Introduction

Nigeria, the “Giant of Africa,” is the continent’s most populous nation and one of its largest economies. Endowed with abundant natural resources, a strategic location, and a youthful demographic profile, Nigeria holds immense promise. Yet this potential remains largely untapped. Structural inefficiencies, over-reliance on oil, weak institutions, and inconsistent policy implementation have trapped the country in a cycle of vulnerability, poverty, and underperformance.

While Nigeria operates a mixed economy, oil dependency is deeply entrenched. Oil contributes over 85% of export earnings and more than 50% of government revenue—yet less than 10% to GDP. This imbalance is stark: the economy earns from oil but produces little else at scale. The oil price crashes of 2016 and 2020 triggered sharp recessions, exposing the dangers of this mono-product model. Rather than building fiscal buffers through diversification, successive administrations resorted to borrowing, pushing debt levels higher. The consequences—surging inflation, currency instability, and a deepening cost-of-living crisis—are now painfully evident.

Macroeconomic Reforms and Their Impacts

Recent years have witnessed bold, if painful, reforms aimed at resetting Nigeria’s economic trajectory.

Removal of Fuel Subsidy: In June 2023, the government eliminated Nigeria’s decades-long petrol subsidy, allowing fuel prices to be determined by market forces. This deregulation caused petrol prices to jump by over 167% by the end of 2023, with pump prices moving from ₦200 to ₦500–₦600 per liter.

The primary goal was to free up fiscal resources, as subsidies cost trillions of naira annually. The savings—₦1 trillion (about $1.3 billion) within two months, according to government figures—helped narrow the fiscal deficit from 5.4% of GDP in 2022 to 5.1% in 2023. However, the immediate impact was inflationary. Headline inflation spiked from 18.8% to 24.5% in 2023, hitting an 18-year high. Food inflation approached 38% by early 2024.

Households bore the brunt. Transportation and food costs surged, squeezing real incomes. The World Bank warned that subsidy removal and inflation could push an additional 7.1 million Nigerians into poverty, compounding an already dire situation where 63% of Nigerians are classified as multidimensionally poor.

Exchange Rate Unification: In mid-2023, Nigeria’s Central Bank moved to unify the multiple exchange rates by floating the naira. This reform collapsed the gap between the official and black-market rates, leading to an immediate 40–50% devaluation.

While exchange rate unification enhanced transparency and was welcomed by markets, it also triggered a sharp rise in import costs—fueling inflation further. By early 2024, headline inflation had climbed to 32%, the highest in decades.

The weaker naira eroded purchasing power and increased the cost of imported essentials like food, fuel, and medicines. However, in the medium term, a unified and market-driven naira is expected to attract foreign investment, boost exports, and enhance competitiveness—critical ingredients for future growth.

Structural Economic Shifts

Cost-of-Living Crisis: Surging inflation has shifted Nigeria from moderate price increases into a full-blown cost-of-living crisis. Households have been forced to cut back on essentials. Real incomes have fallen, and urban and rural communities alike have struggled to absorb rising costs.

The IMF noted that the inflation surge has “worsened poverty and food insecurity.” While the government introduced short-term palliatives—cash transfers, food distribution, and subsidized transport—these measures have provided only temporary relief. Inflation is projected to moderate to around 20% by the end of 2024, but real recovery in living standards will be slow and uneven.

Oil Sector Rebound and Refining Expansion: Nigeria’s oil production showed signs of recovery in 2023, reaching 1.48 million barrels per day in November—a 13% increase year-on-year—thanks to improved security and anti-theft measures.

Simultaneously, the long-awaited Dangote Refinery commenced production in early 2024. With a refining capacity of 650,000 barrels per day, the facility is poised to drastically reduce Nigeria’s dependence on imported petroleum products, stabilize domestic fuel supply, and conserve foreign exchange.

While the oil sector directly employs few Nigerians, the refinery’s broader economic benefits are significant. Downstream industrialization could create jobs, lower fuel costs over time, and improve Nigeria’s trade balance. These shifts position the oil sector as a more sustainable driver of growth—provided governance and operational efficiency are maintained.

Microeconomic Reforms and Emerging Opportunities

Electricity Act 2023: The enactment of the Electricity Act 2023 decentralized the power sector, allowing states and private players to generate and distribute electricity independently. This is a major structural reform aimed at addressing Nigeria’s chronic power shortages, where only 4,000–5,000 MW are typically available for over 200 million people.

Improved access to reliable power could unlock enormous productivity gains across agriculture, manufacturing, services, and digital sectors. It could also reduce Nigeria’s heavy reliance on expensive, inefficient diesel generators. Over time, this will enhance industrial competitiveness, create jobs, and raise living standards—particularly in underserved rural areas.

Business Facilitation Act 2023: The Business Facilitation (Omnibus) Act simplifies regulations, mandates timelines for government approvals, and reduces administrative bottlenecks. MSMEs, which contribute 48% to GDP and over 80% to employment, stand to benefit significantly.

By lowering barriers to entry, improving transparency, and accelerating approvals, the Act aims to boost entrepreneurship, formalize more businesses, and attract both domestic and foreign investment. A more dynamic private sector could help counterbalance Nigeria’s heavy reliance on oil and generate much-needed employment opportunities for its burgeoning youth population.

Nigeria’s Short-Term Outlook: Pain Before Progress

In the short term, Nigeria faces a challenging economic landscape:

• Growth will likely remain modest (~3% GDP growth forecast for 2024), constrained by high inflation and fragile consumer demand.
• Inflation is expected to remain elevated, though it may gradually decline towards 20% by late 2024 as monetary policy tightens and supply chains adjust.
• Poverty rates may rise before falling, as households continue to absorb the shocks of subsidy removal, currency devaluation, and rising food prices.
• Employment growth will depend heavily on how quickly reforms like the Electricity Act and Business Facilitation Act are implemented and whether private investment is sufficiently catalyzed.

A Giant Awakening—Or a Giant at Risk?

Nigeria stands at a structural crossroads. The recent economic reforms, while painful, address some of the country’s most entrenched distortions. However, reform fatigue, weak institutional capacity, and political risk remain real threats.

Sustained progress will require:

• Consistent, transparent policy execution,
• Targeted investments in human capital, infrastructure, and enterprise development,
• Strengthened safety nets to cushion the most vulnerable during the transition.

If Nigeria maintains its reform momentum and couples it with good governance and inclusive growth strategies, it can emerge not just as Africa’s giant in size, but as a true economic powerhouse. The coming years will test the depth of our resilience—and the boldness of our leadership.