A fresh wave of currency devaluation will hit big African economies in 2025 as Nigeria’s naira is projected to decline by at least six percent against the US dollar.Â
The finding, included in the latest African Economic Outlook 2025 report released by the African Development Bank (AfDB), causes fresh concern about the stability of African currencies as global economic pressure continues to increase.
The study predicted that 21 out of 54 African currencies would depreciate over the next year. The reason is diminishing export revenues, lack of foreign capital, and inherent vulnerability in home countries. In Nigeria and other such resource-based economies, this is further augmented by poor foreign reserves and fiscal pressures.
For AfDB, the projected devaluation of the naira and other prominent African currencies is a consequence of a double-factor combination at home and abroad. Worldwide, heightened geopolitical tensions, especially those rooted in protectionist measures of leading economies, have contributed to heightened global financial conditions. These have raised the cost of borrowing and restricted access to dollar-denominated finance for emerging economies like Africa.
Nigeria’s naira currency has seen perpetual distress in recent years, following a massive devaluation by the incumbent government in 2023. Even with some attempts in recent years by the Central Bank of Nigeria to inject more liquidity and flexibility into the foreign exchange market, the currency continues to be weak. The governor, Olayemi Cardoso, was recently quoted as saying that the rate of exchange volatility has fallen below 0.5 percent, attributing this to continued fiscal and monetary reforms. However, analysts remain unconvinced, citing that there are weak and susceptible underlying market fundamentals susceptible to additional shocks.
The AfDB picture remains one of the most mixed hues on the continent. While a few economies, Egypt, Ghana, and Ethiopia, will likely be subject to pressures of depreciation, the rest are also likely to see more favorable trends. The Kenyan shilling and Moroccan dirham currencies are expected to appreciate by more than three percent in 2025. Kenya’s economy, for instance, has been supported by increased investor confidence after it reclaimed its Eurobond, which saw foreign inflows increase, supporting the rebound of the shilling.
CFA franc zone countries such as Senegal and CĂ´te d’Ivoire will also benefit from the euro’s recent appreciation. Their pegged currencies have been relatively stable and will appreciate modestly against the dollar.
Conversely, Guinea, Mauritania, and Seychelles have classic macroeconomic challenges. Their currencies continue to be pressured by poor investor sentiment, high inflation, and poorly managed external positions.
In the meantime, gold is once again becoming a leadership currency volatility hedge. Nations such as Zimbabwe and South Sudan are banking on gold as a strategic reserve to shield their economies from the risky rides in the forex market.
Lastly, as a few African nations are formulating their solutions through judicious budgeting, increased investors’ demand, and shrewd hedging, most others are vulnerable to a highly risky global situation. Nigeria’s naira and numerous other African currencies are thus bound to remain under stress unless braver structural reforms are undertaken and global conditions ease.
