Naira-based financing is emerging as a viable solution to Nigeria’s persistent currency volatility, according to startup investors.
At the West African segment of the 21st Annual Africa Venture Capital Association (AVCA) Conference and VC Summit on Tuesday, industry stakeholders agreed that dollar-based financing is increasingly unsustainable amid ongoing devaluations across West Africa.
Investors noted that returns on dollar-denominated funds have eroded due to currency losses. Since the Central Bank of Nigeria.(CBN) introduced exchange rate unification reforms in 2023, the naira has fallen from N470 to N1,599.95 per dollar, illustrating the point made by the stakeholders.
According to the World Bank, the naira was one of Africa’s weakest-performing currencies last year, alongside the South Sudanese pound and Ethiopian birr.
This depreciation has shaken investor confidence and reduced the attractiveness of dollar-based investments into the country. Startup investments to Nigeria ($417 million) fell behind South Africa’s ($589 million) in 2024.
The VCA reported that overall startup funding in Africa dropped by 22 percent to $3.6 billion, attributing much of the West African decline to “ongoing challenges, including currency volatility and heightened competition for capital from other increasingly competitive startup ecosystems.”
Currency volatility was one of the top three concerns for investors in 2025, AVCA noted in its investors’ outlook report for 2025. “Concerns over exchange rate volatility, geopolitical and security risks, and interest rates were represented among all investors,” it said.
To hedge against this, Gbenga Hassan, managing partner at Argentil Capital Management, advocated for more naira-denominated investments since local startups raise revenue in naira.
He highlighted that a fund raised in naira is more likely to return 10 times more in a couple of years than a fund raised in dollars, which would have to grapple with the naira’s depreciation.
“We need more local investors,” he emphasised.
Yewande Adewusi, chief operating officer at Alitheia Capital, echoed this sentiment, emphasising the need for currency alignment.
“If we are earning in naira, why are we investing in dollars? Devaluation is inevitable every six to eight years. Understanding currency cycles is essential.
“When you are receiving dollars from an investor, you need to figure out how you are going to earn dollars. We need to deepen our markets where we can give local capital,” she further said.
Local raises can protect investors and startups from currency volatility while offering the right currency match. However, for this to happen, more local funds need to flow to investors. “We cannot really do that because those that invest in us do so in dollars,” one investor said.
Getting more local money into the investment space is crucial to naira-financing, Hassan of Argentil, noted. “There are so many funds with pension fund managers. How can we get that to startups,” he stated. He, however, highlighted that the pension managers are rightly cautious because of the sensitivity and importance of the return on the funds with them.
AVCA and the Private Equity and Venture Capital Association of Nigeria (PEVCA) recently highlighted that Nigeria’s pension fund assets surpasses N18 trillion ($20 billion), underscoring the untapped potential of domestic capital.
For big things to happen, there needs to be more first movers, Hassan noted. “Once local investors see returns, they are more likely to reinvest,” he said.
The market may be switching to this model, especially as local investors become the more dominant investing group in Nigeria, and Africa by extension. Local investors out-invested their foreign counterparts on the continent, accounting for 31 percent of the total investor pool, from just 19 percent a decade ago. In Nigeria, African investors accounted for 73 percent of private capital investments.
Collaboration between fund managers is crucial for the success of this pathway, Ashim Egunjobi, managing partner, Octerra Capital, noted. “We need to speak to each other more,” she stated.
