The high cost of foreign exchange: How Nigeria’s FX shortage has impacted both businesses and everyday life

Nigeria’s FX crisis

Nigeria's economy has long grappled with a significant foreign exchange (FX) shortage, a situation that deepened between 2021 and 2023. Structural imbalances, policy inconsistencies, and external shocks combined with the country’s dependence on oil exports led to a tightening in access to hard currency and eroded investor confidence.

Throughout this period, the Central Bank of Nigeria (CBN) maintained multiple exchange rates, creating a  gulf between the official and parallel markets. The official exchange rate was artificially propped up to support priority imports and government obligations, while the parallel (or black) market became the true indicator of the naira's value, often trading at a premium of 30 to 50 percent above the official window. This dual system led to market distortions and led to serious consequences to both businesses and individuals.

Impact on businesses and investors

The scarcity of FX translated directly into a drastic increase in operating costs and an erosion of business confidence. It particularly impacted import dependent industries which saw a sharp increase in operational costs. This consequently drove domestic inflation and reduced Naira's purchasing power. 

Another impact was the  decline in foreign investor sentiment. Foreign entities, particularly in aviation, oil, and technology, could not repatriate billions in earnings and dividends, trapping capital and making Nigeria unattractive for new FDI. As a result, many companies either scaled back operations or exited the Nigerian market altogether. A Nigerian oil and gas executive stated:

‘The oil price crashes over the years meant that Nigeria saw a significant decrease in its forex inflows. Companies that rely on imports saw the prices of their raw materials increase and their operational costs shot up. Companies that had been here for years were now struggling and being driven to exit  the Nigerian market.’

Challenges for Nigerian families 

For households, education is one of the clearest examples of how macroeconomic turbulence translated into daily life. Parents needing to pay school fees abroad often found the official FX window unreliable. In theory, Nigerians were entitled to access foreign currency at the official rate for services like tuition. In practice, limited liquidity meant applications faced long delays, sometimes up to several months. For students abroad, this meant missed payment deadlines and the risk of losing admission.

Strict international transaction limits added another difficulty. Restrictions on international card usage made it almost impossible for students to cover living expenses with Nigerian bank cards.  Parents and students were often left with no choice but to turn to the parallel market to access the foreign currency they needed. The parallel market, however, came with significant costs and risks. Driven by speculation and instability, exchange rates in 2022 were up to 50 percent higher than official rates. For families, this meant a significant rise in education costs, in addition to the fact that black-market transactions offered no legal recourse in cases of fraud or dispute. As a personal banker at a Nigerian financial institution explained to us:

‘Getting forex was very difficult. Even if you went through the proper channels and applied to the CBN through your bank, it wasn’t guaranteed. We went from being able to use our bank cards in any shop or ATM in the UK or the US to having strict daily and monthly limits at first. And then not at all.’

Reforms have led to some improvements

Recent reforms have been aimed towards stabilising the naira and improving access to FX. President Bola Tinubu’s administration began to make moves to overhaul currency policy in mid-2023, with a focus on stabilising the naira, attracting investment, and restoring confidence, with changes including:

• Floating the Naira: The CBN unified the multiple exchange rate windows, allowing the naira to float and curbing arbitrage opportunities.
• Clearing the Forex Backlog: In January 2025, the CBN governor, Olayemi Cordoso announced that the bank had cleared the $7 billion foreign exchange backlog, including obligations to foreign creditors and international airlines. 
• Tighter Regulations on BDCs: Stricter oversight has been imposed on Bureau De Change (BDC) operators to curb speculative trading and  drive more transactions into the formal banking system.

These reforms, combined with rising oil prices and higher domestic production, have boosted FX inflows. By August 2025, Nigeria’s reserves had risen to  USD 41 billion, the highest since 2021.

Parents and bankers alike agree that access to FX has since improved.  For school fees, the process is now more predictable: once an application is approved, funds are released and paid directly into the school’s account. A partner at a Nigerian law firm confirmed:

‘Things are certainly better now. Personally, I no longer have issues getting forex to pay my son’s school fees in the UK. It takes a couple of days but the money is paid directly into the school’s account. There are also a number of other options like fintechs that are much more straightforward to use.’

Fintech as a workaround 

Despite improvements, many parents still prefer faster, less bureaucratic options. Nigerian fintechs, international money transfer operators, and multi-currency wallets offer instant access to FX, avoiding the long application processes of official channels. With the unification of exchange rates, the CBN route no longer provides significant cost savings, further encouraging families to look to private-sector alternatives such as cryptocurrency platforms have also gained traction as parents seek reliable and immediate solutions. 

International companies are also increasingly exploring and using fintech solutions to manage their FX requirements and help with profit repatriation from Nigeria. Fintechs are viewed as being more efficient, transparent, and affordable allowing companies to keep better track of their costs. That said, they are not a complete replacement for traditional banking channels as they are limited by regulatory requirements such as caps on amounts that can be transferred in a single transaction. According to a manager at a Nigerian fintech:

‘More and more companies are looking for other alternatives than using the CBN. Fintechs are faster for them so companies are now primarily driven by where they can get the best rate. There are some issues to iron out but fintechs keep on exploring ways to meet their needs.’

Looking ahead

As reforms continue, the key question will be whether stability can be sustained. In parallel, the rise of alternative solutions, from fintech wallets to instant transfer platforms, is reshaping how Nigerians move money across borders. These innovations point to a future in which families and businesses alike may rely less on official channels and more on market-driven tools to navigate FX volatility. In our next article, we’ll explore how Nigeria’s fintech sector is innovating around foreign exchange access, and what opportunities and risks this presents for families, as well as businesses and regulators.

At The Risk Advisory Group, we help businesses and individuals navigate Nigeria’s complex FX landscape with clarity, insight, and confidence. Our local intelligence, due diligence, and strategic advisory services enable clients to anticipate currency risks, safeguard operations, and uncover new opportunities in volatile markets. Get in touch with us today to learn how our experts can help you manage these risks and strengthen business resilience in Nigeria and across Africa.