Global Trade War: Naira Value Depreciates Amid Forex Outflows

The ongoing tariff war between the United States and certain nations has created uncertainty, which has caused foreign exchange to leave Nigeria and caused the naira to depreciate for two weeks.

This prompted the Central Bank of Nigeria, CBN, to intervene in the forex market last week, selling up to $500 million, to boost supply.

However, the naira still depreciated week-on-week, W/W by N55 to N1,600 per dollar in the parallel market, the lowest in five weeks since February 5.

Also, in the official market, the naira depreciated, W/W by N6 to N1,548 per dollar. Global uncertainty The global economy has been gripped with uncertainty, following tariff war among the United States, Canada, Mexico, China and the European Union.

The situation escalated last week with the commencement of a 25 percent tariff on all metal imports into the US, with other countries, including the European Commission, announcing counter measures. Fears that the tariff war could lead to higher inflation and contraction in the global economy (recession), triggered uncertainty in the investment community, causing significant losses in global stock markets as investors moved their assets to less riskier options.

Reflecting the impact of the escalating trade tensions on investors’ mood, the MSCI World Index, which tracks the performance of 1,500 stocks from 23 developed countries, fell last week by 2.1% w/w, while the Nigerian stock market (NGX Exchange) also fell for the second consecutive week by 0.5 percent. Forex outflows Financial Vanguard investigation showed that the apprehension caused by the global uncertainty prompted few foreign portfolio investors to repatriate their funds out of Nigeria.

“So, they sold the assets they invested in (bonds, Treasury bills, and equities), and went to the foreign exchange window to buy the dollars,” said a senior banking executive who spoke to Vanguard on condition of anonymity. “The sustained buying pressure from them led to locals who had been price sensitive for the past few months, waiting for the naira to appreciate, to jump into the market to also start buying the greenback.

“Meanwhile, the fear that the naira was depreciating led to panic buying, thus compounding the demand pressure in the forex market,” he said Financial Vanguard analysis of NGX data showed that this trend may have commenced in January. According to NGX data, foreign investment outflow from the stock market exceeded inflow by 78 per cent in January.

The market recorded N45.85 billion in foreign outflows against the foreign inflow, which stood at N25.66 billion. While the foreign outflow increased by 13.2% to N45.85 billion in January 2025 from N40.49 billion in December 2024, foreign inflow decreased marginally by 2.3% in January 2025 from N26.26 billion in December 2024. Naira depreciation Financial Vanguard investigation revealed that the upward trend in foreign exchange outflow resulted in dollar scarcity, which triggered steady depreciation of the naira in both segments of the foreign exchange market, and reversed the gains made in the first two months.

Consequently, in two weeks from February 26 to last Friday, March 14, the naira depreciated by 7.4 percent in the parallel market to N1,600 per dollar from N1,490. Similarly, the naira depreciated in the official market during these two weeks by 3.3 percent to N1,5480 per dollar from N1,499.

Currency dealers lament weak FX supply

Currency dealers in the parallel market attributed the sharp depreciation of the naira to weak dollar supply caused by a combination of factors.

A Bureau of De Change, (BDC) chief executive told Vanguard that banks were no longer selling to BDCs the $25,000 per week approved by the CBN. “They sold to us for sometime but stopped selling two weeks ago. They told us they don’t have dollars to sell. They also claim they are reviewing the rate. That is why you see the dollars going up,” he said. A parallel market currency trader, Mallam Tijani Yusuf, said: “I sold a dollar today (Friday) for N1,600 and bought at the rate of N1570 to N1,575. Two weeks ago, a dollar was traded at N1,400 to N1,500. “ The cause of the deprecation to N1,600 is because of the demand and supply pressure that has been there, but its effect has been light compared to the last two weeks when the pressure heightened. I cannot say what the rate will be next week. You know the market rates fluctuate.”

Another currency trader, Mr. Farouk Yahaya, said: “People no longer sell their dollars to us. They prefer taking it to the bank where their accounts are credited directly. “ Also, you know that there is little or no difference between the banks buying and selling rates and that of the parallel market. This also is reducing patronage in terms of selling dollars to us.

“The banks are also now having the dollar in large amounts and are able to serve their customers better, compared to the parallel market where the demand is now high and supply low.” Mr. Nasir Danjuma said, “I sold a dollar this morning at N1,650. The exchange rate closed to N1,600 today (Saturday), compared to yesterday (Friday), when it closed at N1,590. “The demand pressure is just like before, but the supply is worsening; it is getting low.

Accessing dollars for us now is a big problem, and if this continues next week, the naira will depreciate and might end in the N1,680 to N1,690 threshold and worst-case scenario, the N1,700 threshold.”

Need for CBN’s intervention

While attributing the steady naira depreciation to a host of factors, Aminu Gwadabe, President, Association of Bureaux De Change Operators of Nigeria, ABCON, emphasized the need for CBN’s intervention to sustain dollar supply in the forex market.

He said: “The recent naira regression to heightened volatility is sad and worrisome among many stakeholders. Some pundits attribute it to the traditional and conventional demand and supply interplay, as we witnessed rising demand against limited supply.

“However, a combination of factors, such as too much unearned income pressure on the exchange rate, inhibitive policies, speculators’ resistance and loss of confidence in the store value of the naira, and many other discretionary demands, have continued to exacerbate demand pressure in the market.

“The quick fix is for the CBN to maintain their catalytic role in the market through consistent supply measures in the market to dampen the speculative activities.

“Banks’ dollar sale to BDCs as approved by the CBN, should be given emphasis with mechanisms, oversight and framework to make it more efficient. “ It is also germane for the apex bank to be issuing forward communication on their policy resilience and the resultant benefits to checkmate illegal economic behaviors.”