Nigerian businesses are preparing for continued naira depreciation over the next several months but remain cautiously optimistic for a potential currency rebound by May 2025, according to the latest Business Expectations Survey (BES) from the Central Bank of Nigeria (CBN). This sentiment highlights the immediate pressures businesses are facing due to rising costs, alongside hopes for longer-term economic stability and currency recovery.
The CBN survey reflects that many Nigerian businesses have already experienced sharp price increases across various sectors, as the value of the naira continues to decline. Business owners, particularly those in import-dependent industries, are attributing the price hikes to rising fuel prices and ongoing depreciation of the national currency. These challenges have prompted many businesses to adjust their prices, while importers are also bracing for further increases in the cost of goods due to the expected depreciation of the naira.
The BES data suggests that businesses are forecasting further depreciation of the naira through the end of 2024 and into the first quarter of 2025. The persistent shortage of dollars, high inflation, and Nigeria’s heavy reliance on imports are key factors contributing to this bleak outlook. According to the survey, “Respondent firms expect the naira to depreciate in the current month, next month, and in the next three months, but expect an appreciation in the next six months.”
For many businesses, especially manufacturers and sectors reliant on dollar-denominated imports, foreign exchange costs remain a critical concern. The depreciation has made operational expenses significantly more expensive, and as businesses face higher costs for raw materials and other imported inputs, they may be forced to raise their prices to maintain profitability. This, in turn, is expected to put more strain on Nigerian consumers, already grappling with high inflation and rising living costs.
However, despite the short-term difficulties, the BES report also reveals a sense of optimism among businesses. Many are hopeful that, with stronger economic reforms and stabilizing policies, the naira may begin to appreciate by mid-2025. A potential rebound is linked to anticipated improvements in Nigeria’s oil revenues, foreign investments, and efforts by the Central Bank of Nigeria to stabilize the currency.
One of the key measures from the CBN is the easing of foreign exchange access for priority sectors such as agriculture, manufacturing, and services. Additionally, there is a focus on boosting non-oil exports, which could provide a much-needed source of foreign exchange and help reduce Nigeria’s reliance on imports. These efforts, experts believe, could act as stabilizers for the naira, bringing much-needed relief to businesses in the medium to long term.
Still, businesses remain cautious about the immediate future. The ongoing volatility in the currency market has heightened concerns, especially for businesses in import-dependent industries, which are already contending with rising production costs. These firms will likely continue to pass these increased costs onto consumers, further burdening households already struggling with inflation.
The naira has already depreciated by 45% year-to-date as of November, as demand pressures continue to impact the currency’s value. This has led to challenges for businesses trying to manage costs and remain competitive. While Nigeria’s external reserves have climbed above $40 billion, thanks to the Central Bank’s reforms and other economic measures, the country’s currency remains under pressure. This ongoing strain highlights the need for continued reforms and careful management of Nigeria’s foreign exchange policies to ensure a more stable and predictable business environment.
As Nigerian businesses brace for the impact of continued naira depreciation, they are also keeping a close watch on government policies and the broader economic landscape. While many are adjusting their operations and pricing strategies to cope with the current realities, they are also holding out hope for the implementation of reforms that will help stabilize the currency and restore investor confidence in the Nigerian economy by mid-2025. With these reforms in place, businesses remain optimistic that the country can navigate these turbulent times and pave the way for a more resilient and sustainable economy.
