Nigerian businesses are bracing for continued depreciation of the naira over the coming months but remain cautiously optimistic for a potential recovery by May 2025, according to insights from the latest Business Expectations Survey (BES) conducted by the Central Bank of Nigeria (CBN).
This outlook underscores the immediate economic strains faced by companies while hinting at hope for eventual currency stabilization.
In recent months, sharp price increases have strained Nigerians as businesses grapple with mounting costs.
Respondents to the CBN survey pointed to persistent dollar scarcity, surging fuel prices, and the depreciating naira as the main drivers of inflationary trends impacting the economy.
Many companies emphasized that price adjustments have become unavoidable due to the rising costs of operations tied to foreign exchange volatility.
Import-reliant businesses, in particular, have highlighted that current price hikes are compounded by expectations of further depreciation.
This preemptive pricing is based on forecasts that future import costs will escalate, further squeezing profit margins and operational budgets.
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The BES report echoes these concerns, indicating firms foresee continued naira depreciation through the end of 2024 and into early 2025.
“Respondent firms expect the naira to depreciate in the current month, next month, and next 3 months. However, they expect an appreciation in the next 6 months,” the BES report states, reflecting cautious anticipation of improved currency performance in the medium term.
For manufacturers and other import-heavy industries, these exchange rate pressures translate to rising input costs that will likely be passed on to consumers, exacerbating inflation and reducing purchasing power.
This situation is particularly challenging for businesses that are dependent on dollar-denominated goods, making it difficult to sustain profitability without price hikes.
Despite these immediate challenges, some optimism remains. Businesses expect potential improvements by mid-2025, with May being highlighted as a potential turning point for currency appreciation.
Analysts attribute this guarded optimism to expectations of more robust economic reforms, potentially increased oil revenues, a boost in foreign investments, and consistent CBN policies aimed at currency stability.
Current CBN strategies, including targeted foreign exchange access for priority sectors and initiatives to bolster non-oil exports, could provide stabilizing effects over time. Yet, until these reforms take hold, businesses are preparing for increased operational expenses, with many set to transfer these costs to consumers.
The depreciation has already been significant, with the naira dropping 45% year-to-date as of November, driven by relentless demand pressures.
However, the apex bank’s efforts, combined with an uptick in external reserves—now above $40 billion—offer a glimmer of hope for businesses looking beyond immediate economic hurdles toward a more balanced currency landscape in 2025.