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This prediction is reinforced by the ongoing demand for crude oil around the world as well as the depreciation of the naira, which has increased the competitiveness of exports. This gives Nigeria’s economy a bright future despite the uncertainties in the world economy.
Nigeria’s high interest rate environment has had conflicting effects, reducing domestic investment and export competitiveness while stabilizing inflation and drawing in foreign portfolio investments.
According to analysts at Cowry Assets Management Limited, the improvement in Nigeria’s trade surplus reflects the naira’s devaluation, which has made Nigerian exports more attractive on the global stage. Additionally, the country’s ongoing economic diversification efforts are beginning to bear fruit, as evidenced by the increasing contributions of non-oil exports to total trade. The rise in exports of agricultural and manufactured goods further underscores the potential of these sectors to enhance Nigeria’s foreign trade.
Looking ahead, Nigeria’s export capacity is expected to grow with improved crude oil production and the anticipated commencement of operations at the Dangote Refinery and the revitalized Port Harcourt Refinery. A diversified economy, with a greater emphasis on non-oil exports, will be crucial for sustaining the positive momentum in trade surplus and strengthening Nigeria’s economic resilience.
Analysts at Afrinvest (West Africa) Limited observed that Nigeria recorded trade surpluses with Africa (N5.0 trillion), America (N5.5 trillion), Europe (N8.5 trillion), and Oceania (N37.4 billion). However, the country posted a trade deficit of N4.0 trillion with Asia. The substantial trade surpluses with the first four regions were largely driven by the weak naira, which made Nigeria’s non-crude exports more affordable globally.
Despite these gains, significant improvements in raw and value-added non-oil exports are needed to maximize foreign exchange inflows.
Analysts draw parallels with China’s success in leveraging its currency to attract global importers, suggesting that Nigeria could achieve similar results through strategic policy and investment in export-oriented sectors.
The Central Bank of Nigeria’s (CBN) decision to maintain high interest rates has been met with mixed reactions. While high interest rates help curb inflation and stabilize currency volatility, they also pose challenges for domestic investment and long-term economic growth.
In a recent adjustment, the CBN raised the Monetary Policy Rate (MPR) by 25 basis points to 27.50 percent, up from 27.25 percent. The National Bureau of Statistics (NBS) reports that inflationary pressures increased from 32.7 percent in September to 33.88 percent in October 2024, as a result of this decision.
The attraction of foreign portfolio investments (FPIs) has been facilitated by high interest rates. Capital inflows to Nigeria totaled $1.25 billion in the third quarter of 2024, a 91.35 percent increase over the same period in 2023. Nonetheless, the money market received 82.81 percent of these inflows as foreign investors benefited from high-yield securities like Treasury bonds and bills.
Although these inflows increase foreign exchange reserves, the real economy receives little benefit from them and they are mostly speculative. In contrast, foreign direct investment (FDI), a more stable form of capital inflow, has stagnated. In the third quarter of 2024, FDI was only $145.6 million, a slight 3.4 percent increase over the year before. This underperformance is ascribed by analysts to infrastructure deficiencies, inconsistent policies, and high borrowing costs.
Due to high interest rates, borrowing has become unaffordable for domestic businesses. The typical commercial loan lending rate falls between 22 and 30 percent, which restricts small and medium-sized businesses’ (SMEs’) ability to obtain credit. Given that SMEs account for over 90 percent of Nigerian businesses and contribute nearly 48 percent to GDP, this credit crunch is a significant barrier to economic growth.
The manufacturing sector’s capacity utilization decreased from 55% in Q3 2023 to 49% in Q3 2024, according to data from the Manufacturers Association of Nigeria (MAN). According to CBN data, private sector credit growth also decreased, falling to 4.1 percent in 2024 from 7.5 percent in 2023.
The real estate industry has been affected by the high cost of borrowing as well; mortgage rates have increased to as much as 26%. This has made homeownership increasingly unattainable for many Nigerians and constrained property developers from financing new projects.
As a result of high interest rates, the value of the naira increased by 9% between Q2 2023 and Q4 2024, reaching ₦745 per dollar as of December 2024. Although a stronger naira lowers import prices, Nigerian exports become less competitive.
In comparison to the same period in 2023, the Nigeria Export Promotion Council (NEPC) reported a 6.2 percent drop in non-oil export revenue in Q3 2024. Due to their increased cost in comparison to goods from rival nations, agricultural exports like cocoa and sesame seeds were especially impacted.
The CBN must strike a delicate balance between lowering the negative effects of high interest rates on domestic investment and attracting foreign capital. Furthermore, Nigeria’s position may become even more complex due to global economic dynamics. Nigeria could lose foreign investments to developed markets if the U.S. Federal Reserve lowers interest rates in 2025.
Analysts suggest a number of actions to address these issues, such as: Slowly lowering the MPR as inflation declines could increase credit availability and encourage investment; Improving transportation, power, and digital connectivity would draw investment and reduce production costs; Transparent and stable regulatory policies are essential to building investor confidence; Enhancing non-oil exports through grants, subsidies, and better supply chains would promote economic resilience, while growing local equity and bond markets could lessen dependency on transient foreign inflows.
