Nigerians may be wondering if 2025 will bring the “renewed hope” that the administration of President Bola Tinubu promised, or if they will face yet another year of economic hardship. The elimination of fuel subsidies has left Nigerians with steep financial difficulties, as in just one year, the move resulted in the gasoline price increasing by almost 500%.
Furthermore, between October 2023 and October 2024, the value of the domestic currency declined by more than 100% as a result of the liberalisation of the foreign exchange market. Additionally, in an effort to combat headline inflation, which was 34.6% in November 2024, the Central Bank of Nigeria has been implementing a contractionary monetary policy, which aims to do so by lowering the money supply.
The interest rate was raised from 15% in October 2023 to 27% in September 2024. Nigerians now have lower living standards, with costs increasing multifold. The Tinubu administration also implemented a student loan programme, a new minimum wage, and tax reforms.
However, the World Bank has praised the government for taking decisive action to address long-standing issues and urged it to continue with the “reforms.” The economy is projected to grow by 3.5% year-on-year, up from an estimated 3.2% in 2024, according to the NESG-Stanbic IBTC Business Confidence Monitor. The report attributes this growth to easing inflationary pressures and stabilising effects of the government’s two flagship reforms: foreign exchange liberalisation and fuel subsidy removal.
Inflation may average 30.5% in 2025, declining to 27.1% by December as high petrol costs normalise and the food supply improves. The growth projection could prompt the Central Bank of Nigeria’s Monetary Policy Committee to adopt an accommodative stance, enhancing credit access and reducing borrowing costs.
A missed opportunity?
Nigeria’s economy recovered after the COVID-19 pandemic, as did many other nations. The economy grew at a respectable rate of 3.6% in 2021, 3.3% in 2022 and 2.9% in 2023. The IMF anticipates growth in 2025, albeit at a muted pace of roughly 3%, which is lower than the 4% growth predicted for sub-Saharan African nations.
Lower-than-expected oil production, widespread insecurity, and a lack of foreign exchange have all contributed to the slower growth rate by making it more difficult for manufacturers to import the production inputs they require. For Nigeria to significantly raise living standards, its growth rate must be at least 6% for three years in a row.
The services sector, which grew by 3.8% in the second quarter of 2024, has been the main driver of the nation’s growth. At 3.5%, the industry was the second-largest driver. In 2025, it is anticipated that the trend will continue. Manufacturing, which usually accounts for a large portion of employment, will however not grow at all.
CFG Advisory CEO Tilewa Adebajo noted that the African country has suffered a severe economic blow, losing an estimated USD 300 billion in GDP over the past eight years.
He attributed the decline to policy inconsistencies and poorly implemented reforms, which have led to a crippling 300% devaluation of the naira. Adebajo stated that the nation’s GDP now stands at $200 billion, placing Nigeria as the fourth-largest economy in Africa, behind Egypt, South Africa, and Algeria. Nigeria’s 18-month economic reform programme has delivered mixed results, largely due to poor execution and misplaced priorities.
The most significant impact has been the devaluation of the naira from 450 to over 1,700 per US dollar. Combined with the removal of fuel subsidies, these reforms have led to higher inflation, reduced purchasing power, and soaring interest rates.
The social intervention programmes meant to cushion the effects of these changes have fallen short, failing to provide meaningful relief to households and businesses. Meanwhile, the country’s borrowing has surged, exceeding $100 billion, with debt servicing costs skyrocketing from ₦8 trillion in 2024 to ₦16.3 trillion in the 2025 budget. Alarmingly, debt servicing now surpasses combined allocations for defense, infrastructure, education, health, and security, totalling ₦14 trillion.
Inflation and food prices
Inflation has been increasing since June 2024, when it decreased from June to August 2024. In August, it was 32%; by November 2024, it had risen to 34%. At least through the first quarter of 2025, this upward trend is probably going to continue. Given that inflation in 2019 was 11%, Nigerians shouldn’t anticipate returning to pre-COVID prices anytime soon.
The Central Bank of Nigeria is probably going to continue raising interest rates in 2025 in response to the recent spike in inflation. However, since a large portion of Nigeria’s inflation is structural rather than monetary, this is unlikely to significantly reduce inflation. This is because food inflation, which is currently at around 40%, won’t be controlled by 2025. Farmer shortages are becoming a major concern as well.
The fact that many companies have already made investments in 2025 production and services based on 2024 input prices is another factor that will keep inflation high. In the informal sector, vendors and operators who did not profit from the new minimum wage payments will want to increase their prices in order to partake in the benefits.
Rather than reinvesting savings from subsidy removal into capital projects to stimulate growth, the funds have been channelled into debt servicing. Additionally, money supply has risen by 50%, peaking at a historic ₦108 trillion, undermining the Central Bank of Nigeria’s (CBN) ability to control inflation.
Foreign direct investment (FDI) is at an all-time low, with just $29 million recorded in the first half of 2024. The power sector remains underdeveloped, with inadequate transmission and distribution infrastructure hampering industrial productivity.
The Naira
The value of the naira has fluctuated throughout 2024. The naira will continue to be weak in 2025 even though the CBN’s recently launched Electronic Foreign Exchange Matching System (EFEMS) is anticipated to increase transparency and deter speculation in the forex market.
The economy is reliant on imports. Therefore, the cost of imported goods will increase when the naira declines. To control price increases, the Tinubu administration suspended import taxes on certain imported foods. However, since there are few impacted products and the policy is only temporary, it is unlikely to have an impact on price pressures.
The need for foreign currency will rise, and shortages will get worse. In 2025, the price of crude oil is predicted to drop by roughly $6 per barrel, which will lessen the amount of foreign exchange coming into Nigeria. The potential impacts of the Middle East’s conflict and instability have been taken into account when estimating the world oil price.
The Nigerian foreign exchange market will face significant challenges in the final quarter of 2025 as politicians prepare for the 2026 party primaries and the general elections in 2027. Every country accumulates a war chest of money, primarily in foreign currency. The demand for foreign currencies is anticipated to rise as a result. This demand is unlikely to be met by supply, which will cause the naira to plummet.
What’s next?
In general, living conditions improve when there are plenty of well-paying jobs available, especially in manufacturing. You also need an environment that promotes innovation, entrepreneurship, and the growth of small businesses. A thriving economy benefits a larger portion of the population by creating jobs, economic growth, and a livelier business environment. Unfortunately, in Nigeria, none of those scenarios exist.
Increasing government investment in welfare and safety net programmes helps vulnerable groups, giving them a sense of security and a higher quality of life. Another important factor is the drop in food and energy costs. Reduced basic living expenses free up more money for people to spend on other necessities and enhance their quality of life.
The last factor that improves living conditions is increased access to infrastructure, health care, and education. A population that is healthier and better-educated results from increased government spending and foreign aid in these areas, and infrastructure development raises everyone’s standard of living. The sad reality here is that we are talking about a utopian scenario, which won’t arrive in Nigeria anytime soon.