Nigeria’s ongoing currency devaluation has sparked debates on its economic impact, with Chatham House cautioning the Federal Government (FG) against artificial interventions to strengthen the naira. The policy institute suggests that the weaker naira has made Nigeria more competitive in global trade, and attempts to reverse this trend could be detrimental to long-term economic stability.
How Naira Devaluation Impacts Competitiveness
A depreciated naira makes Nigerian goods and services cheaper for foreign buyers, potentially boosting exports and encouraging local production. This shift could drive economic diversification and reduce the country’s dependence on imports, fostering a more self-sufficient economy.
Additionally, foreign investors may find Nigeria more attractive due to lower operating costs, leading to job creation and economic expansion. However, devaluation also comes with challenges such as rising inflation and increased costs of imported goods.
Why Strengthening the Naira Could Backfire
Chatham House warns that any government-led effort to artificially boost the naira’s value could pose risks, including:
Reduced Export Competitiveness – A stronger naira would make Nigerian exports more expensive, decreasing their global demand.
Pressure on Foreign Reserves – Strengthening the currency may require the Central Bank of Nigeria (CBN) to spend foreign reserves, weakening financial stability.
Higher Inflation Volatility – Interfering with market forces could create uncertainty, leading to erratic inflation patterns.
A Call for Sustainable Economic Policies
Instead of direct intervention, economic experts advise the FG to focus on structural reforms that enhance local industries, attract investment, and improve productivity. These measures would help stabilize the naira naturally while ensuring long-term economic growth.While naira devaluation has short-term drawbacks, it presents an opportunity for Nigeria to strengthen its economy. Chatham House urges the government to embrace market-driven policies rather than attempting to artificially control the exchange rate. The focus should remain on fostering industrial growth, increasing exports, and maintaining financial stability.
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Written By Fortune Davidson