood at ₦1,500.41/$ as per Central Bank of Nigeria (CBN) data, Comercio Partners expects renewed pressure on the currency due to structural economic weaknesses and high dollar demand.
Factors Influencing Naira’s Future Performance
The report highlights several key factors affecting the exchange rate:
- High Demand for Dollars Due to Fuel Imports
- Nigeria remains heavily dependent on imported fuel, increasing demand for the dollar.
- Limited foreign exchange earnings from non-oil exports have further constrained dollar supply.
- Weak Coordination Between Monetary and Fiscal Policies
- The report notes that the lack of alignment between CBN monetary policy and government fiscal policy has contributed to currency instability.
- Short-term fixes, such as CBN’s foreign exchange interventions and rate adjustments, offer temporary relief but do not address the root causes of naira volatility.
- Eurobond Issuances and External Borrowing
- While Eurobonds provide short-term liquidity, they do not resolve Nigeria’s underlying economic challenges.
- Sustained naira appreciation will require structural reforms rather than reliance on external debt.
Optimism for Naira Stability in the Long Term
Despite the short-term depreciation forecast, Comercio Partners CEO Stephen Osho remains optimistic that the naira will strengthen later in 2025.
Reasons for Optimism
- CBN Clearing FX Backlogs:
- The central bank has made progress in resolving foreign exchange backlogs, which previously caused supply shortages.
- Improved Foreign Exchange Liquidity:
- Increased foreign currency inflows into the country have helped improve liquidity.
- The introduction of the Electronic Foreign Exchange Matching System in December 2024 is expected to enhance market efficiency.
Foreign Investments and Economic Growth
The report also highlights the need for long-term foreign investment rather than a reliance on short-term capital.
Dr. Ifeanyi Ubah, Head of Investment Research at Comercio Partners, explained the difference between Foreign Portfolio Investment (FPI) and Foreign Direct Investment (FDI):
- Foreign Portfolio Investors (FPI):
- These investors take advantage of short-term opportunities, such as high-interest rates, and withdraw capital quickly when conditions change.
- He described FPIs as “friends with benefits” who are not committed to Nigeria’s long-term economic growth.
- Foreign Direct Investment (FDI):
- FDI represents long-term commitments from investors who establish businesses and industries in Nigeria.
- Ubah likened FDI to a “come and marry me” type of investment, stressing that Nigeria needs more of these committed investors to reach its $1 trillion economy target.
Inflation Outlook for 2025
Comercio Partners also predicts a significant decline in Nigeria’s inflation rate in the coming months.
- The firm expects headline inflation to drop to around 15% by mid-2025 as economic stability improves.
- One factor influencing this decline is the rebasing of Nigeria’s Consumer Price Index (CPI).
Impact of CPI Rebasing
- The National Bureau of Statistics (NBS) is updating its base year for inflation measurement from 2009 to 2024.
- This statistical change is expected to lower reported inflation figures for 2025.
- Given that 2024 recorded one of Nigeria’s highest inflation rates, the rebasing will make inflation appear lower, even if prices remain elevated.
Conclusion
Comercio Partners’ economic outlook suggests a challenging first half of 2025 for the naira, with potential depreciation to ₦1,700–₦1,800/$. However, structural improvements, such as foreign exchange policy reforms, increased liquidity, and stronger investor confidence, could lead to long-term stability.
The firm also expects inflation to decline to 15% by mid-year, partly due to CPI rebasing and a more stable economic environment.
While Nigeria still faces foreign exchange pressures and limited foreign investment commitments, a coordinated effort between monetary and fiscal authorities will be crucial for achieving sustained economic growth and currency stability.
