Nigeria’s competitiveness has reached a 25-year high due to the naira devaluation, leading to a record trade surplus of N16.9 trillion in 2024. Despite improved balance of payments and fiscal positions, the need for foreign direct investment remains critical. The economic reforms initiated by President Tinubu could drive sustainable growth, but ordinary citizens face challenges as inflation rises.
Nigeria has recently witnessed a significant boost in its economic competitiveness, reaching levels not seen in 25 years, primarily due to the weakening of the naira. The currency fell from about 460 to just below 1,500 naira per dollar, representing a devaluation exceeding 70%. This dramatic adjustment has led to a substantial trade surplus, which has surged to its highest level in over a decade, with a record net trade surplus of N16.9 trillion reported in 2024.
The improvements in Nigeria’s trade surplus stem from heightened export competitiveness following the naira’s decline. Analysts forecast that this positive trend will continue into 2025, driven by an increase in crude oil production and refining capacity. A trade surplus occurs when exports exceed imports; thus, Nigeria’s recent performance marks a successful shift. Analysts from FBNQuest Merchant Bank predict sustained surplus growth amidst fluctuations in naira value.
Despite the naira’s depreciation, Nigeria’s balance of payments remained stable over the past nine quarters, bolstered by an influx of foreign capital which has elevated reserves to above $40 billion. The combination of naira devaluation and subsidy removal has seen Nigeria’s fiscal deficit shrink, yet a cheaper dollar could reverse these gains by leading to increased import costs and larger trade deficits, hampering growth.
Economic reforms initiated by President Bola Tinubu have begun to yield positive outcomes, presenting potential for sustained growth. However, these adjustments have adversely affected the living standards of many Nigerians, with nearly 129 million people experiencing poverty. According to Chatham House, the reforms offer a significant opportunity for growth if managed effectively.
To maintain a productive economy, Nigeria requires a substantial influx of foreign direct investment (FDI). Unfortunately, the nation has struggled to attract significant FDI, with net inflows plummeting below $2 billion in recent years. Advocates suggest that strengthening the naira might combat inflation but may also jeopardize achieved currency stability. A competitive currency is vital for attracting productive investments, alongside other necessary market improvements, such as enhancing electricity supply and reducing bureaucratic inefficiencies.
In summary, Nigeria’s current economic landscape reflects a fragile yet improved competitiveness prompted by significant naira devaluation. While the trade surplus has reached unprecedented levels, the long-term success of the nation hinges on attracting foreign investment and maintaining currency stability. The reforms enacted by President Tinubu present a critical opportunity for economic growth, but the impact on ordinary citizens remains a pressing concern. Ensuring favorable conditions for businesses is essential for sustainable development in Nigeria’s economy.
Original Source: businessday.ng
