Nigeria’s external reserves have declined by 5.91% in the first four months of 2025, dropping from $40.88 billion in January to $38.47 billion as of May 29. This decline is largely attributed to a significant 16.74% drop in crude oil prices , which fell from $73.29 per barrel on January 2 to $62.78 per barrel by May 31. The price slump has been driven by increased production within the OPEC+ alliance , which decided to boost output by nearly 1 million barrels per day (mbpd) between April and June.
The ongoing fall in oil prices reflects a delicate balance of supply-side adjustments, demand uncertainties, and strategic moves by major players like Saudi Arabia . With projections from The Wall Street Journal suggesting Brent crude could close 2025 below $50 per barrel , Nigerian policymakers face mounting challenges in managing the economic fallout.
At $50 per barrel and a production level of 1.5 mbpd , Nigeria’s oil revenue is expected to fall 10% short of its fiscal breakeven point , potentially pushing the fiscal deficit to 6-7% of GDP and worsening inflationary pressures.
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Nigeria’s oil production has also been volatile, further straining external reserves. Production averaged 1.54 mbpd in January but dropped to 1.47 mbpd and 1.4 mbpd in February and March, respectively, before recovering slightly to 1.49 mbpd in April. These fluctuations have compounded pressure on the country’s foreign exchange reserves, which rely heavily on crude oil for over 90% of forex supply , supplemented by diaspora remittances.
However, there are signs of recovery. External reserves have shown a modest uptick, rising steadily from $37.93 billion on April 14 to $38.46 billion on May 29, thanks to countermeasures implemented by the Central Bank of Nigeria (CBN) to mitigate the impact of the global oil crisis on the domestic economy.
CBN’s Strategic Countermeasures
The CBN is implementing measures to enhance Nigeria’s export potential and reduce reliance on imports. Key strategies include promoting backward integration principles to localize production of goods currently imported, simplifying dollar remittances for diaspora Nigerians, and encouraging export-led growth in high-potential sectors such as agriculture, manufacturing, and the creative industries .
Drawing inspiration from China’s economic model, the apex bank emphasized that a competitive exchange rate can drive export-oriented growth. By shifting focus from raw material exports to value-added processed goods, Nigeria can boost foreign exchange earnings and strengthen economic resilience.
CBN Governor Olayemi Cardoso highlighted the burgeoning creative sector , projecting it could generate $25 billion annually . He urged businesses to leverage opportunities in music, film, crafts, and digital exports to tap into international markets and boost dollar-denominated revenue inflows.
Backward Integration in Telecoms Sector
In a related move, Cardoso called on telecommunications companies to adopt backward integration practices by localizing the production of key components like SIM cards, cables, and towers . This strategy aims to conserve foreign exchange, create jobs, and enhance local capacity.
During a recent meeting with Airtel Africa’s management team , led by Group CEO Sunil Taldar , Cardoso emphasized the long-term benefits of local production for telecom firms. Taldar commended the CBN’s reforms and pledged Airtel’s commitment to supporting financial inclusion through technology while exploring opportunities for localized production.
Improved Investor Confidence and Market Stability
Analysts note renewed interest from Foreign Portfolio Investors (FPIs) in the forex market, driven by improved confidence, a more efficient FX framework, and strengthening macroeconomic conditions. The CBN’s continued market interventions are expected to support the stability of the naira.
According to the Nigerian Communications Commission (NCC) , active telephony subscribers rose by 3.2% month-on-month to 164.93 million in December 2024, reflecting a gradual recovery following the completion of the NIN-SIM linkage program by mobile service providers in September.
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