Anytime the euro falls sharply against the dollar, the immediate temptation is to see it as a European problem. For Nigeria, however, the more important question is what the implications of the decline means for the dollar, global interest rates, capital flows and the vulnerabilities of economies such as ours. A prolonged period of dollar strength could have consequences far beyond the currency markets, affecting the cost of imports, external debt, inflation, investment flows and ultimately the purchasing power of households and businesses.

For Nigeria, therefore, the euro’s weakness should be seen as an early warning about the external environment in which the Nigerian economy must operate.
To be sure, the euro’s recent decline to around USD1.12, its lowest level in about 17 months, reflects a combination of factors. Concerns about fiscal pressures in parts of the euro area, particularly France where protests have been reported, continuing geopolitical uncertainty, elevated energy costs and fragile European growth have weighed on the single currency. At the same time, the dollar has benefited from relatively resilient US economic conditions, comparatively high Treasury yields and expectations that the Federal Reserve may have less room to ease monetary policy than previously anticipated.

The result is a widening relative attraction of dollar assets, particularly for international investors looking for liquidity and relatively higher returns.
For understandable reasons, the dollar remains the dominant currency for international trade, commodity pricing, cross-border borrowing and global reserves.

When the dollar appreciates significantly, countries that import essential goods or carry dollar-denominated obligations effectively face higher costs in their own currencies. International investors may also find US Treasury securities and other dollar assets more attractive, particularly when US yields are high. Capital can consequently move away from emerging markets, putting pressure on their currencies and making external financing more expensive.
Undoubtedly, Nigeria is better placed today than it was during periods of acute foreign-exchange stress.

The Central Bank of Nigeria has reported a significant improvement in foreign-exchange reserves, while conditions in the foreign-exchange market have become more orderly and the naira has shown greater stability than during the worst periods of the recent currency crisis. These developments provide a valuable cushion. They give the economy more room to absorb external shocks and give businesses and investors greater confidence that the country has adequate foreign-exchange liquidity.

But the improvement also creates a policy responsibility: Nigeria must use this period of relative stability to strengthen its defenses rather than assume that the external environment will remain favourable. Reserves should be protected and foreign-exchange liquidity should be strengthened through sustainable earnings rather than temporary measures.

The more important test for Nigeria is what happens to the dollar-naira exchange rate if the dollar enters a prolonged period of appreciation. A stronger dollar would increase the naira cost of many imported goods and services, from machinery and pharmaceutical products to technology, vehicles and industrial raw materials.

Nigerian manufacturers would be particularly vulnerable because many still depend heavily on imported inputs. This means that currency pressure can quickly become a production-cost problem, and a production-cost problem can become an inflation problem.

That transmission mechanism is especially important for an economy already struggling to bring inflation down to levels that provide meaningful relief to households. If the naira comes under renewed pressure because of global dollar strength, the resulting increase in import costs could complicate the Central Bank’s efforts to achieve price stability. Monetary authorities could then face a familiar dilemma: maintaining relatively tight financial conditions to protect the currency and contain inflation while avoiding interest rates so high that they suppress investment, and economic growth.

This is why the exchange rate cannot be viewed in isolation from fiscal policy. If government borrowing requirements remain high, domestic liquidity expands rapidly or investors begin to question the sustainability of public finances, pressure on the naira can intensify regardless of what happens in Europe.

Conversely, stronger fiscal discipline can reinforce monetary policy by reducing pressure on domestic financing and strengthening investor confidence.

Nigeria’s external position also needs to be considered through the oil market. At first sight, a strong dollar could appear beneficial because crude oil is priced in dollars and Nigeria earns the bulk of its export revenue from oil. If oil prices remain high, stronger dollar earnings could improve foreign-exchange supply and support the country’s reserves. Higher oil revenues can also provide fiscal relief and strengthen the external account.

The problem is that dollar strength and oil prices do not always move in Nigeria’s favour. A stronger dollar can place downward pressure on dollar-priced commodities because they become more expensive for buyers using other currencies. If a strong dollar is accompanied by weaker global economic growth, oil demand and prices could also come under pressure. Nigeria could then face the much more difficult combination of weaker oil earnings, reduced foreign-exchange inflows and greater pressure on the naira.

That is the scenario Nigerian policymakers should be preparing for. The country has experienced repeatedly how quickly a fall in oil revenues can translate into foreign-exchange shortages, fiscal pressure and economic uncertainty. The lesson is that Nigeria’s external resilience cannot continue to depend overwhelmingly on the behaviour of one commodity.

This makes the expansion of non-oil foreign-exchange earnings one of the most practical priorities for economic policy. Nigeria needs to earn more dollars from agriculture, manufacturing, digital services, financial services, tourism, creative industries, professional services and other internationally tradable activities.

There is an equally important domestic side to this strategy. Nigeria needs to reduce the extent to which its productive economy depends on imported inputs. A manufacturer that imports most of its machinery and raw materials remains vulnerable to every major movement in the dollar, even if the company itself has no foreign-currency debt. The same applies to agriculture, construction, healthcare, transportation and technology.

The more of the production chain that can be supplied competitively from within Nigeria, the less exchange-rate volatility will feed directly into domestic prices.
Energy is perhaps the clearest example. Nigeria is a major oil producer, yet the economy has historically remained exposed to the cost and availability of refined petroleum products and other energy inputs. Improving domestic refining capacity, electricity supply and gas utilization should therefore form part of Nigeria’s foreign-exchange strategy because a more reliable domestic energy system reduces the amount of foreign currency required to keep businesses and households functioning.

The same argument applies to food production. Nigeria’s food-import bill and the foreign exchange required to finance imported agricultural inputs and food products can become more burdensome when the naira weakens. Increasing domestic productivity in agriculture is therefore relevant not only to food security but also to exchange-rate stability. It is a no-brainer that every major import category that Nigeria can produce competitively at home reduces the economy’s exposure to external currency shocks.

The question of external debt also deserves greater attention. A stronger dollar can increase the naira value of Nigeria’s dollar-denominated debt-service obligations even when the dollar amount owed has not changed. This places additional pressure on government finances. If debt service absorbs an increasing share of public revenue, the government has less room to finance infrastructure, health, education and other productive investments.

This is why the country’s debt strategy should increasingly pay close attention to currency risk. Borrowing in dollars may appear attractive when interest rates are lower than domestic rates, but the calculation changes dramatically if the naira subsequently depreciates. The effective cost of foreign-currency borrowing is determined not just by the interest rate but also by the movement of the exchange rate.

The same caution applies to Nigerian companies. Corporations that borrow in dollars without corresponding dollar revenues expose themselves to potentially significant balance-sheet risks. A company earning naira but servicing dollar debt can see its debt burden rise sharply following a currency depreciation. Financial institutions and corporate treasurers therefore need to take currency mismatches much more seriously, particularly in a world where global exchange rates can move rapidly.

Capital flows are another channel through which a stronger dollar could affect Nigeria. When US yields rise, international investors often reassess the relative attractiveness of emerging-market assets. Nigerian assets may still offer attractive yields, but investors will consider those yields against the possibility of currency depreciation and the broader perception of country risk. A nominally high Nigerian interest rate is less attractive to a foreign investor if the expected loss from naira depreciation is larger.

This is why Nigeria should not build its external financing strategy around short-term portfolio inflows. Such inflows can help deepen financial markets and provide useful foreign exchange, but they can also reverse quickly when global conditions change. Foreign direct investment, export earnings, remittances and other more stable sources of foreign exchange are considerably more valuable in building long-term external resilience.

The issue, therefore, is not simply whether Nigeria can attract capital, but whether it can attract the right kind of capital. Long-term investment in manufacturing, energy, agriculture, technology and infrastructure is generally more beneficial to economic resilience than capital that arrives primarily to take advantage of temporary interest-rate differentials. Nigeria needs investment that expands productive capacity and creates future foreign-exchange earnings rather than merely financing present consumption.

The European dimension of the story should nevertheless not be ignored. Europe remains an important trading and investment partner for Africa, and movements in the euro can create winners and losers across the continent. A weaker euro can make European machinery, equipment, goods and services relatively cheaper for African importers. African consumers and businesses purchasing European products could therefore benefit, provided the benefits are not overwhelmed by simultaneous dollar appreciation.

For Nigeria, trade with Europe also needs to be considered alongside investment and remittance flows. A weaker euro can affect the value of euro-denominated earnings when converted into dollars or naira. Nigerians and Nigerian businesses with financial exposure to the euro area may therefore experience different effects depending on the currency in which their income, assets and obligations are denominated.

The broader lesson for developing economies is that excessive dependence on a single external currency, commodity or source of capital creates vulnerability. For Nigeria, this diversification is particularly urgent because the country has both the scale and the resources to build a more resilient external economy. Its large domestic market provides a substantial base for industrialization, while its human capital, entrepreneurial sector and natural resources offer opportunities to develop internationally competitive industries. The challenge has been converting those advantages into consistent production and export earnings.

The current period of relative foreign-exchange stability should therefore be treated as an opportunity rather than a destination. Nigeria should use improved reserves and better-functioning foreign-exchange markets to strengthen the underlying economy. The objective should be to reach a point where exchange-rate movements no longer produce immediate economic crises because the country has sufficient reserves, diversified exports, competitive industries and credible institutions to absorb them.

That also means resisting the temptation to interpret current period of naira stability as proof that the exchange-rate problem has been solved. Currency stability that rests on sustainable external earnings and stronger productivity is fundamentally different from stability achieved through temporary intervention. The former can endure; the latter can disappear as soon as global conditions change.

There is a similar lesson for monetary policy. The CBN should maintain its focus on inflation and market credibility, but monetary policy cannot carry the entire burden of stabilizing the naira. If fiscal policy remains expansionary, productivity remains weak and the economy continues to depend heavily on imports, monetary policy will repeatedly be called upon to address problems that originate elsewhere.

A more durable approach requires coordination. Fiscal authorities need to strengthen revenue mobilization and expenditure efficiency. Monetary authorities need to maintain credibility and improve the functioning of the foreign-exchange market. The productive sectors need reliable power, infrastructure and access to finance. And the trade and industrial policy framework needs to encourage businesses to produce competitively for both domestic and foreign markets.
For the average Nigerian, the practical consequences of a renewed global dollar surge could appear in higher prices for imported medicines, machinery, electronics, vehicles, spare parts and industrial goods. For manufacturers, it could mean higher input costs. For government, it could mean a heavier naira burden for servicing foreign-currency obligations. For investors, it could mean greater volatility and a reassessment of Nigerian assets.

For the Central Bank, it could mean another difficult balancing act between inflation, interest rates, exchange-rate stability and economic growth.
All said, the most important response to the euro’s decline should not be an attempt to predict the next movement of the euro. It should be a deliberate effort to strengthen the foundations of the Nigerian economy before the next global shock arrives. The government needs to accelerate the reforms that can reduce the country’s import dependence, particularly in energy, food, manufacturing and critical industrial inputs.

The real issue, then, is not whether the euro has fallen or whether it will fall further. The real issue is whether Nigeria is becoming strong enough to withstand a world in which the dollar can rise, capital can move rapidly and the cost of external financing can change with little warning.

-Prof Uche Uwaleke is the Director of the Nasarawa State University Institute of Capital Market Studies and President of the Capital Market Academics of Nigeria

Anytime the euro falls sharply against the dollar, the immediate temptation is to see it as a European problem. For Nigeria, however, the more important question is what the implications of the decline means for the dollar, global interest rates, capital flows and the vulnerabilities of economies such as ours. A prolonged period of dollar strength could have consequences far beyond the currency markets, affecting the cost of imports, external debt, inflation, investment flows and ultimately the purchasing power of households and businesses.

For Nigeria, therefore, the euro’s weakness should be seen as an early warning about the external environment in which the Nigerian economy must operate.
To be sure, the euro’s recent decline to around USD1.12, its lowest level in about 17 months, reflects a combination of factors. Concerns about fiscal pressures in parts of the euro area, particularly France where protests have been reported, continuing geopolitical uncertainty, elevated energy costs and fragile European growth have weighed on the single currency. At the same time, the dollar has benefited from relatively resilient US economic conditions, comparatively high Treasury yields and expectations that the Federal Reserve may have less room to ease monetary policy than previously anticipated.

The result is a widening relative attraction of dollar assets, particularly for international investors looking for liquidity and relatively higher returns.
For understandable reasons, the dollar remains the dominant currency for international trade, commodity pricing, cross-border borrowing and global reserves.

When the dollar appreciates significantly, countries that import essential goods or carry dollar-denominated obligations effectively face higher costs in their own currencies. International investors may also find US Treasury securities and other dollar assets more attractive, particularly when US yields are high. Capital can consequently move away from emerging markets, putting pressure on their currencies and making external financing more expensive.
Undoubtedly, Nigeria is better placed today than it was during periods of acute foreign-exchange stress.

The Central Bank of Nigeria has reported a significant improvement in foreign-exchange reserves, while conditions in the foreign-exchange market have become more orderly and the naira has shown greater stability than during the worst periods of the recent currency crisis. These developments provide a valuable cushion. They give the economy more room to absorb external shocks and give businesses and investors greater confidence that the country has adequate foreign-exchange liquidity.

But the improvement also creates a policy responsibility: Nigeria must use this period of relative stability to strengthen its defenses rather than assume that the external environment will remain favourable. Reserves should be protected and foreign-exchange liquidity should be strengthened through sustainable earnings rather than temporary measures.

The more important test for Nigeria is what happens to the dollar-naira exchange rate if the dollar enters a prolonged period of appreciation. A stronger dollar would increase the naira cost of many imported goods and services, from machinery and pharmaceutical products to technology, vehicles and industrial raw materials.

Nigerian manufacturers would be particularly vulnerable because many still depend heavily on imported inputs. This means that currency pressure can quickly become a production-cost problem, and a production-cost problem can become an inflation problem.

That transmission mechanism is especially important for an economy already struggling to bring inflation down to levels that provide meaningful relief to households. If the naira comes under renewed pressure because of global dollar strength, the resulting increase in import costs could complicate the Central Bank’s efforts to achieve price stability. Monetary authorities could then face a familiar dilemma: maintaining relatively tight financial conditions to protect the currency and contain inflation while avoiding interest rates so high that they suppress investment, and economic growth.

This is why the exchange rate cannot be viewed in isolation from fiscal policy. If government borrowing requirements remain high, domestic liquidity expands rapidly or investors begin to question the sustainability of public finances, pressure on the naira can intensify regardless of what happens in Europe.

Conversely, stronger fiscal discipline can reinforce monetary policy by reducing pressure on domestic financing and strengthening investor confidence.

Nigeria’s external position also needs to be considered through the oil market. At first sight, a strong dollar could appear beneficial because crude oil is priced in dollars and Nigeria earns the bulk of its export revenue from oil. If oil prices remain high, stronger dollar earnings could improve foreign-exchange supply and support the country’s reserves. Higher oil revenues can also provide fiscal relief and strengthen the external account.

The problem is that dollar strength and oil prices do not always move in Nigeria’s favour. A stronger dollar can place downward pressure on dollar-priced commodities because they become more expensive for buyers using other currencies. If a strong dollar is accompanied by weaker global economic growth, oil demand and prices could also come under pressure. Nigeria could then face the much more difficult combination of weaker oil earnings, reduced foreign-exchange inflows and greater pressure on the naira.

That is the scenario Nigerian policymakers should be preparing for. The country has experienced repeatedly how quickly a fall in oil revenues can translate into foreign-exchange shortages, fiscal pressure and economic uncertainty. The lesson is that Nigeria’s external resilience cannot continue to depend overwhelmingly on the behaviour of one commodity.

This makes the expansion of non-oil foreign-exchange earnings one of the most practical priorities for economic policy. Nigeria needs to earn more dollars from agriculture, manufacturing, digital services, financial services, tourism, creative industries, professional services and other internationally tradable activities.

There is an equally important domestic side to this strategy. Nigeria needs to reduce the extent to which its productive economy depends on imported inputs. A manufacturer that imports most of its machinery and raw materials remains vulnerable to every major movement in the dollar, even if the company itself has no foreign-currency debt. The same applies to agriculture, construction, healthcare, transportation and technology.

The more of the production chain that can be supplied competitively from within Nigeria, the less exchange-rate volatility will feed directly into domestic prices.
Energy is perhaps the clearest example. Nigeria is a major oil producer, yet the economy has historically remained exposed to the cost and availability of refined petroleum products and other energy inputs. Improving domestic refining capacity, electricity supply and gas utilization should therefore form part of Nigeria’s foreign-exchange strategy because a more reliable domestic energy system reduces the amount of foreign currency required to keep businesses and households functioning.

The same argument applies to food production. Nigeria’s food-import bill and the foreign exchange required to finance imported agricultural inputs and food products can become more burdensome when the naira weakens. Increasing domestic productivity in agriculture is therefore relevant not only to food security but also to exchange-rate stability. It is a no-brainer that every major import category that Nigeria can produce competitively at home reduces the economy’s exposure to external currency shocks.

The question of external debt also deserves greater attention. A stronger dollar can increase the naira value of Nigeria’s dollar-denominated debt-service obligations even when the dollar amount owed has not changed. This places additional pressure on government finances. If debt service absorbs an increasing share of public revenue, the government has less room to finance infrastructure, health, education and other productive investments.

This is why the country’s debt strategy should increasingly pay close attention to currency risk. Borrowing in dollars may appear attractive when interest rates are lower than domestic rates, but the calculation changes dramatically if the naira subsequently depreciates. The effective cost of foreign-currency borrowing is determined not just by the interest rate but also by the movement of the exchange rate.

The same caution applies to Nigerian companies. Corporations that borrow in dollars without corresponding dollar revenues expose themselves to potentially significant balance-sheet risks. A company earning naira but servicing dollar debt can see its debt burden rise sharply following a currency depreciation. Financial institutions and corporate treasurers therefore need to take currency mismatches much more seriously, particularly in a world where global exchange rates can move rapidly.

Capital flows are another channel through which a stronger dollar could affect Nigeria. When US yields rise, international investors often reassess the relative attractiveness of emerging-market assets. Nigerian assets may still offer attractive yields, but investors will consider those yields against the possibility of currency depreciation and the broader perception of country risk. A nominally high Nigerian interest rate is less attractive to a foreign investor if the expected loss from naira depreciation is larger.

This is why Nigeria should not build its external financing strategy around short-term portfolio inflows. Such inflows can help deepen financial markets and provide useful foreign exchange, but they can also reverse quickly when global conditions change. Foreign direct investment, export earnings, remittances and other more stable sources of foreign exchange are considerably more valuable in building long-term external resilience.

The issue, therefore, is not simply whether Nigeria can attract capital, but whether it can attract the right kind of capital. Long-term investment in manufacturing, energy, agriculture, technology and infrastructure is generally more beneficial to economic resilience than capital that arrives primarily to take advantage of temporary interest-rate differentials. Nigeria needs investment that expands productive capacity and creates future foreign-exchange earnings rather than merely financing present consumption.

The European dimension of the story should nevertheless not be ignored. Europe remains an important trading and investment partner for Africa, and movements in the euro can create winners and losers across the continent. A weaker euro can make European machinery, equipment, goods and services relatively cheaper for African importers. African consumers and businesses purchasing European products could therefore benefit, provided the benefits are not overwhelmed by simultaneous dollar appreciation.

For Nigeria, trade with Europe also needs to be considered alongside investment and remittance flows. A weaker euro can affect the value of euro-denominated earnings when converted into dollars or naira. Nigerians and Nigerian businesses with financial exposure to the euro area may therefore experience different effects depending on the currency in which their income, assets and obligations are denominated.

The broader lesson for developing economies is that excessive dependence on a single external currency, commodity or source of capital creates vulnerability. For Nigeria, this diversification is particularly urgent because the country has both the scale and the resources to build a more resilient external economy. Its large domestic market provides a substantial base for industrialization, while its human capital, entrepreneurial sector and natural resources offer opportunities to develop internationally competitive industries. The challenge has been converting those advantages into consistent production and export earnings.

The current period of relative foreign-exchange stability should therefore be treated as an opportunity rather than a destination. Nigeria should use improved reserves and better-functioning foreign-exchange markets to strengthen the underlying economy. The objective should be to reach a point where exchange-rate movements no longer produce immediate economic crises because the country has sufficient reserves, diversified exports, competitive industries and credible institutions to absorb them.

That also means resisting the temptation to interpret current period of naira stability as proof that the exchange-rate problem has been solved. Currency stability that rests on sustainable external earnings and stronger productivity is fundamentally different from stability achieved through temporary intervention. The former can endure; the latter can disappear as soon as global conditions change.

There is a similar lesson for monetary policy. The CBN should maintain its focus on inflation and market credibility, but monetary policy cannot carry the entire burden of stabilizing the naira. If fiscal policy remains expansionary, productivity remains weak and the economy continues to depend heavily on imports, monetary policy will repeatedly be called upon to address problems that originate elsewhere.

A more durable approach requires coordination. Fiscal authorities need to strengthen revenue mobilization and expenditure efficiency. Monetary authorities need to maintain credibility and improve the functioning of the foreign-exchange market. The productive sectors need reliable power, infrastructure and access to finance. And the trade and industrial policy framework needs to encourage businesses to produce competitively for both domestic and foreign markets.
For the average Nigerian, the practical consequences of a renewed global dollar surge could appear in higher prices for imported medicines, machinery, electronics, vehicles, spare parts and industrial goods. For manufacturers, it could mean higher input costs. For government, it could mean a heavier naira burden for servicing foreign-currency obligations. For investors, it could mean greater volatility and a reassessment of Nigerian assets.

For the Central Bank, it could mean another difficult balancing act between inflation, interest rates, exchange-rate stability and economic growth.
All said, the most important response to the euro’s decline should not be an attempt to predict the next movement of the euro. It should be a deliberate effort to strengthen the foundations of the Nigerian economy before the next global shock arrives. The government needs to accelerate the reforms that can reduce the country’s import dependence, particularly in energy, food, manufacturing and critical industrial inputs.

The real issue, then, is not whether the euro has fallen or whether it will fall further. The real issue is whether Nigeria is becoming strong enough to withstand a world in which the dollar can rise, capital can move rapidly and the cost of external financing can change with little warning.

-Prof Uche Uwaleke is the Director of the Nasarawa State University Institute of Capital Market Studies and President of the Capital Market Academics of Nigeria

Anytime the euro falls sharply against the dollar, the immediate temptation is to see it as a European problem. For Nigeria, however, the more important question is what the implications of the decline means for the dollar, global interest rates, capital flows and the vulnerabilities of economies such as ours. A prolonged period of dollar strength could have consequences far beyond the currency markets, affecting the cost of imports, external debt, inflation, investment flows and ultimately the purchasing power of households and businesses.

For Nigeria, therefore, the euro’s weakness should be seen as an early warning about the external environment in which the Nigerian economy must operate.
To be sure, the euro’s recent decline to around USD1.12, its lowest level in about 17 months, reflects a combination of factors. Concerns about fiscal pressures in parts of the euro area, particularly France where protests have been reported, continuing geopolitical uncertainty, elevated energy costs and fragile European growth have weighed on the single currency. At the same time, the dollar has benefited from relatively resilient US economic conditions, comparatively high Treasury yields and expectations that the Federal Reserve may have less room to ease monetary policy than previously anticipated.

The result is a widening relative attraction of dollar assets, particularly for international investors looking for liquidity and relatively higher returns.
For understandable reasons, the dollar remains the dominant currency for international trade, commodity pricing, cross-border borrowing and global reserves.

When the dollar appreciates significantly, countries that import essential goods or carry dollar-denominated obligations effectively face higher costs in their own currencies. International investors may also find US Treasury securities and other dollar assets more attractive, particularly when US yields are high. Capital can consequently move away from emerging markets, putting pressure on their currencies and making external financing more expensive.
Undoubtedly, Nigeria is better placed today than it was during periods of acute foreign-exchange stress.

The Central Bank of Nigeria has reported a significant improvement in foreign-exchange reserves, while conditions in the foreign-exchange market have become more orderly and the naira has shown greater stability than during the worst periods of the recent currency crisis. These developments provide a valuable cushion. They give the economy more room to absorb external shocks and give businesses and investors greater confidence that the country has adequate foreign-exchange liquidity.

But the improvement also creates a policy responsibility: Nigeria must use this period of relative stability to strengthen its defenses rather than assume that the external environment will remain favourable. Reserves should be protected and foreign-exchange liquidity should be strengthened through sustainable earnings rather than temporary measures.

The more important test for Nigeria is what happens to the dollar-naira exchange rate if the dollar enters a prolonged period of appreciation. A stronger dollar would increase the naira cost of many imported goods and services, from machinery and pharmaceutical products to technology, vehicles and industrial raw materials.

Nigerian manufacturers would be particularly vulnerable because many still depend heavily on imported inputs. This means that currency pressure can quickly become a production-cost problem, and a production-cost problem can become an inflation problem.

That transmission mechanism is especially important for an economy already struggling to bring inflation down to levels that provide meaningful relief to households. If the naira comes under renewed pressure because of global dollar strength, the resulting increase in import costs could complicate the Central Bank’s efforts to achieve price stability. Monetary authorities could then face a familiar dilemma: maintaining relatively tight financial conditions to protect the currency and contain inflation while avoiding interest rates so high that they suppress investment, and economic growth.

This is why the exchange rate cannot be viewed in isolation from fiscal policy. If government borrowing requirements remain high, domestic liquidity expands rapidly or investors begin to question the sustainability of public finances, pressure on the naira can intensify regardless of what happens in Europe.

Conversely, stronger fiscal discipline can reinforce monetary policy by reducing pressure on domestic financing and strengthening investor confidence.

Nigeria’s external position also needs to be considered through the oil market. At first sight, a strong dollar could appear beneficial because crude oil is priced in dollars and Nigeria earns the bulk of its export revenue from oil. If oil prices remain high, stronger dollar earnings could improve foreign-exchange supply and support the country’s reserves. Higher oil revenues can also provide fiscal relief and strengthen the external account.

The problem is that dollar strength and oil prices do not always move in Nigeria’s favour. A stronger dollar can place downward pressure on dollar-priced commodities because they become more expensive for buyers using other currencies. If a strong dollar is accompanied by weaker global economic growth, oil demand and prices could also come under pressure. Nigeria could then face the much more difficult combination of weaker oil earnings, reduced foreign-exchange inflows and greater pressure on the naira.

That is the scenario Nigerian policymakers should be preparing for. The country has experienced repeatedly how quickly a fall in oil revenues can translate into foreign-exchange shortages, fiscal pressure and economic uncertainty. The lesson is that Nigeria’s external resilience cannot continue to depend overwhelmingly on the behaviour of one commodity.

This makes the expansion of non-oil foreign-exchange earnings one of the most practical priorities for economic policy. Nigeria needs to earn more dollars from agriculture, manufacturing, digital services, financial services, tourism, creative industries, professional services and other internationally tradable activities.

There is an equally important domestic side to this strategy. Nigeria needs to reduce the extent to which its productive economy depends on imported inputs. A manufacturer that imports most of its machinery and raw materials remains vulnerable to every major movement in the dollar, even if the company itself has no foreign-currency debt. The same applies to agriculture, construction, healthcare, transportation and technology.

The more of the production chain that can be supplied competitively from within Nigeria, the less exchange-rate volatility will feed directly into domestic prices.
Energy is perhaps the clearest example. Nigeria is a major oil producer, yet the economy has historically remained exposed to the cost and availability of refined petroleum products and other energy inputs. Improving domestic refining capacity, electricity supply and gas utilization should therefore form part of Nigeria’s foreign-exchange strategy because a more reliable domestic energy system reduces the amount of foreign currency required to keep businesses and households functioning.

The same argument applies to food production. Nigeria’s food-import bill and the foreign exchange required to finance imported agricultural inputs and food products can become more burdensome when the naira weakens. Increasing domestic productivity in agriculture is therefore relevant not only to food security but also to exchange-rate stability. It is a no-brainer that every major import category that Nigeria can produce competitively at home reduces the economy’s exposure to external currency shocks.

The question of external debt also deserves greater attention. A stronger dollar can increase the naira value of Nigeria’s dollar-denominated debt-service obligations even when the dollar amount owed has not changed. This places additional pressure on government finances. If debt service absorbs an increasing share of public revenue, the government has less room to finance infrastructure, health, education and other productive investments.

This is why the country’s debt strategy should increasingly pay close attention to currency risk. Borrowing in dollars may appear attractive when interest rates are lower than domestic rates, but the calculation changes dramatically if the naira subsequently depreciates. The effective cost of foreign-currency borrowing is determined not just by the interest rate but also by the movement of the exchange rate.

The same caution applies to Nigerian companies. Corporations that borrow in dollars without corresponding dollar revenues expose themselves to potentially significant balance-sheet risks. A company earning naira but servicing dollar debt can see its debt burden rise sharply following a currency depreciation. Financial institutions and corporate treasurers therefore need to take currency mismatches much more seriously, particularly in a world where global exchange rates can move rapidly.

Capital flows are another channel through which a stronger dollar could affect Nigeria. When US yields rise, international investors often reassess the relative attractiveness of emerging-market assets. Nigerian assets may still offer attractive yields, but investors will consider those yields against the possibility of currency depreciation and the broader perception of country risk. A nominally high Nigerian interest rate is less attractive to a foreign investor if the expected loss from naira depreciation is larger.

This is why Nigeria should not build its external financing strategy around short-term portfolio inflows. Such inflows can help deepen financial markets and provide useful foreign exchange, but they can also reverse quickly when global conditions change. Foreign direct investment, export earnings, remittances and other more stable sources of foreign exchange are considerably more valuable in building long-term external resilience.

The issue, therefore, is not simply whether Nigeria can attract capital, but whether it can attract the right kind of capital. Long-term investment in manufacturing, energy, agriculture, technology and infrastructure is generally more beneficial to economic resilience than capital that arrives primarily to take advantage of temporary interest-rate differentials. Nigeria needs investment that expands productive capacity and creates future foreign-exchange earnings rather than merely financing present consumption.

The European dimension of the story should nevertheless not be ignored. Europe remains an important trading and investment partner for Africa, and movements in the euro can create winners and losers across the continent. A weaker euro can make European machinery, equipment, goods and services relatively cheaper for African importers. African consumers and businesses purchasing European products could therefore benefit, provided the benefits are not overwhelmed by simultaneous dollar appreciation.

For Nigeria, trade with Europe also needs to be considered alongside investment and remittance flows. A weaker euro can affect the value of euro-denominated earnings when converted into dollars or naira. Nigerians and Nigerian businesses with financial exposure to the euro area may therefore experience different effects depending on the currency in which their income, assets and obligations are denominated.

The broader lesson for developing economies is that excessive dependence on a single external currency, commodity or source of capital creates vulnerability. For Nigeria, this diversification is particularly urgent because the country has both the scale and the resources to build a more resilient external economy. Its large domestic market provides a substantial base for industrialization, while its human capital, entrepreneurial sector and natural resources offer opportunities to develop internationally competitive industries. The challenge has been converting those advantages into consistent production and export earnings.

The current period of relative foreign-exchange stability should therefore be treated as an opportunity rather than a destination. Nigeria should use improved reserves and better-functioning foreign-exchange markets to strengthen the underlying economy. The objective should be to reach a point where exchange-rate movements no longer produce immediate economic crises because the country has sufficient reserves, diversified exports, competitive industries and credible institutions to absorb them.

That also means resisting the temptation to interpret current period of naira stability as proof that the exchange-rate problem has been solved. Currency stability that rests on sustainable external earnings and stronger productivity is fundamentally different from stability achieved through temporary intervention. The former can endure; the latter can disappear as soon as global conditions change.

There is a similar lesson for monetary policy. The CBN should maintain its focus on inflation and market credibility, but monetary policy cannot carry the entire burden of stabilizing the naira. If fiscal policy remains expansionary, productivity remains weak and the economy continues to depend heavily on imports, monetary policy will repeatedly be called upon to address problems that originate elsewhere.

A more durable approach requires coordination. Fiscal authorities need to strengthen revenue mobilization and expenditure efficiency. Monetary authorities need to maintain credibility and improve the functioning of the foreign-exchange market. The productive sectors need reliable power, infrastructure and access to finance. And the trade and industrial policy framework needs to encourage businesses to produce competitively for both domestic and foreign markets.
For the average Nigerian, the practical consequences of a renewed global dollar surge could appear in higher prices for imported medicines, machinery, electronics, vehicles, spare parts and industrial goods. For manufacturers, it could mean higher input costs. For government, it could mean a heavier naira burden for servicing foreign-currency obligations. For investors, it could mean greater volatility and a reassessment of Nigerian assets.

For the Central Bank, it could mean another difficult balancing act between inflation, interest rates, exchange-rate stability and economic growth.
All said, the most important response to the euro’s decline should not be an attempt to predict the next movement of the euro. It should be a deliberate effort to strengthen the foundations of the Nigerian economy before the next global shock arrives. The government needs to accelerate the reforms that can reduce the country’s import dependence, particularly in energy, food, manufacturing and critical industrial inputs.

The real issue, then, is not whether the euro has fallen or whether it will fall further. The real issue is whether Nigeria is becoming strong enough to withstand a world in which the dollar can rise, capital can move rapidly and the cost of external financing can change with little warning.

-Prof Uche Uwaleke is the Director of the Nasarawa State University Institute of Capital Market Studies and President of the Capital Market Academics of Nigeria