Nigeria’s Improved Competitiveness: Insights from Recent Economic Report
A report from Chatham House indicates that Nigeria is more competitive than it has been in 25 years, largely due to the naira’s depreciation. This decline has improved the balance of payments and supported the national budget. Despite recent reductions in inflation, high rates persist, prompting recommendations for better monetary policies to sustain economic growth without sacrificing currency competitiveness.
A recent report by Chatham House indicates that Nigeria’s competitiveness has improved more than at any time in the last 25 years. Authored by David Lubin, Senior Research Fellow, the report highlights the effects of currency devaluation on Nigeria’s economy under President Bola Tinubu’s administration, stating that the naira’s decline has positioned Nigeria favorably in global competitive markets.
The depreciation of the naira has brought two significant benefits: an enhanced balance of payments and greater support for Nigeria’s budget. According to the report, the World Bank identified a misaligned exchange rate as a critical issue that affected Nigeria’s fiscal health more severely than fuel subsidy costs.
Since President Tinubu’s assumption of office in 2023, the naira has lost over 70 percent of its value due to measures aimed at unifying exchange rates and eliminating costly fuel subsidies. This transition has resulted in the naira’s exchange rate plummeting to over ₦1,500/$1, instigating profound effects on government finances and the economy overall.
Consequently, Nigeria’s fiscal deficit reduced from 6.4 percent of GDP in early 2023 to 4.4 percent by early 2024 due to these changes. The report asserts that Nigeria’s current account is now in surplus, and capital is slowly returning, enhancing foreign exchange reserves to over $40 billion. The Central Bank of Nigeria’s accumulated reserves are now at a level commensurate with the country’s external debt.
Recent data from the National Bureau of Statistics indicates a decline in Nigeria’s inflation rate, which fell from 34.80 percent in December 2024 to 24.48 percent in January 2025 after a rebasing of the Consumer Price Index (CPI). Despite this decline, inflation remains high, ending 2024 at approximately 35 percent, posing ongoing challenges for policymakers.
While a stable naira may reduce inflation, the report cautioned that strengthening the currency could jeopardize the competitive gains achieved through its decline. Attracting Foreign Direct Investment (FDI) is also crucial, as Nigeria has seen minimal annual net FDI inflows over recent years.
To combat inflation and enhance revenue, the report advocates for higher deposit rates and improvements in monetary transmission mechanisms. It suggests that reliance on a stronger naira might impede progress; thus, maintaining a competitive naira is vital for Nigeria’s economic diversification and growth. The Tinubu administration’s focus on raising public revenues is deemed critical for succeeding in these efforts, without jeopardizing the competitive edge of the currency.
In conclusion, the report highlights Nigeria’s increased competitiveness due to the devaluation of the naira, which has provided significant budgetary support and improved the balance of payments. However, the challenges of high inflation remain pressing, requiring careful policy adjustments that prioritize revenue generation without undermining the gains achieved through a weaker currency. This balance is essential to attract long-term foreign investment and drive economic growth.
Original Source: www.premiumtimesng.com
