Nigeria’s Economic Landscape: The Impact of Naira Devaluation on Competitiveness and Trade Surplus
Nigeria’s naira devaluation has led to a notable increase in competitiveness and a trade surplus, reaching N16.9 trillion in 2024. While the benefits of these reforms present hope for growth, economic challenges persist, emphasizing the need for foreign direct investment to bolster recovery.
Nigeria’s additional competitive edge has resulted from a significant depreciation of the naira, now at a 25-year high. This decline has led to a record trade surplus, which soared to N16.9 trillion in 2024, more than doubling the previous year’s figure. The British think tank Chatham House reported that the naira’s depreciation has made Nigeria currently more competitive than any time in the past quarter-century.
The trade surplus reflects a positive balance of trade, where Nigeria’s exports outweigh its imports. Analysts from FBNQuest Merchant Bank predict that this surplus may continue to grow in 2025 due to increased crude oil production facilitated by improved refining capacity. However, if the naira stabilizes, it could potentially diminish the benefits reaped from recent currency devaluation.
Despite the naira’s significant depreciation, Nigeria’s balance of payments has improved for nine consecutive quarters, attracting foreign capital that has increased national reserves to over $40 billion. Fiscal measures, such as naira devaluation and subsidy removal, have helped narrow the fiscal deficit from 6.4 percent of GDP in early 2023 to 4.4 percent in early 2024.
A weaker naira is believed to be more beneficial to Nigeria than a cheaper dollar, which can inflate imports and advance trade deficits. However, the consequence of excessive dollar depreciation has led to capital flight, potentially worsening economic conditions. Chatham House emphasizes that President Bola Tinubu’s economic reforms could present Nigeria with sustainable growth opportunities, although the measures have drastically impacted the spending power of a significant portion of the population.
The emphasis on attracting foreign direct investment (FDI) remains critical for enhancing productivity and economic growth. Reports suggest that Nigeria has only managed to secure approximately $2 billion in net FDI annually, highlighting a stark need for improvement in this area. With inflation rates fluctuating and pressure for the naira to strengthen, experts warn that reverting to a stronger currency could undermine previous reforms’ benefits. A competitive naira and a stable business environment are prerequisites for encouraging further investment, underlining the importance of consistent policy efforts.
In summary, Nigeria’s recent economic shifts, driven by the naira’s depreciation, have marked a significant increase in competitiveness and trade surplus. Notably, reforms under President Tinubu aim to stabilize and grow the economy, despite challenges such as inflation and poverty affecting a vast portion of the population. Attracting foreign direct investment remains crucial for fostering ongoing productivity and job creation, while sustaining a competitive currency will be pivotal in shaping Nigeria’s economic future.
Original Source: businessday.ng
