The naira’s dramatic devaluation has enhanced Nigeria’s competitiveness to a 25-year high, resulting in a record trade surplus of N16.9 trillion. Analysts expect this trend to continue due to rising crude oil production. While the weak naira has led to improved foreign capital inflows and budget stability, there are concerns regarding inflation and the need for foreign direct investment to ensure ongoing economic productivity.
The devaluation of the naira has significantly enhanced Nigeria’s global competitiveness, marking a peak level not seen in 25 years. With the naira’s value dropping over 70 percent, it fell from 460 to just below 1,500 to the dollar. According to Chatham House, this currency adjustment has positioned Nigeria as one of the most competitive nations historically, thereby unlocking potential for a diversified economy reliant on a competitive naira.
Accompanying this devaluation is a remarkable increase in Nigeria’s trade surplus, which has reached a record net trade surplus of N16.9 trillion in 2024, more than double that of the previous year. This upsurge, spurred by competitive exports, is projected to continue through 2025. A trade surplus indicates that exports outnumber imports, but reduced volatility of the naira could diminish the benefits of this positive trade balance.
Analysts from FBNQuest Merchant Bank anticipate sustained growth in the trade surplus, largely due to escalating crude oil production and enhanced refining capabilities, though increasing import volumes may counter some of these benefits. Moreover, the devaluation of the naira has positively impacted Nigeria’s balance of payments by attracting foreign capital and increasing the nation’s reserves to over $40 billion.
The naira’s depreciation, coupled with the discontinuation of fuel subsidies, has improved Nigeria’s budget, narrowing the fiscal deficit from 6.4 percent of GDP in early 2023 to 4.4 percent in early 2024. Conversely, a cheaper dollar exacerbates import costs and may lead to trade deficits, hindering economic growth. Chatham House notes that excessively low dollar rates can incentivize capital flight as individuals seek safer asset havens.
President Bola Tinubu’s economic reforms are vital for sustainable growth in Nigeria, despite posing challenges for ordinary citizens suffering under widespread poverty. Optimizing foreign direct investment (FDI) is essential to bolster productivity and job creation, though Nigeria has struggled to attract meaningful FDI inflows.
While a stronger naira could alleviate inflation, which ended 2024 at 34 percent, it would diminish the stability gained from recent reforms. Maintaining competitive currency is crucial for fostering productive investment, alongside systematic improvements in the business environment, including energy, and reducing corruption.
In conclusion, the depreciation of the naira has markedly increased Nigeria’s competitiveness and yielded a substantial trade surplus, signifying the potential for a robust economy. The strategic economic reforms instituted by President Tinubu are crucial in maintaining this trajectory, especially in attracting foreign direct investment. However, there remains a delicate balance between strengthening the naira and sustaining recent economic gains to ensure long-term development and growth. The pressing need for improved business conditions further underscores the importance of these reforms in navigating Nigeria’s economic future.
Original Source: businessday.ng