Nigeria’s economic competitiveness has surged to its highest level in 25 years, thanks to a significant devaluation of the naira. Over the past few years, the naira’s value has plummeted by over 70%, with the exchange rate falling from 460 to just below 1,500 to the dollar. This sharp depreciation has made Nigeria’s exports more competitive and boosted its trade surplus to a decade-high. According to Chatham House, a British think tank, the country is now more competitive than at any time in the last quarter-century, marking a shift toward a more diverse and capital-rich economy.
The naira’s devaluation has had a direct impact on Nigeria’s trade balance, pushing the nation to a record trade surplus of N16.9 trillion in 2024, more than double that of the previous year. This surplus is mainly attributed to increased export activity, particularly in the oil sector, as the weaker naira makes Nigerian goods and services more affordable on the global market. Analysts predict that this positive trend will likely continue in 2025, although any stabilization of the naira could dampen further gains.
Despite the benefits of a weak naira, the broader economic impact of these currency fluctuations remains complex. While the devaluation has improved Nigeria’s balance of payments and helped bring in foreign capital, it has also led to inflationary pressures and decreased the purchasing power of everyday Nigerians. The removal of fuel subsidies, part of President Bola Tinubu’s economic reforms, has compounded the situation, making life harder for millions of citizens already struggling with poverty. However, experts argue that the country’s long-term recovery hinges on maintaining a competitive currency and attracting foreign direct investment (FDI).
The future of Nigeria’s economy depends on continued reforms and foreign investment to foster growth, job creation, and productivity. Although there are calls for a stronger naira to control inflation, doing so could reverse the gains made in currency competitiveness and disrupt the progress achieved through recent reforms. According to Chatham House, a stable and competitive naira is vital for attracting productive capital and sustaining Nigeria’s economic transformation. Ultimately, the country’s path to recovery will require a balanced approach that includes improving the business climate and addressing key structural challenges.
SOURCE: BUSINESS DAY