Kelechukwu Mgboji 
David Cowan, the Chief Africa economist at Citigroup Inc., has expressed optimism that ongoing reforms could bolster Nigeria’s local currency, the naira, against the pressures stemming from declining oil prices, provided that the Central Bank of Nigeria (CBN) adopts a flexible approach to currency adjustments.
Global crude prices have experienced a significant downturn, dropping nearly 17% last quarter and currently trading at $71.05 per barrel.
Citi’s forecasts suggest that oil prices will fall further, reaching $65 per barrel by the first quarter of next year, while also predicting a depreciation of the naira to 1,800 per dollar in the same period. Last week, the naira faced significant pressure, falling to a record low of N1,667 per dollar before recovering to N1,542 by Monday.
This volatility has been attributed to dwindling foreign capital inflows and declining oil revenues. “While numerous challenges remain, we are beginning to see the positive effects of structural changes across the economy,” Cowan noted in a briefing to clients.
He added that Nigeria could navigate an oil price downturn more resiliently than in the past, assuming the CBN continues to allow for flexible adjustments to the naira. As Africa’s largest oil producer, Nigeria relies heavily on crude exports to generate foreign exchange, but the nation spends substantial amounts on the importation of refined petroleum products.
In 2022 alone, fuel subsidies cost the government $10 billion. However, this dynamic is beginning to shift with the commencement of production at billionaire Aliko Dangote’s refinery near Lagos, which has started producing gasoline. Notably, Nigeria will begin selling crude to the refinery in naira, a move expected to alleviate some of the strain on the country’s foreign exchange reserves.
“The key issue for many investors,” Cowan stated, “is whether the CBN will need to allow the naira to depreciate further if oil prices fall as projected.” Historically, the central bank has curbed the naira’s depreciation during periods of declining oil prices, often leading to foreign exchange shortages.
However, under the leadership of new Governor Olayemi Cardoso, there are indications that the CBN may pursue a more market-oriented “willing seller-willing buyer” approach, despite potential political pressures to stabilize the currency. Inflation will also play a crucial role in determining the naira’s future trajectory.
Cowan anticipates that inflation will ease steadily in 2025, potentially reducing the demand for foreign currency and offering support to the naira.
However, this scenario hinges on the central bank’s ability to implement gradual interest rate cuts while balancing inflation control with currency stability. “If oil prices do fall to the levels currently projected by Citi Research for 2025, the naira is likely to experience further depreciation,” Cowan concluded.
