CBN survey shows businesses expect naira appreciation against dollar

Nigeria's business community is signaling cautious optimism about currency stability, with a Central Bank of Nigeria survey revealing widespread expectations for naira appreciation against the US dollar over the next six months. This sentiment reflects a potential turning point for Africa's largest economy, even as structural headwinds—elevated interest rates, persistent insecurity, and overlapping taxation—continue to constrain economic activity.

## Why Is Naira Strength Critical for Nigerian Investors?

The naira's performance directly impacts capital returns for both domestic and diaspora investors. A stronger currency reduces import costs, improves corporate profit margins on international transactions, and increases the purchasing power of Nigeria's 223 million consumers. For diaspora remittances—which reached $20.3 billion in 2023—naira appreciation means more local currency value per dollar sent home. The CBN survey's optimism suggests business leaders see policy traction and reduced dollar pressure ahead, potentially unlocking capital inflows into equities and fixed income.

The Central Bank's monetary tightening cycle since mid-2023, which lifted the policy rate to 27.5%, has gradually attracted foreign portfolio investment back into Nigerian assets. However, this comes with a painful trade-off: borrowing costs have crushed small and medium enterprises (SMEs), which account for 96% of Nigerian businesses. The paradox is stark—stronger currency expectations coexist with a contracting credit market.

## What Risks Could Derail Naira Recovery?

Several downside scenarios threaten the business community's optimistic forecast. First, Nigeria's crude oil production remains volatile, hovering around 1.5 million barrels per day against a target of 2.5 million—a structural constraint on dollar inflows from Africa's largest petroleum exporter. Second, insecurity in the north and Niger Delta continues to disrupt production and deter foreign direct investment. Third, geopolitical shocks (Middle East tensions, US tariff policy shifts under Trump 2.0) could trigger sudden capital flight from emerging markets.

The overlapping taxation burden—federal, state, and local levies—is fragmenting Nigeria's tax base and pushing capital offshore. Aliko Dangote, Africa's richest entrepreneur, recently disclosed that he sold premium real estate holdings in the US and UK to consolidate wealth in Nigeria. While this signals deep confidence in domestic opportunity, it also underscores that even billionaires are rationalizing their global asset allocation. For institutional and retail investors, this is a bellwether: elite capital repatriation typically precedes broader market recoveries.

## How Should Investors Position for Naira Strength?

The survey data suggests a tactical window for currency hedging strategies and dollar-denominated debt refinancing. Corporates carrying USD liabilities should lock in current exchange rates before appreciation narrows their hedging window. Conversely, investors holding naira assets—particularly high-yielding fixed income (FGN bonds at 18-22% yields) and blue-chip equities—are positioned to capture dual returns: yield plus currency appreciation.

The CBN's credibility hinges on sustained policy consistency and external reserve management. Dollar reserves have improved to $34.3 billion, providing a buffer against sudden shocks. However, sustained naira strength requires not just sentiment, but structural reforms: crude output recovery, insecurity mitigation, and tax rationalization. The survey reflects business hope; delivering on that hope demands execution.

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