The recent depreciation of the naira has once again highlighted Nigeria’s fragile dependence on volatile foreign portfolio inflows and inconsistent monetary policy execution. Arnold Dublin-Green, Chief Investment Officer at Cordros Capital, attributes this downturn to the exit of foreign portfolio investors (FPIs) who had previously flocked to Nigeria’s high-yield fixed income instruments.
Speaking on the Drinks and Mics podcast hosted by Ugo Obi-Chukwu of Nairametrics, Dublin-Green explained that the initial inflow of FPIs into the Nigerian market was triggered by mouthwatering yields: OMO bills offered up to 30%, and Treasury Bills hovered around 29% in early 2024. At the time, the naira had depreciated to N1700 per dollar, making the environment ripe for carry trades. Foreign investors seized the opportunity, profiting from both high-interest yields and currency appreciation when the naira later strengthened to around N1500/$.
However, these yields have now fallen below 20%, and the naira’s appreciation has reduced the appeal of further holding positions in naira assets. This shift triggered an exit wave, prompting dollar outflows and creating renewed pressure on the exchange rate.
In addition to the FPI exit, significant naira liquidity injections from the Federal Government’s payments to contractors have added further strain. Ugo Obi-Chukwu confirmed that Bureau De Change (BDC) operators reported a surge in demand for dollars following these disbursements, with many contractors converting their payments into foreign currency, thus intensifying the demand-side pressure on the naira.
This dual pressure—external capital flight and internal fiscal injections—underscores Nigeria’s ongoing vulnerability to currency volatility, particularly in the absence of stable foreign exchange inflows from non-oil sources. As of Q1 2024, Nigeria’s capital importation fell to $1.1 billion, a 30% decline year-on-year, with FPIs accounting for just 13% of that, according to NBS data. Meanwhile, the CBN continues to manage reserves of around $32 billion, barely enough to cover six months of imports.
Experts argue that the country must de-risk its macro environment, stabilize policy, and improve long-term capital inflows to break this cycle. Until then, the naira will continue to be a casualty of short-term investor sentiment and fiscal shocks.
