Don’t depend on current naira stability — Iroko Capital warns

By Precious Mark

Investment banking firm Iroko Capital has cautioned Nigerian businesses against treating the naira’s recent stability and the rise in foreign reserves to $52 billion as permanent, warning that a 21% surge in global oil prices could spark fresh cost pressures.

In its August 2026 Boardroom Macro Brief released in Lagos, the firm urged corporate leaders to use the current calm to repair balance sheets and reduce financial risk rather than assume economic volatility is over.

According to data cited in the brief, Nigeria’s external reserves climbed to $51.92 billion as of July 31, up from $51.04 billion in June and $39.36 billion recorded in July 2025.

In the official foreign exchange market, the naira closed July at N1,368.22 per dollar, improving from N1,379.68 in June and N1,533.55 a year earlier.

Further boosting market confidence, combined crude oil and condensate production rose to 1.74 million barrels per day in June, up from 1.70 million bpd in both June and July 2025, reaching its highest level in over six years.

However, Iroko Capital highlighted that global Brent crude jumped by nearly 21% in July to $87.93 per barrel, up from $72.92 in June and $72.53 a year ago, driven by geopolitical tensions in the Middle East.

“Higher oil prices support export receipts and foreign reserves, but they also raise fuel, freight, and inflation risks,” warned Tolu Osinibi, Managing Partner at Iroko Capital, emphasizing that boards should not misread short-term FX gains as a permanent structural fix.

On domestic prices, headline inflation eased slightly to 15.91% in June compared to 15.93% in May and 25.29% a year ago, while core inflation fell to 15.92% from 16.82% in June and 25.41% in July 2025.

However, food inflation rose to 17.52% in June, leading the report to caution against viewing lower headline figures as broad price relief, given that consumer spending power remains heavily squeezed.

To keep inflation under control, the Central Bank of Nigeria held its benchmark Monetary Policy Rate at 26.50% in July, down from 27.50% a year earlier.

Borrowing costs remained high in the debt market, where the one-year Treasury Bill stop rate reached 17.70% early in July before strong investor demand pulled yields down to 17.35% by month-end, while 10-year FGN Bonds yielded 17.39%.

Despite high interest rates, Iroko Capital noted that the domestic funding market remains active, with a strong appetite for government paper and corporate issuances from credible borrowers offering short duration and secure repayment terms.

Analyzing sector risks, the report noted that while high yields support interest income for commercial banks, expensive credit weakens borrowers, requiring banks to test asset quality against slower cash flows.

For consumer goods companies, the firm advised continuing promotional offers and flexible sizing, as high transport and food costs mean households have not fully recovered.

For manufacturers and importers, Iroko Capital warned that rising energy and freight expenses could erase foreign exchange savings, urging firms to recheck landed-cost models and avoid excessive inventory build-up.

In the oil and gas sector, higher output and prices are improving cash flow, but operators were advised to safeguard liquidity and stress-test projects against price swings, operational disruptions, and payment lags.

Looking ahead, the investment firm urged corporate boards to review whether 2026 business plans can survive prolonged crude prices above $85 per barrel, which expenses will escalate first, and whether planned debt can be serviced if interest rates remain high through year-end.

Directors were also asked to evaluate if they are utilizing the stronger naira to reduce foreign currency liabilities and which capital projects should be delayed if consumer demand remains weak.

Iroko Capital added that it will monitor upcoming inflation trends, domestic fuel and freight prices, reserve movements, the outcomes of the CBN’s September policy meeting, and government borrowing activity in the local market.