The naira weakened further against the British pound sterling, trading at N2,188/£1 on the black market Thursday, reflecting continued strain despite Nigeria’s foreign reserves climbing to $40 billion this month—the highest under President Bola Tinubu’s administration.
This depreciation underscores ongoing challenges in Nigeria’s foreign exchange market, driven by both domestic and global factors.
Financial analyst Dr. Biodun Adesina attributes the naira’s struggles to a mix of structural and speculative factors. “Low export diversification, fiscal indiscipline, and weak oil production are undermining the naira’s stability. Additionally, speculative trading and forex hoarding exacerbate the currency’s depreciation,” he noted.
The pound sterling’s strength has been bolstered by unexpected inflationary trends in the UK. October’s Consumer Price Index (CPI) data showed an annual inflation increase to 2.3 per cent, exceeding forecasts.
Core inflation also rose sharply, contributing to the pound’s rise against major currencies, including the naira.
However, the UK’s economic outlook remains mixed. Recent GDP data revealed a 0.1 per cent contraction in October, tempering the pound’s bullish momentum. The unexpected slowdown, coupled with global economic uncertainties, has created a fluctuating environment for the pound.
Adding to the complexity is a significant decline in Nigerian students studying in the UK, which traditionally creates forex demand.
UK Home Office data shows a 68 per cent drop in “main applicant” student visas issued to Nigerians in the first half of 2024 compared to the previous year. This reduction is linked to the UK’s stricter migration policies.
Economic analyst, Ifeoma Okonkwo highlighted the broader implications: “The decrease in student migration has reduced forex outflows for tuition payments, offering temporary relief to Nigeria’s forex reserves. However, this alone cannot stabilize the naira without addressing deeper structural issues.”
The United Kingdom remains a key trade partner for Nigeria, accounting for roughly €35 billion in trade last year, with Nigeria enjoying a surplus of over €10 billion.
According to analysts, strong cultural ties, shared history, and language compatibility have historically favored the UK as a destination for migration and trade.
“However, with Nigeria’s economic fundamentals under pressure, maintaining robust trade and currency stability remains challenging,” says Okonkwo.
The naira’s performance mirrors broader trends in the forex market.
Analysts suggest that while Nigeria’s reserves provide some cushion, reforms targeting fiscal discipline and export diversification are essential.
Global events, such as the Russia-Ukraine conflict and shifts in US monetary policy, also weigh on Nigeria’s forex dynamics.
Market observers predict the naira could face further pressure unless decisive reforms bolster confidence in the economy.