Naira recovery still lacks a productive base despite $55.24bn reserves

Nigeria’s external reserves rose to about $55.24 billion at the end of October, up from about $43.15 billion a year earlier. Yet the naira still depreciated by 1.2 percent in October, closing at N1,346.26 to the dollar on October 30, compared with N1,330.09 at the start of the month.

That contradiction is the centre of the currency debate. More dollars in reserves have not convinced the market that the naira’s recovery is secure. The issue is not whether Nigeria has made progress. It has. The issue is whether the progress rests on foundations strong enough to last.

Reserves are a buffer, not proof of earning power

Reserves help the Central Bank of Nigeria meet external obligations, manage market pressure and reassure investors. They are not a substitute for a productive economy. A country can accumulate dollars without becoming better at earning them.

The difference between gross and net reserves also matters. In October, the CBN governor reported gross reserves of about $55 billion and net reserves of $46 billion. Both figures show improvement, but they are not interchangeable. Gross reserves include external assets that may be subject to liabilities. Net reserves offer a different picture after accounting for specified obligations.

The market responds to what businesses and individuals can access, the confidence that dollars will be available tomorrow and the expectations shaping demand today.

Inflows improved, but outflows did the heavy lifting

Nigeria recorded net foreign-exchange inflows of $22.5 billion in the second quarter of 2026, the highest since the final quarter of 2019. The improvement was driven largely by a sharper reduction in outflows, not an increase in total inflows.

Total inflows declined from $32.39 billion in the first quarter to $31.43 billion in the second. Outflows fell from $11.05 billion to $8.93 billion. That is good news, but it raises a question. Is Nigeria earning substantially more dollars, or simply retaining more of the dollars already coming in?

The composition of inflows matters. Portfolio investment rose by 45 percent to $6.51 billion in the second quarter, while concerns remain about weak foreign direct investment. Portfolio capital can improve liquidity and support the exchange rate. It can also leave quickly when interest-rate expectations change, returns become less attractive or investors reassess risk.

The naira debate must move beyond the CBN

The CBN can improve market functioning, build reserves and reduce disorderly volatility. It cannot manufacture export earnings, make electricity reliable or turn uncompetitive production into globally competitive goods.

Every product Nigeria imports without a competitive domestic alternative represents demand for foreign exchange. Every viable export business that fails to scale is a missed opportunity to earn it. Every factory operating below capacity because of energy, logistics or financing costs weakens the economy’s ability to generate dollars.

The government’s real currency policy must also be an industrial, trade, energy and investment policy. It must make it easier to produce in Nigeria, process more of what the country grows, export more of what it manufactures and attract investment that builds productive capacity rather than merely chasing short-term returns.

For the naira, the lesson is simple. Reserves can buy time and calm the market. They cannot replace export earnings, reliable power or competitive production. The ultimate test of the recovery is whether Nigeria can build an economy that needs less defending.