Since the collapse of oil prices in the 1980s, Nigeria has faced recurring economic challenges. However, the nation, recognized as sub-Saharan Africa’s largest economy, is now at a transformative juncture. Recent politically challenging reforms implemented by the government signal a renewed commitment to economic recovery and structural change. While no reform is perfect, the stakes are immense — Africa’s broader economic prospects hinge on Nigeria’s success in driving these changes forward.
Key reforms have been transformative. Nigeria now operates a market-determined exchange rate, replacing a fragmented system that cost the government 38 cents for every $1 in oil export proceeds. This unification has curtailed opportunities for exploitation by elites and removed an implicit tax that previously burdened agricultural and manufacturing exports. Additionally, the government has significantly reduced costly fuel subsidies, a long-standing drain on public finances, contributing to a more stable and credible naira.
Such reforms come with social costs. Petrol prices have surged fivefold since subsidy cuts, creating widespread hardship. To stabilize inflation and bolster the naira, the central bank raised its policy rate by 850 basis points within nine months and ended the practice of financing fiscal deficits through the central bank. Despite these strides, maintaining momentum is critical for Nigeria to fulfill its potential as a regional economic engine.
The path forward requires focus in three areas:
- Diversifying Non-Oil Growth: Nigeria’s new exchange rate competitiveness must be maintained. Policymakers should avoid short-term capital inflows that could harm competitiveness and rebuild foreign reserves to mitigate oil-price volatility.
- Supporting Vulnerable Households: With inflation still high, a targeted cash-transfer program is underway. Establishing a sustainable safety net will be vital to shield the most vulnerable from economic shocks.
- Encouraging Private Investment: Nigeria’s urgent need for job creation is clear, as millions will join the workforce over the next decade. Attracting domestic and international investments, especially in the non-oil sector, is key to addressing this demand.
The stakes could not be higher. Successful reforms in Nigeria would set a benchmark for market-oriented growth across Africa, while failure could undermine progress for another generation. It is imperative for Nigeria’s leaders to unite in support of these changes and for the international community to provide robust assistance to ensure their success.