The ongoing tariff conflict between the United States and several nations has led to a significant outflow of foreign exchange from Nigeria, resulting in a two-week decline in the value of the naira.
In response, the Central Bank of Nigeria (CBN) stepped in last week, injecting up to $500 million into the forex market to enhance supply.
Despite this intervention, the naira continued to weaken, dropping by N55 to N1,600 per dollar in the parallel market, marking its lowest point in five weeks since February 5.
In the official market, the naira also fell, decreasing by N6 to N1,548 per dollar. The global economy is currently facing considerable uncertainty due to the tariff disputes involving the United States, Canada, Mexico, China, and the European Union.
The situation intensified last week with the implementation of a 25 percent tariff on all metal imports into the U.S., prompting other nations, including the European Commission, to announce retaliatory measures. Concerns that this tariff war could lead to increased inflation and a potential global economic downturn have created unease among investors, resulting in significant losses in global stock markets as they shifted their assets to safer alternatives.
The rising trade tensions have significantly affected investor sentiment, as evidenced by a 2.1% weekly decline in the MSCI World Index, which monitors 1,500 stocks across 23 developed nations. Similarly, the Nigerian stock market (NGX Exchange) experienced a 0.5% drop for the second week in a row. An investigation by Financial Vanguard revealed that the global uncertainty has led some foreign portfolio investors to withdraw their investments from Nigeria.
“A number of them liquidated their holdings in bonds, treasury bills, and equities to purchase dollars at the foreign exchange window,” explained a senior banking executive who requested anonymity while speaking to Vanguard. “This increased demand from foreign investors prompted local investors, who had been waiting for the naira to strengthen, to enter the market and start buying dollars as well.”
“Additionally, concerns over the naira's depreciation sparked panic buying, further intensifying the demand in the forex market,” he added. Financial Vanguard's analysis of NGX data indicates that this trend may have begun in January. The data shows that foreign investment outflows from the stock market outpaced inflows by 78% that month.
In January, the market saw a foreign outflow of N45.85 billion compared to an inflow of N25.66 billion. The outflow rose by 13.2% from N40.49 billion in December 2024, while inflows saw a slight decrease of 2.3%, dropping from N26.26 billion in December 2024. The investigation by Financial Vanguard also highlighted that the increase in foreign exchange outflows has led to a scarcity of dollars, causing a consistent depreciation of the naira across both segments of the forex market, reversing the gains made in the initial months of the year.
As a result, between February 26 and March 14, the naira fell by 7.4% in the parallel market, reaching N1,600 from N1499 per dollar.