A Chatham House report indicates that Nigeria is more competitive than in 25 years, thanks to recent naira depreciation. The naira dropped over 70% since 2023 under President Tinubu, improving fiscal metrics but raising inflation concerns. Recommendations include stable monetary policies and enhancing public revenues to combat inflation and attract investment.
A recent report from Chatham House asserts that Nigeria’s competitiveness is at its highest in 25 years, attributed primarily to the devaluation of the naira. Authored by David Lubin, the report, titled “Nigeria’s Economy Requires a Competitive Naira,” evaluates the economic impacts of President Bola Tinubu’s monetary and fiscal strategies. The depreciation of the naira is claimed to enhance Nigeria’s balance of payments and significantly bolster the national budget.
Since taking office in 2023, the naira has devalued by over 70%, dropping from ₦461.6 to ₦1,500 per dollar due to the unification of exchange rates and the elimination of fuel subsidies. This currency slide has resulted in a narrower fiscal deficit, reducing from 6.4% of GDP in early 2023 to 4.4% in early 2024. Furthermore, the country’s current account has shifted into surplus, leading to an increase in the Central Bank of Nigeria’s foreign reserves to over $40 billion.
The report highlights that while the naira’s depreciation coupled with subsidy removal has improved fiscal health, inflation continues to pose a significant challenge. Nigeria’s annual inflation rate rebounded to 24.48% in January from 34.80% in December 2024, largely reflecting changes in the Consumer Price Index. The existing inflation level remains a critical concern, especially for lower-income populations.
To combat inflation effectively, the report suggests adopting a stable, competitive naira rather than pursuing a stronger currency at the risk of losing competitive advantages. The attraction of long-term Foreign Direct Investment (FDI) is crucial for Nigeria’s economic growth, particularly as the country has historically struggled to pull in more than $2 billion in net FDI annually.
The report further recommends enhancing public revenues through monetary policy adjustments and higher deposit rates, which could help mitigate inflation without jeopardizing the naira’s competitiveness. The ability of Nigeria’s economy to thrive relies significantly on maintaining a competitive currency while promoting financial inclusion and capital mobilization.
In summary, Nigeria’s current economic landscape showcases enhanced competitiveness driven by the depreciation of the naira and strategic policy reforms under President Tinubu. While the benefits include improved fiscal balance and increased foreign reserves, persistent inflation remains a challenge. The report emphasizes the need for steady monetary policies and higher public revenues to stabilize inflation while sustaining the naira’s competitive edge, essential for attracting Foreign Direct Investment and driving long-term economic growth.
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