THE NIGERIAN ECONOMY IN 2025
SEUN AWOGBENLE contends that though things are gradually picking up, we must diversify the economy with a strong focus on agriculture and manufacturing
If I may be so bold, let me start by saying I am one of those who believe that for a long time, our economic foundations were predicated on faulty assumptions. Since the days of yore and especially culminating in the period between 2015 and 2023, the Nigerian economy was so badly mismanaged that if it were a private business, no investor would put their money on it.
Nigeria has experienced years of chronic underinvestment, weak productivity, dwindling exports, drop in government revenue, fiscal deficits and low growth in that order. Rather than confront the challenges head-on, governments at different times made the easy choice of multiple subsidies and borrowing to make up for these failings.
By 2023, these challenges had come to a head; we institutionalised a system of fixing our foreign exchange to keep the value of the naira artificially low, borrow to pay fuel subsidies to keep prices down and sometimes even pledge in advance the crude we were yet to produce. Part, if not all, of our revenue was going into debt servicing. In addition to foreign exchange and energy, the government was also subsidising electricity and agriculture.
The economy was flatlining, and growth was stagnant. Investor confidence in the economy was significantly low, foreign direct investment dipped, portfolio investment was at its lowest, and credit rating agencies downgraded Nigeria. We were almost becoming a pariah nation in the global economy, with features you would only find in a communist state.
The year 2023 was a sink or swim moment; we had no option but to start tabula rasa; we had to hit the reset button, else the economy would crash. Everyone agreed that to turbocharge the economy, we must fix the foundations by way of reforms. This meant that everything that had been kept at artificial prices immediately went up, leading to the worst cost of living crisis. Nigeria’s experience could be likened to a rite of passage for any transition economy, similar to the experience of the Soviet states in the 90s.
The outlook for 2025 started on a shaky note for the economy. While the reforms were beginning to rally, Nigerians were groaning under the worst form of living cost, inflation, lower purchasing power, a rise in food and energy prices and a high exchange rate. For an economy that was largely dependent on imports, these had a multiplier effect on everything, including housing, construction and rents, driving more people into poverty without enough social safety net to account for the situation.
Within the first quarter of the year, the optimism of many Nigerians had dwindled; their patience had turned into paralysis, and resilience was already far stretched. This was understandable, and in fairness, this was a reality no one could contend with. As we approached midyear, food prices began to fall and energy prices dropped, following the full operation of the Dangote refinery. This led to an instant improvement in the cost of living.
By the end of the third quarter virtually all the economic growth indices had begun to show signs of recovery. Inflation is slowing down. Interest rate is easing. GDP is growing. Foreign reserve is improving. Foreign exchange is stable. Energy prices are down; the credit rating is upgraded. Equity markets are bullish, and the overall economy appears stable.
Despite the economic growth indicators looking up, the conversation has always come down to whether or not ordinary men and women can feel the impact of the reform in their pockets. While food prices are much improved, they are yet to return to the pre-reform levels, and purchasing power is still largely low.
One of the plausible reasons for this is that reforms, as I have studied them, follow a pattern. The principle behind the reform is to move the economy closer to market efficiency, which has immediately stabilised the economy, almost akin to bringing back someone on death throes. The next phase following the stability is the growth phase, which should translate into improvements in living standards.
To achieve this growth, we must build the economy sustainably by paying attention to the drivers and enablers of the economy. Productivity remains a key driver of living standards; we must therefore diversify the economy further with a strong focus on agriculture and manufacturing to grow our exports and earn more foreign exchange, which would enhance our foreign reserves and the value of our currency.
This should also be followed by consolidating our ease of doing business reforms, attract greater Foreign Direct Investment (FDI) inflows, stimulate the economy through the credit economy, invest in key human capital of health and education and expand the social safety net and close our infrastructure gap in rail, road, power and internet access.
Finally, we must end the culture of overlapping budget cycles and immediately get a grip on our public finance, which is currently all over the place. Rolling over capital budgets from the preceding year into the new year does not give so much confidence about our fiscal health. Our planning should be grounded in reality to avoid overlap and guarantee better fiscal discipline.
The challenge for government in the new year is how to translate the growth indices into more money in people’s pockets. I am aware that many Nigerians cannot afford for this to happen, but I am also cautious to note that the economy may take some time to rebuild. But one thing is certain: 2026 presents Nigeria with opportunities to consolidate the reforms.
Awogbenle, a development and public policy professional, writes from the United Kingdom. He can be reached via seunawogbenle@gmail.com
