Naira’s Decline Turns Silver Lining for Nigeria’s Competitiveness

Nigeria’s economy has achieved its highest level of competitiveness in 25 years, primarily due to the substantial devaluation of the naira. The currency has depreciated by over 70%, plummeting from 460 to nearly 1,500 naira per dollar in 2023. This significant shift has enhanced the competitiveness of Nigeria’s exports, leading to an unprecedented trade surplus of N16.9 trillion in 2024.

Chatham House, a prominent British think tank, asserts that Nigeria’s economic competitiveness is at its peak compared to the last quarter-century. The organization highlights the importance of a competitive naira in fostering a more capital-intensive and diversified economy in Nigeria.

The increase in trade surplus is anticipated to persist into 2025, with analysts forecasting further expansion. Nevertheless, a potential stabilization of the naira’s volatility may adversely affect the gains from the trade surplus.

Weaker Naira or Stronger Naira?

Nigeria’s economy is at a critical juncture, shaped by the depreciation of the naira over the past two years. While this currency weakness has presented challenges, it has also led to notable economic gains. One of the key benefits has been the improvement in Nigeria’s balance of payments, which has seen steady progress for nine consecutive quarters. Additionally, foreign investment inflows have increased, boosting the country’s reserves to over $40 billion. The devaluation of the naira, alongside the removal of fuel subsidies, has also contributed to fiscal consolidation, with the deficit narrowing from 6.4% of GDP in early 2023 to 4.4% in early 2024.

However, the prospect of a stronger naira presents a dilemma. While an appreciating currency could help curb inflation— which stood at 34% by the end of 2024 before declining to 24% in January 2025— it could also reverse some of the economic gains. A less expensive dollar would likely drive up imports, widening the trade deficit and slowing economic growth. Furthermore, a report warns that “excessively cheap dollars encourage companies and individuals to transfer wealth abroad at low cost, seeking safer financial havens.”

The reforms introduced by President Bola Tinubu have had widespread implications, particularly for ordinary Nigerians. Despite signs of economic recovery, poverty remains widespread, affecting approximately 129 million people and significantly constraining their purchasing power. This has fueled ongoing debates over whether the government should allow the naira to strengthen to ease inflationary pressures.

Nonetheless, experts caution against excessive currency appreciation, emphasizing the need to maintain a competitive exchange rate to attract productive capital into the country. As one report states, “a currency that stays competitive is a necessary— although by no means sufficient— condition to encourage more productive capital inflows.”

Looking ahead, the government must carefully navigate its economic strategy to sustain the benefits of recent reforms while ensuring long-term stability and growth. With experts predicting a stronger naira and lower petrol prices in 2025, the full impact of these changes on Nigeria’s economic trajectory remains to be seen.