The devaluation of Nigeria’s naira has significantly enhanced the country’s economic competitiveness, according to a recent report by the British think tank, Chatham House. The naira has fallen by over 70%, dropping from 460 to the dollar in 2023 to just below 1,500. This sharp depreciation is one of the largest currency adjustments globally in recent years, second only to Ethiopia’s birr. The report highlights that this devaluation has made Nigeria more competitive than it has been in the past 25 years, positioning the country for future economic growth.
Despite the naira’s depreciation, the country has experienced a boost to its balance of payments, recording a trade surplus of N16 trillion in 2024. This surplus has been accompanied by a significant increase in foreign capital inflows, helping to raise Nigeria’s reserves to over $40 billion. These developments have also contributed to a narrowing of the country’s fiscal deficit, from 6.4% of GDP in 2023 to 4.4% in 2024. However, the devaluation has led to rising import costs, increasing trade deficits and posing challenges for overall economic growth.
The economic reforms under President Bola Tinubu, including the naira’s devaluation and the removal of fuel subsidies, have provided some fiscal relief, but they have also caused significant hardship for ordinary Nigerians. The economic reforms, while promising sustainable growth, have worsened poverty, with an estimated 129 million Nigerians now living in poverty. The Chatham House report emphasizes that while these reforms are critical for Nigeria’s long-term growth, their immediate impact has been severe for many citizens.
To sustain its economic recovery, Nigeria must attract more foreign direct investment (FDI), which has been disappointingly low in recent years. The country needs FDI to boost productivity, create jobs, and spur growth. While some advocate for strengthening the naira to combat inflation, such a move could undermine the gains made from the current reforms. The report stresses the need for a stable, competitive currency and a business-friendly environment to encourage productive capital inflows and foster long-term economic stability.
SOURCE: BUSINESS DAY