While a far cry from the pegged exchange rate recently, the last two months has yielded the most positive wave of optimism for Nigerian Naira for some time as the impact of the unprecedented economic reforms from President Tinubu’s regime has started to gather momentum. The steady appreciation since the end of August has now reached 6-7% in both NAFEM and Parallel markets, with a relatively stable spread between the two. We’ve seen snap appreciation in the past but oftentimes this proved difficult to sustain in the long-term, leading to quick reversals. The recent appreciation however is showing signs of sustainability thanks to a slew of positive macroeconomic developments that will be investigated in this month’s report.
The Central Bank of Nigeria’s Open Market Operations Strategy
Since the last update, concerns were starting to rise around the Central Bank of Nigeria (CBN)’s Open Market Operations strategy. It’s been clear throughout 2025 that the majority of foreign investors only had interest for the higher interest on OMO’s, far favoured over Treasury Bills and other local yield products. But these short-dated products inevitably lead to a fairly aggressive maturity schedule that becomes incredibly difficult to manage. In an ideal world, all OMO’s would be rolled into new ones, but there needs to be the incentive to do so, leading to higher interest coupons, stressing the CBN’s servicing capabilities. Conversely, if yields were to drop on new auctions or if OMO’s were allowed to mature without new auctions for investors to roll into, there could be a spike in NGN liquidity, jeopardising the stable FX market and the supply of USD in country.
Clearly concluding that now would not be a suitable time to try and unwind OMO’s in circulation, the CBN printed new OMO’s last month to prevent any USD departure from Nigeria. Having focused on shorter dated paper over the last few auctions, the CBN issued nine month tenor OMO’s that certainly perked both local and foreign investor interests given the longer duration. While yields were kept relatively in check as to not push the CBN’s debt servicing capabilities too hard, these new auctions were a relief in the short term. The CBN will still need to face the music long-term either by dropping yields or reducing OMO’s in circulation, but that time will need to come when there’s confidence that foreign investors will hold capital in country, perhaps via domestic infrastructure projects, rather than withdrawing from Nigeria altogether.
Inflation lowers yet investors remain cautious
That scenario may well be coming sooner rather than later. While there is no single metric that a foreign investor would look to keep funds in Nigeria, clearly inflation is a key metric, if not, pre-requisite to maintain confidence in investment. With CPI dropping below 20% for the first time since 2022 (albeit with a different basket of items), the trajectory is looking positive with the CBN claiming their inflation targeting monetary policy is now taking full effect. The CBN does acknowledge transitory effects may be in play from the aftermath of President Tinubu’s economic reforms in 2023, but there’s no doubt 16% year-on-year inflation (and dropping) is buoying optimism among foreign investors with yields holding on domestic paper. Nigeria’s removal from the FATF Grey List (countries with poor money laundering controls) also reinforces this enthusiasm.
US military threat amid fuel duty announcements
Politically however, the Nigerian Government has been forced to weather a storm emanating from the US. Seemingly out of the blue, President Trump vocally threatened military action against Nigeria for oppression of Christian citizens. While we would not comment on the reality of any of President Trump’s claims, our view has broadly been that the likelihood of military action remains low. It seems rather coincidental however that these comments were made in the run up to the G20 meeting in South Africa where Nigeria has been invited to attend. President Trump has since stated that he may not be in attendance, but these threats seemed a pre-emptive tactic to enter a negotiation with Nigerian representatives on the front-foot.
Our argument is that possibly the US has taken umbrage with the announced 15% duty on all fuel imports into Nigeria. While the majority of US exports to Nigeria has been crude oil (unaffected by the new duty) to supplement any drops in domestic production often due to infrastructure issues, President Trump’s agenda throughout his tenure is America First by applying tariffs on all exports to the US. It is entirely possible that President Trump was inflamed by the new duty without any reciprocal tariff for goods into the US.
While President Trump’s accusations of Nigeria’s attitude to Christian oppression has died down over recent weeks, the Nigerian Government have announced that the new duty will be pushed back to early 2026. The claim was to allow more time and better preparation for key stakeholders when the duty is formally rolled out, but our suspicion would be a level of pandering to the US in response to their threats.
Global oil price, Naira appreciation and the Eurobond
There has been an unprecedented decoupling of the Nigeria Naira to global (Brent) oil prices, where in the past, correlation was incredibly strong. This often came at the detriment of the Nigerian economy given the global influences on oil prices that were out of Nigeria’s control, such as OPEC+ supply quotas or conflicts in other oil producing nations. While exports of either crude or refined products from Nigeria will still be influenced somewhat by global oil prices, it seems the pass-through to the Naira will be somewhat isolated to extreme tail risk moves in Brent rather than granular day-to-day moves. Ultimately a large positive for the economic recovery.
The recent appreciation of the Naira was also supported by business magnate Aliko Dangote who declared that he would look to liquidate any surplus USD cash balances back into NGN. This may have been a passing comment during an interview panel, but it certainly sparked locals to follow suit, rebuilding NGN balances and earning interest in domestic bank accounts. This was a particularly important shift in mentality ahead of the latest Eurobond issuance by the Nigerian Government.
The Eurobond itself was fairly well forecast to come this year, but it was a slight surprise to see the formal launch coming quite soon after the political tensions had risen with the US. Nevertheless, the $2.8bn issuance on paper was a resounding success. Despite yields on the 10Y issue dipping below 9% (the 20Y stayed just above), there was a 4x bid-to-cover ratio. With local investment institutions largely opting to hold the majority of their investment capital in Naira-denominated assets, this signalled sizeable foreign participation in the Eurobond issue, again underling enthusiasm for portfolio investments in Nigeria. While there was no immediate impact on FX, this USD supply will continue to filter into the economy over the coming months, providing further support to the Naira into 2026.
Local and foreign investment
Local Investors have continued to hold their OMO positions alongside foreign investors, but there’s also been sizeable interest in local equities. The NGX All Share Index has climbed some 40%-50% in 2025, lead by BUA, MTN and Dangote entities comprising the bulk of the index. However there was a small blip in the move higher over the last few weeks as an increase in Capital Gains Tax was announced for profits on liquidated Nigerian equities, set to go live in 2026. The drop was since reversed following comments from Wale Edun calming investors around the impact of the new CGT regime and the nuances therein, but it’s worth noting that the Government is not afraid to address the fiscal balance via capital markets.
This potential new branch of income could well be needed to help support the Senate approved increase in Domestic Borrowing of 1.15Tn NGN to help fund the budget deficit. We don’t see this additional borrowing as any form of red flag, rather a necessary funding boost to continue overall economic recovery and future growth.
As we move into the latter stages of 2025, the future continues to look bright in Nigeria. For the Naira, it’s highly unlikely we’ll see the pegged currency levels of yesteryear in the near future, but further appreciation feels more probable than not. In previous updates, we’ve outlined various hurdles that Nigeria would need to overcome in order to continue a positive trajectory for Naira, but those hurdles feel fewer and far between. Patience will still be required from the common man whose livelihood may not have fully recovered from the economic reforms of 2023, but there will certainly be a gradual but deliberate shift towards prosperity in the future.
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