Chatham House has noted that Nigeria’s economy is more competitive than it has been in 25 years, attributed to President Bola Tinubu’s significant economic reforms, including the devaluation of the naira. Despite rising inflation levels and public dissatisfaction, these reforms may offer sustainable growth. The report stresses the critical need to maintain a competitive naira to attract foreign direct investment and enhance Nigeria’s economic landscape.
Chatham House, an esteemed UK think tank, has declared that Nigeria’s economy is experiencing its most competitive state in 25 years, largely due to President Bola Tinubu’s economic reforms. Among these reforms is the significant devaluation of the naira, from N460 to approximately N1,500 per dollar. The report emphasizes the necessity of maintaining this competitive edge by not allowing the naira to strengthen too quickly against the dollar to promote long-term growth.
David Lubin, a Senior Research Fellow at Chatham House, elaborated on the challenges faced by the Nigerian populace two years after Tinubu’s election, noting rising fuel prices and heightened food costs leading to increased poverty. Notwithstanding these challenges, the report posits that Tinubu’s reforms present Nigeria with viable avenues for sustainable growth within the next few decades.
Chatham House highlights that the sharp devaluation of the naira has markedly enhanced Nigeria’s competitiveness—a status not seen in over two decades. The report criticaly points out that the price of the dollar significantly influences economic stability, cautioning against overly cheap dollar availability which may lead to increased imports and financial vulnerability.
The depreciation of the naira has yielded two significant benefits: an improved balance of payments, now in surplus, and an influx of capital back into the country. As a result, the Central Bank of Nigeria’s reserves have increased to over $40 billion, reflecting a crucial step toward financial stability in a developing economy.
Moreover, the devaluation of the naira has positively impacted the Nigerian budget, improving revenues from key sectors in local-currency terms. This fiscal adjustment has led to the narrowing of Nigeria’s fiscal deficit from 6.4% of GDP to 4.4% within the span of a year. However, the inflation rate rose dramatically to 35% toward the end of 2024, challenging economic policymakers as they seek to mitigate its effects on the vulnerable populations.
While a stronger naira could theoretically decrease inflation by reducing import costs, Chatham House cautions that such an appreciation may undermine the competitive advantages gained through currency depreciation. The report further emphasizes that Nigeria must attract Foreign Direct Investment (FDI) to enhance its productive capacity, an area where it has historically underperformed.
To effectively combat inflation without compromising the naira’s competitiveness, Chatham House recommends two strategic approaches. The first involves improving the monetary transmission mechanism to ensure that deposit rates adequately compensate savers, aiding in inflation control and financial inclusion. The second recommendation is to enhance public revenue collection, as Nigeria’s government revenue remains below international standards, presenting an opportunity for economic improvement.
Chatham House concludes by underscoring the importance of retaining a competitive naira and maintaining commitment to fostering an environment conducive to capital influx and economic growth. Sustainable economic prosperity in Nigeria hinges upon these critical reforms and the consistent application of sound economic policies.
In summary, Chatham House’s analysis presents a comprehensive overview of Nigeria’s current economic landscape under President Tinubu’s administration. The devaluation of the naira has enhanced competitiveness, albeit at the cost of increased inflation. To secure sustainable growth and attract foreign investment, Nigeria must focus on maintaining a competitive naira and improving public revenue systems while tackling inflation effectively. The findings call for a careful strategy to balance these economic dynamics to achieve long-term stability and prosperity.
Original Source: www.arise.tv
