A report from Chatham House asserts that Nigeria is more competitive than it has been in 25 years, attributing this to the devaluation of the naira. The depreciation has improved the balance of payments and assisted the national budget, although inflation remains a significant issue. Recommendations for attracting foreign investment and stabilizing the economy include focusing on public revenues and monetary policies.
Recent research by David Lubin, a Senior Research Fellow at Chatham House, indicates that Nigeria’s competitiveness has reached a peak not seen in the last 25 years. The report, titled “Nigeria’s Economy Requires a Competitive Naira,” assesses the implications of currency devaluation on President Bola Tinubu’s economic reforms and policies, leading to a more competitive environment due to the naira’s depreciation.
The naira has lost over 70% of its value since Mr. Tinubu assumed office in 2023, following the unification of exchange rates and the elimination of costly fuel subsidies. Consequently, the naira’s value against the dollar decreased from ₦461.6 to an alarming ₦1,500, significantly impacting government finances and leading to a narrower fiscal deficit.
Despite the depreciation, the report highlights two significant benefits: an improvement in Nigeria’s balance of payments and enhanced support for the national budget. The current account has now shifted to a surplus, contributing to an increase in the Central Bank of Nigeria’s foreign reserves, which have surpassed $40 billion, necessary for financial stability in developing nations.
The report notes that as inflation has risen sharply, the annual rate declined to 24.48% in January 2024 from 34.80%, following a rebasing of the Consumer Price Index (CPI). Despite this adjustment, inflation ended 2024 at a troubling 35%, disproportionately affecting the urban poor, thereby posing an immediate challenge for policymakers.
To bolster economic capacity, the report recommends a focus on attracting Foreign Direct Investment (FDI). Nigeria, with a population of 230 million, has struggled to attract more than $2 billion in net FDI annually, prompting the need for a competitive naira to stimulate investment inflows as a measure of economic development.
A stronger naira could paradoxically undo gains achieved through depreciation, compelling the report to advocate for a more aggressive approach to curtailing inflation, emphasizing increased public revenues and monetary transmission mechanisms. It asserts that the path to a more diversified and capital-rich Nigerian economy depends on sustaining a competitive naira.
The report underscores that Nigeria is now more competitive than it has been in decades, primarily due to the recent devaluation of the naira. This shift has led to improved fiscal metrics and current account surplus, despite accompanying challenges like rising inflation. To maintain this competitiveness and attract foreign investment, Nigeria must find a balance between monetary stability and revenue generation. The report calls for strategies that support economic growth without undermining the gains made through the naira’s decline.
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