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Nigeria’s foreign reserves have been making headlines lately, with the Central Bank of Nigeria (CBN) projecting a rise to $51.04 billion in 2026, up from $45.01 billion in 2025. But what does this really say about the economy?
On the surface, a growing foreign reserve is a good sign. It indicates that the country has a cushion to fall back on in case of external shocks, and it can also boost investor confidence. In Nigeria’s case, the reserve growth is largely driven by higher oil earnings, foreign exchange (FX) market reforms, and increased diaspora remittances.
However, experts caution that reserve growth alone is not a definitive indicator of economic strength. Nigeria’s reserves are still relatively low compared to its population and economic scale. For instance, India and Brazil have reserves exceeding $700 billion and $350 billion, respectively.
The composition of Nigeria’s reserve inflows is also a concern. A significant portion of the growth comes from temporary portfolio investments and short-term borrowing, which can be volatile and prone to sudden reversals. In contrast, reserves generated through sustained export growth, foreign direct investment, and diversified production structures tend to be more stable.
So, what can Nigeria do to strengthen its reserves? Let’s take a cue from countries like Brazil and India:
Diversify export base*: Nigeria’s over-reliance on oil revenues makes it vulnerable to commodity price fluctuations. Brazil, for example, has diversified its export base to include agricultural products like soybeans, meat, and sugar, as well as manufactured goods like aircraft and automobiles.
Invest in productive sectors*: Nigeria needs to invest in sectors like manufacturing, agriculture, and services to drive economic growth and increase exports. India, for instance, has become a major player in the global IT and services sector, attracting significant foreign investment and boosting its reserves.
Promote non-oil exports*: Nigeria can increase its non-oil exports by improving infrastructure, reducing trade barriers, and providing incentives for exporters. Brazil, for example, has promoted its agricultural exports through initiatives like the Brazilian Agricultural Research Corporation (Embrapa).
Attract foreign direct investment (FDI)*: Nigeria needs to create a more attractive investment climate to lure FDI, which can help boost reserves. India, for instance, has attracted significant FDI in sectors like electronics, automobiles, and pharmaceuticals through policy reforms and infrastructure development.
Improve trade facilitation*: Nigeria can improve trade facilitation by simplifying customs procedures, reducing bureaucracy, and investing in logistics infrastructure. This can help increase trade volumes and boost reserves.
The CBN’s efforts to improve FX market transparency and stability are commendable, but more needs to be done to address the underlying structural issues. The current improvement in reserves should be seen as an opportunity to accelerate structural reforms, rather than a reason to relax.
In conclusion, while Nigeria’s foreign reserve growth is a positive development, it should be interpreted with caution. The country needs to focus on sustainable economic transformation, rather than relying solely on reserve accumulation. By diversifying its export base, investing in productive sectors, and promoting non-oil exports, Nigeria can build a stronger and more resilient economy.
Beyond CBN’s Vault: Unpacking the Story of Nigeria’s Foreign Reserves By Clem Aguiyi
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