Nigeria’s economy is at a crossroads. The past year has been a whirlwind of policy adjustments, market turbulence, and shifting investor sentiment. On the one hand, reforms in the foreign exchange market, fiscal policies aimed at revenue expansion, and a gradual rebound in oil prices offer glimmers of hope. On the other hand, inflationary pressures, dwindling foreign reserves, and the ever-present spectre of currency instability leave business leaders and policymakers grappling with difficult choices. The challenge is not merely about responding to economic shocks but also about charting a path toward long-term stability.
At the heart of the issue is Nigeria’s foreign exchange market. The naira, long a barometer of economic confidence, has experienced relative stability following the introduction of the Electronic Foreign Exchange Matching System (EFEMS). However, this stability is precarious. The official exchange rate remains divorced from the parallel market, where a near-6% spread persists. Foreign reserves, which stood at $41 billion at the end of 2024, have now slid to approximately $40 billion. The Central Bank of Nigeria’s intervention in the foreign exchange market, while temporarily sustaining liquidity, raises concerns about sustainability. A depletion of reserves beyond critical thresholds could spark renewed volatility reminiscent of past currency crises.
Efforts to shore up foreign exchange liquidity have relied on a combination of external arrangements and policy manoeuvres. The renewal of Nigeria’s $15 billion bilateral FX swap agreement with China provided short-term relief, particularly given China’s status as Nigeria’s largest trading partner. Open Market Operations (OMO) issuances surged to NGN 13.5 billion from a mere NGN 2 billion a year prior, drawing in offshore investors. Yet these measures, akin to applying patches on a leaking vessel, may not hold indefinitely. The concern remains: if OMO issuances cannot be adequately rolled over in early 2025, capital flight could intensify, placing additional strain on an already fragile FX market.
Beyond foreign exchange, Nigeria’s fiscal landscape is undergoing an ambitious transformation. The government’s push to streamline tax collection and increase VAT has sparked debate. The logic is clear—boosting non-oil revenue is imperative for fiscal sustainability. But, businesses remain wary. Sudden tax hikes risk dampening economic activity, particularly for small and medium-sized enterprises already struggling with high costs of operations. Foreign direct investment, meanwhile, remains lacklustre. Despite Nigeria’s recent decision to join BRICS in a bid to attract international capital, investor sentiment is mixed. U.S. trade policies, particularly under a newly inaugurated President Donald Trump, pose uncertainties for BRICS economies, potentially complicating Nigeria’s trade prospects.
Oil, the lifeblood of the economy, offers both promise and peril. Global crude prices have rebounded to $80 per barrel, providing a much-needed fiscal cushion. Yet Nigeria’s ability to fully capitalize on this price surge remains in question. Crude output continues to hover below optimal levels due to operational inefficiencies and security concerns in the Niger Delta. The Dangote Refinery, heralded as a game-changer for domestic refining, has found itself entangled in supply disputes. Despite being positioned to reduce Nigeria’s dependence on imported refined products, the refinery has had to import crude from Chevron in the U.S., exposing inefficiencies in local supply agreements. The discord between Dangote and the Nigerian National Petroleum Corporation (NNPC) underscores broader challenges within the oil sector, where policy misalignment and bureaucratic hurdles continue to stifle progress.
Monetary policy remains an area of intense scrutiny. Inflation, a persistent challenge, has kept the Central Bank of Nigeria in a hawkish stance. Governor Yemi Cardoso has maintained high interest rates as a means to curb inflation, a strategy that has yielded mixed results. The recent decision to reweight the Consumer Price Index (CPI) basket—reducing the food component from 51.8% to 40.1% -has led to a statistical decline in inflation figures. While such recalibrations are not uncommon, they raise questions about transparency. Investors and analysts rely on credible macroeconomic data to assess risk. Any perception of data manipulation could erode confidence, deterring the very capital inflows Nigeria desperately needs.
Against this backdrop, the government has taken steps to ease credit constraints. A new NGN 100 billion initiative has been launched to provide credit access to underserved groups, though its scope remains limited to government employees. While the program signals intent to address liquidity issues, its effectiveness will depend on implementation. The broader concern is whether such measures can stimulate consumer spending without exacerbating inflationary pressures. The Finance Ministry, meanwhile, has made headlines on the global stage, particularly in its standoff with the International Monetary Fund (IMF). Finance Minister Wale Edun’s criticism of the IMF’s refusal to defer a $500 million COVID-era loan repayment underscores Nigeria’s delicate fiscal position. As external debt obligations mount, managing repayments without sacrificing economic growth remains a formidable challenge.
The outlook for Nigeria’s economy is neither wholly optimistic nor entirely bleak. The current trajectory suggests a phase of stabilization, but risks remain. For the naira to maintain its footing, foreign exchange market reforms must go beyond surface-level adjustments. Greater transparency in the FX market, reduced dependence on direct CBN interventions, and policies that encourage remittance inflows will be crucial. On the fiscal front, balancing revenue expansion with investor-friendly policies is imperative. The oil sector, long a source of both revenue and volatility, must address inefficiencies that limit its potential. Nigeria’s membership in BRICS presents opportunities, but the geopolitical landscape demands caution.
Ultimately, Nigeria’s economic future hinges on the consistency and execution of its policies. Short-term interventions may provide momentary relief, but sustainable growth requires structural adjustments. For business leaders, policymakers, and investors, the coming months will be critical in determining whether Nigeria can navigate these economic headwinds or whether it risks being caught in yet another cycle of instability. The choices made now will shape the country’s economic destiny for years to come.
Mr Aliyu writes from 42 Ashiru road, Off Legislative Quarters, Unguwan Dosa New Extension, Kaduna.
