Global Trade War: Naira Weakens as Forex Outflows Rise

Global Trade War Triggers Forex Outflows, Naira Depreciation

The ongoing tariff dispute between the United States and several countries has led to increased foreign exchange outflows from Nigeria, causing the naira to weaken for two consecutive weeks.

In response, the Central Bank of Nigeria (CBN) intervened in the forex market last week, injecting $500 million to stabilize supply. Despite this effort, the naira still depreciated by N55, trading at N1,600 per dollar in the parallel market—its lowest value in five weeks. Similarly, in the official market, it weakened by N6 to N1,548 per dollar.

The global economy remains uncertain due to escalating trade tensions among major economies, including the U.S., Canada, Mexico, China, and the European Union. The introduction of a 25% tariff on metal imports into the U.S. has intensified the situation, with retaliatory measures from other nations.

Fears of rising inflation and an economic downturn have unsettled investors, leading to losses in global stock markets. The MSCI World Index, tracking 1,500 stocks from 23 developed nations, dropped by 2.1% last week, while Nigeria’s NGX Exchange declined by 0.5% for the second straight week.

Financial analysts report that concerns over the trade war have driven some foreign portfolio investors to withdraw funds from Nigeria, exacerbating forex outflows and adding pressure on the naira.

“So, they sold the assets they invested in (bonds, treasury bills and equities), and went to the foreign exchange window to buy the dollars,” said a senior banking executive who spoke to Vanguard on condition of anonymity. “The sustained buying pressure from them led to locals who had been price sensitive for the past few months, waiting for the naira to appreciate, to jump into the market to also start buying the greenback.

“Meanwhile, the fear that the naira was depreciating led to panic buying thus compounding the demand pressure in the forex market,”

Financial Vanguard’s analysis of NGX data suggests that the trend of foreign capital flight from Nigeria’s stock market may have begun in January. According to NGX reports, foreign investment outflows exceeded inflows by 78% that month.

The stock market recorded a foreign outflow of N45.85 billion in January 2025, compared to a foreign inflow of N25.66 billion. While outflows surged by 13.2% from N40.49 billion in December 2024, inflows declined slightly by 2.3% from N26.26 billion in the same period.

The increasing forex outflows led to a shortage of dollars in the market, reversing the gains recorded in the first two months of the year and causing steady depreciation of the naira.

Between February 26 and March 14, the naira weakened by 7.4% in the parallel market, sliding from N1,490 to N1,600 per dollar. Similarly, in the official market, it depreciated by 3.3%, dropping from N1,499 to N1,548 per dollar.