** Nigeria's External Position Weakens as Balance of Paym

Nigeria's macroeconomic stability narrative has taken a sharp turn for the worse. New Central Bank of Nigeria (CBN) data reveals that the country's current account surplus—a critical measure of external resilience—plummeted 26% in 2025 to $14.04 billion, down from $19.03 billion in 2024. More strikingly, the broader balance of payments position contracted to just $4.23 billion, signalling mounting pressure on the nation's foreign exchange reserves and currency stability despite recent naira gains.

For European investors operating across Nigeria's market, this deterioration carries immediate portfolio implications. The dramatic compression in external surpluses reflects a confluence of structural challenges: eroding commodity export revenues, persistent import demand, and capital flight pressures that the CBN has struggled to contain even with aggressive monetary tightening.

The discrepancy between the current account surplus ($14.04 billion) and the narrower overall BoP surplus ($4.23 billion) is particularly revealing. This $9.8 billion gap suggests substantial outflows in financial account transactions—likely including repatriated profits, debt servicing, and portfolio exits by foreign investors. Such capital movement patterns typically precede currency weakness, notwithstanding the naira's recent tactical appreciation to N1,345 per dollar (its strongest level in four weeks as of mid-March 2026).

Context matters here. Nigeria remains Africa's largest economy and a critical component of European investment portfolios across the continent. The 26% YoY decline in current account surplus isn't merely a statistical deterioration; it represents a fundamental weakening in Nigeria's ability to finance imports, service external debt, and maintain comfortable reserve buffers. With headline inflation only marginally declining to 15.06% in February 2026—and underlying pressures remaining entrenched—the CBN faces an unenviable policy dilemma: defend the currency through further rate increases (risking domestic debt servicing costs) or allow gradual depreciation (fuelling imported inflation).

The CBN's recent aggressive Treasury Bills issuance—raising nearly N3 trillion within two weeks—underscores liquidity management challenges. While nominally intended to absorb domestic liquidity, these auctions simultaneously signal funding pressures on the federal government, which remains Nigeria's largest external debtor. This creates a vicious cycle: tighter fiscal conditions suppress growth, which further compresses export revenues and widens external imbalances.

Manufacturing sector ambitions—including the newly announced 5% GDP allocation to industrial financing under the National Industrial Policy—cannot materialise without addressing external vulnerabilities first. Import-intensive production requires stable foreign exchange access; a collapsing balance of payments invites rationing, pricing distortions, and capital controls that derail industrial development.

The security environment compounds these macroeconomic headwinds. Coordinated bomb blasts in Maiduguri that killed at least 23 people in March 2026, combined with ongoing insurgency across the North, threaten critical agricultural production regions and investor confidence. When external surpluses are already contracting, geopolitical risk premiums translate directly into higher borrowing costs and capital rationing.

For European investors, the strategic question is timing: whether the naira's recent rally represents a durable correction or merely a cyclical bounce before deeper depreciation. Current account deterioration typically precedes currency crises, making the 26% YoY decline a red flag warranting portfolio de-risking or selective hedging strategies.

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