Nigeria’s naira devaluation has led to a 25-year high in competitiveness and a record trade surplus. Despite positive economic indicators, challenges remain, including attracting foreign direct investment and maintaining stable currency conditions to sustain growth.
Nigeria’s competitiveness has reached a 25-year peak due to the significant devaluation of the naira, which has fallen over 70% and is currently valued below 1,500 naira per dollar, a historic adjustment. This drastic change has positioned Nigeria as one of the most competitive economies in recent decades, according to Chatham House’s report entitled, ‘Nigeria’s economy needs the naira to stay.’
The naira’s decline has led to Nigeria experiencing its highest trade surplus in over a decade, with a net trade surplus of N16.9 trillion in 2024, more than double the previous year’s surplus. A trade surplus occurs when a country’s exports exceed its imports, favorably affecting the economy. Analysts predict this trend will continue into 2025, driven largely by increased crude oil production.
Despite the naira’s depreciation, which has improved Nigeria’s balance of payments over nine consecutive quarters, there are concerns about potential trade surplus reductions if naira volatility decreases. Analysts from FBNQuest Merchant Bank anticipate that an anticipated rise in exports, alongside increased foreign exchange liquidity, could compress the trade surplus.
The devaluation of the naira and removal of fuel subsidies have positively impacted Nigeria’s budget, retracting the fiscal deficit from 6.4% of GDP in early 2023 to 4.4% in early 2024. However, a consistently cheaper dollar could lead to wider trade deficits and hinder overall economic growth by encouraging capital outflows.
Restoring Nigeria’s economic productivity hinges on attracting foreign direct investment (FDI), which has stagnated at around $2 billion annually despite the country’s population of 230 million. A stronger naira could undermine the financial gains from recent reforms, threatening economic stability and progress made under President Bola Tinubu’s administration.
Chatham House emphasizes that maintaining a competitive currency is critical for attracting productive capital to Nigeria. Alongside currency stability, improving the overall business climate, tackling corruption, and enhancing infrastructural needs are all necessary for sustainable economic growth moving forward.
Nigeria’s economic landscape has dramatically changed due to the naira’s devaluation, leading to heightened competitiveness and a record trade surplus. While the currency’s fall has resulted in positive changes, the country must continue to attract foreign investment and foster a stable business environment to ensure long-term economic stability and growth. Immediate attention to maintaining currency competitiveness and improving the business climate will be crucial for Nigeria’s economic future.
Original Source: businessday.ng
