Nigeria stands to gain from a stronger and more stable naira, but an excessive appreciation could undermine exports, fiscal revenue, and long-term economic diversification, warns Kazeem Bello, CEO and principal partner of Afrique Capital and Equity Funds Ltd, New York.
Bello, a development economist and investment banker, told Pinnacle Daily that Nigerian authorities face a delicate task in balancing the benefits of a stronger naira against potential downsides.
He stressed that the naira’s recent gains are encouraging, but overstrengthening could hurt key sectors and government income.
The naira has risen to below ₦1,400 per dollar from peaks above ₦1,700 over the past two years.
The Central Bank of Nigeria (CBN) introduced a unified exchange rate in June 2023, moving away from a controlled float to a “willing buyer, willing seller” system.
The policy initially saw the naira depreciate from about ₦460 per dollar to over ₦1,700 before stabilising in recent months.
Speaking to Pinnacle Daily, Bello said the challenge for policymakers is to strike a balance between the gains of a stronger currency and its wider economic consequences in an import-dependent, oil-driven economy.
“Nigeria can benefit from a somewhat stronger, more stable naira, but policymakers must avoid overappreciation that undermines exports, fiscal revenue, and diversification,” he said.
Relief for Imports, Pressure on Revenue
Bello explained that a stronger naira can reduce the cost of imports such as fuel, food and machinery, helping to ease inflation and support businesses and consumers.
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“A sustained appreciation improves access to foreign exchange and reduces the local currency cost of imports, helping consumers and firms,” he said.
However, he warned that the same trend could weaken government finances by reducing the naira value of oil earnings, which remain the backbone of public revenue.
“A strong naira reduces the naira value of every export dollar, compressing fiscal space in a system where oil still drives revenue,” Bello noted.
Risks to Exports and Local Industry
Beyond fiscal pressures, Bello said an overly strong currency could hurt Nigeria’s non-oil exports and encourage excessive imports, weakening domestic industries.
“It can hurt non-oil exporters’ competitiveness and encourage import surges that undermine domestic industry,” he said.
He added that such a trend could recreate a “Dutch disease” pattern, where cheap imports dominate while local production and diversification remain weak.
Short-Term Gains, Long-Term Trade-Offs
According to Bello, the impact of a stronger naira differs over time. In the short term, it brings lower inflation, better foreign exchange liquidity and improved investor confidence.
But over the long term, he warned that poor management of exchange rate strength could slow industrialisation and increase vulnerability to external shocks.
“If unmanaged, an overly strong naira can slow diversification and raise vulnerability to external shocks,” he said.
Call for a ‘Competitive’ Naira
Bello advised authorities to avoid targeting the strongest possible exchange rate, instead aiming for a balanced and competitive level.
“Policymakers should target a competitive, not maximally strong, naira,” he said, adding that this requires careful data-driven management and discipline.
He also raised concerns about the Central Bank’s independence, noting that effective exchange rate management depends on credible and autonomous monetary policy.
“The question is whether the Central Bank truly possesses the autonomy required to manage the naira effectively,” he said.
Policy Measures to Protect the Economy
To balance the benefits of a stronger currency, Bello said exchange rate policy must be supported by broader economic measures, including promoting local production and managing imports.
He called for policies that prioritise productive imports over consumption, reduce infrastructure bottlenecks, and support non-oil exporters through targeted incentives.
He also stressed the need to encourage formal remittance inflows through better pricing and lower transaction costs.
Stability Over Strength
Bello emphasised that stability, rather than the absolute value of the naira, should be the primary goal of policymakers.
“A stable naira preserves price stability and credibility while ensuring that exporters and producers remain profitable,” he said.
He added that achieving this balance would require discipline, policy consistency and credibility to build investor confidence and sustain long-term economic growth.
Alex is a business journalist cum data enthusiast with the Pinnacle Daily. He can be reached via ealex@thepinnacleng.com, @ehime_alex on X
