Nigeria markets are celebrating a naira that strengthened 7.4% in 2025, closing at N1,429/$ from N1,535/$ at end-2024. The Central Bank of Nigeria points to FX reforms and improved price discovery. But this surface-level appreciation masks structural weaknesses that should alarm investors.

The Artificial Strength Problem

The naira's recent gains stem from foreign portfolio investor inflows and exporter compliance, not genuine economic transformation. Trading around N1,350-N1,356/$ by mid-February 2026 represents a 4.78% monthly strengthening that looks impressive until you examine the fundamentals. This suggests Nigeria is repeating old mistakes - managing exchange rates through financial engineering rather than building export capacity.

The risk is that CBN policy direction remains the primary driver of naira volatility, not productive economic activity. When global oil price trends shift or foreign exchange inflows dry up, the currency faces brutal corrections. Historical context matters: the naira hit N1,717.50/$ in November 2024 before this recent recovery. That 20% swing in months reveals how fragile current stability remains.

Without rising exports and deeper foreign direct investment, this appreciation becomes a competitiveness trap. Nigerian manufacturers face higher input costs while exporters lose pricing advantages. The economy gets addicted to hot money flows that vanish during global stress.

Regional Integration Reality Check

Nigeria's currency management exposes broader African monetary coordination failures. While the AfCFTA promises seamless trade, member states pursue conflicting exchange rate policies that fragment markets. Nigeria's naira volatility - driven by CBN interventions rather than market forces - creates unpredictable trading costs for regional partners.

This undermines the continental free trade area's core promise of reducing transaction costs. When Africa's largest economy maintains artificial currency strength through policy manipulation, it distorts regional price signals and investment flows. Expect continued fragmentation until Nigeria commits to genuine structural reforms.

The naira's paper strength today sets up tomorrow's crisis when reality reasserts itself.