Chatham House Highlights Nigeria’s Economic Competitiveness Amid Reforms
Chatham House reports that Nigeria’s economy is experiencing its most competitive period in 25 years due to President Bola Tinubu’s reforms, notably the devaluation of the naira from N460 to N1,500 per dollar. The think tank emphasizes that maintaining a competitive naira is vital for sustainable growth, despite rising inflation. The report advocates for strategic actions to bolster Nigeria’s economic resilience and attract Foreign Direct Investment.
Chatham House, a prominent UK think tank, recently reported that Nigeria’s economy is experiencing its most competitive phase in 25 years, primarily attributed to the economic reforms under President Bola Tinubu. One of the key changes includes the notable devaluation of the naira, which has plummeted from approximately N460 per US dollar to nearly N1,500.
In its article, Nigeria’s Economy Needs the Naira to Stay Competitive, Chatham House emphasizes the necessity for the government to focus on long-term growth rather than attempting to strengthen the naira against the dollar to combat inflation. David Lubin, a Senior Research Fellow at Chatham House, suggests that while dissatisfaction exists among voters regarding the economic situation, the reforms initiated by Tinubu may hold the promise for sustainable future growth.
The analysis highlights the significant economic adjustments made, noting that the devaluation of the naira is among the most substantial seen in years. The decline in currency value has reportedly enabled Nigeria to become more competitive, with improved dynamics in the country’s balance of payments, which has now turned to surplus.
Furthermore, the Central Bank of Nigeria (CBN) has successfully increased its foreign exchange reserves to surpass $40 billion, ensuring a stable financial condition essential for developing nations. The report commends the CBN for achieving prudent reserve levels that align with the country’s external debt volume.
Chatham House also points out that the naira’s devaluation has enhanced the Nigerian budget, addressing previous disparities caused by a misaligned exchange rate that adversely affected government revenues from various taxes and royalties. This fiscal improvement is seen in the reduction of Nigeria’s fiscal deficit, which has decreased from 6.4 percent of GDP to 4.4 percent.
A pressing issue remains, however, as the fall of the naira has exacerbated inflation, which stood at 35 percent at the close of 2024. The report illustrates the complexity of managing inflation in urban areas, where economic hardship is felt acutely.
On the subject of policy, Chatham House advocates for maintaining currency competitiveness rather than hastily strengthening the naira. Such an action could undermine the competitive advantages gained through prior adjustments. The emphasis is placed on attracting Foreign Direct Investment (FDI) as critical for enhancing Nigeria’s economic framework and productivity.
Additionally, the report suggests two key strategies to accelerate the decline of inflation: improving monetary policy mechanics, such as aligning deposit interest rates closer to the Central Bank’s policy rate, and substantially increasing public revenues, which currently languish below international standards.
Chatham House concludes by advocating for a strategic shift, insisting that Nigeria must adhere to maintaining a competitive naira and not repeat historical patterns of failing to stabilize currency strength post-devaluation.
In conclusion, Chatham House’s analysis underscores President Bola Tinubu’s economic reforms as a pivotal factor in enhancing Nigeria’s competitive standing. While the significant devaluation of the naira has positive implications for export competitiveness and financial stability, it concurrently poses challenges such as elevated inflation. Policymakers are encouraged to pursue strategies that support inflation reduction without compromising currency competitiveness, ultimately aiming to stimulate foreign investment and economic growth.
Original Source: www.arise.tv
