By Christopher Okpoko
Preamble
The IMF World Economic Outlook (WEO) has projected global economic growth of 3.3 percent in 2025. However, the Economist Intelligence Unit (EIU) anticipates continued uncertainty in the business landscape for that year, influenced by geopolitical conflicts, climate risks, and regulatory pressures. Economic growth would be modest as the US and China experience slowdowns, but opportunities driven by significant investments in technology, renewable energy, and healthcare abound.
According to OPEC’s latest data, most top economies showed steady growth, including countries facing more challenging conditions, such as the Eurozone and Japan, where gradual improvements are becoming evident. India’s robust growth and significant stimulus measures from China are predicted to bolster global economic growth in the near term. Furthermore, OPEC’s forecast for global oil demand growth in 2025 was revised downward by 103,000 barrels per day (tb/d) to 1.4 million barrels per day (mb/d), year-over-year, which still represents a healthy increase compared to pre-pandemic averages.
As the most populous country in Africa and one of the largest economies in the continent, Nigeria plays a pivotal role in the regional and global market. The country’s economic landscape is structured by its vast natural resources, particularly oil and gas, which have historically driven growth. However, the outlook for Nigeria’s economy as we approach 2025 is complex, marked by significant challenges and opportunities that warrant exploration.
Current Economic Landscape
Source:
NBS – National Bureau of Statistics
CBN – Central Bank of Nigeria
CEIC – CEIC Data
OPEC – Organization of the Petroleum Exporting Countries
* – Authors Projection
To gain insight into Nigeria’s economic outlook for 2025, it is essential to analyze the current state of the economy. As of late 2024, Nigeria faces multiple economic challenges, including high inflation rates, currency depreciation, unemployment, and a significant debt burden.
Inflation has surged from about 17% in 2021 to approximately 34% in October 2024 due to several factors, such as global supply chain disruptions and local economic policies. Given the typical price increases associated with Christmas festivities, inflation is anticipated to worsen by the end of the year. Persistent inflation, a high interest rate environment, and a high unemployment rate will continue to erode the potential benefits of the growth in gross domestic product.
The Nigerian naira, exchanged at N415.49 per dollar in 2021, is now trading at N1,613.86. This depreciation is eroding purchasing power and contributing to an unstable economic environment. The foreign reserve has been a major buffer for the Central Bank in defending the country’s exchange rate, by intervening in the official Investors and Exporters window. The direction of foreign reserves in 2025 will determine the exchange rate.
In 2024, government debt accounted for about 50% of the country’s GDP, a significant rise from 38.8% the previous year. Furthermore, the nation is grappling with a high unemployment rate, particularly among youth, a menace to social stability and economic growth. The country’s unemployment rate was 4.3% in the second quarter, down from 5.3% in the first quarter. However, the Nigerian Labour Congress and the Organised Private Sector described this drop as misleading, as it contradicts the economic reality.
Last year, Nigeria was ranked the 27th most miserable country by Hanke’s annual misery index at 56.2 points. However, Economists like Dr. Ikchukwu Okafor and Dr. Gbenga Omotosho forecast a crossing of the 100% threshold in the upcoming Hank’s report, citing significant economic shifts since June 2023. Despite Nigeria’s economic growth, the level of misery is still relatively high because the growth rate is insufficient to bring about formidable change in the misery level of Nigerians. Hence, economic growth needs to increase at a faster and higher pace to combat the relatively high level of misery in Nigeria.
The federal government has introduced several initiatives to create jobs and capital investment, but their effectiveness remains constrained. Also, the debt levels have risen sharply, raising concerns about fiscal sustainability and the potential need for austerity measures. The debt-to-GDP ratio increased from 38.8% in December 2023 to 49% in June 2024. In the first half of 2024, about half of the federal government’s total expenditures were allocated to debt servicing.
Opportunities for Growth
Despite these challenges, several opportunities could positively influence Nigeria’s economic outlook by 2025. Nigeria stands at a pivotal junction for economic growth, leveraging its abundant natural resources, youthful population, and technological advancements. Oil and gas remain significant contributors to the economy; however, diversification into agriculture, solid minerals, technology, and renewable energy presents key opportunities.
Agriculture and solid mineral resources sustained Nigeria’s economy during the colonial period. Although the contribution of mining in revenue generation was less than 25% even at its peak, the sector impacted employment generation, and physical development such as the provision of railways, dams, and other facilities. The agricultural sector offers potential for food security, creation of jobs, and export revenue but currently contributes below desired levels despite numerous interventions by the CBN. Thus, renewed interest in agriculture and the mining of solid minerals while addressing the downward trends in manufacturing will aid in achieving balanced and inclusive economic growth. Also, farmer-herder clashes have reduced in recent times giving hope of improved productivity in the coming year.
Nigeria’s youthful population presents a demographic dividend. With over 60% of the population under the age of 25, the nation’s workforce has the potential to drive productivity and innovation. However, harnessing this potential requires substantial investment in education and skills development. By prioritizing human capital development, Nigeria can leverage its demographic advantage to foster economic growth.
The tech sector is another area of promise. Nigeria boasts a vibrant tech ecosystem with a burgeoning number of startups. According to a Business Sweden report, “Nigeria has emerged as a prominent leader in tech growth within Africa, showcasing remarkable innovation and entrepreneurship in the digital space”. This innovation-driven sector has attracted substantial investment and is perceived as a catalyst for economic transformation. If supported by conducive policies and infrastructure development, Nigeria’s tech industry could significantly contribute to GDP growth and job creation.
In addition, investing in infrastructure is crucial for enhancing commerce and connectivity. By capitalizing on these sectors, Nigeria can foster sustainable economic development, attract foreign investment, and improve the overall quality of life for its citizens.
Government Policies and Reforms
The role of government policy in shaping Nigeria’s economic future cannot be understated. As we move towards 2025, effective governance and accountability will be paramount in addressing the myriad challenges facing the economy. Recent efforts to streamline business regulations and ease access to credit are critical steps in creating a more favorable investment climate. Furthermore, anti-corruption measures must be strengthened to ensure resources are allocated effectively and transparently.
Fiscal reforms will also be necessary to manage the growing debt burden. Optimizing public spending, broadening the tax base, and enhancing revenue collection mechanisms are essential for achieving fiscal sustainability. Nigeria mustn’t fall into the trap of excessive borrowing without a clear plan for repayment and economic growth.
Additionally, there is a pressing need for infrastructural improvements. Investments in transportation, energy, and telecommunications infrastructure will bolster economic activities and attract foreign direct investment (FDI). By enhancing connectivity and reducing operational costs for businesses, Nigeria can position itself as a competitive player in the global market.
International Relations and Trade
Nigeria’s economic outlook is also influenced by its international relations and trade policies. As a member of the Economic Community of West African States (ECOWAS), Nigeria has the potential to enhance regional trade and integration. The African Continental Free Trade Area (AfCFTA) presents an opportunity for Nigeria to expand its export markets and diversify its trade partnerships. By engaging more actively in regional and continental trade frameworks, Nigeria can stimulate economic growth and reduce dependence on a few trading partners. However, trade policies must be carefully crafted to protect local industries while promoting competitiveness. Balancing protectionism and liberalization will be essential to ensuring that Nigeria maximizes the benefits of trade without jeopardizing domestic producers.
Challenges Ahead
Despite the promising outlook, several challenges could hinder Nigeria’s economic prospects by 2025. Political instability, insecurity, and social unrest pose significant risks to economic progress. Insurgent groups and banditry have disrupted agricultural production and trade routes, undermining economic activities in affected regions. Addressing these security challenges requires coordinated efforts between federal and state governments, alongside community engagement initiatives.
Furthermore, ensuring macroeconomic stability will be difficult amid external shocks, including fluctuations in oil prices and global economic conditions. Nigeria’s reliance on oil makes it vulnerable to market dynamics, necessitating a shift towards a more resilient and diversified economic strategy.
Conclusion
Nigeria’s economic outlook for 2025 is characterized by both immense challenges and alluring opportunities. The path forward is contingent upon the country’s ability to implement meaningful reforms, diversify its economic base, and invest in human capital. While the hurdles are significant, with a concerted effort from the government, private sector, and civil society, Nigeria can navigate these complexities and work towards a more prosperous future. Achieving sustainable economic growth and improving the living standards of its populace will require collaboration, innovation, and a steadfast commitment to progress. Thus, as we look ahead, a determined and unified approach will be essential in realizing Nigeria’s economic potential by 2025.
