For many Nigerians, 2024 was a tough year. The nation’s inflation rate surged for the third straight month in November, reaching a staggering 34.6%, the highest in over 28 years, as reported by the national statistics agency.
This inflation spike has been exacerbated by recent flooding in northern areas, causing sharp rises in the prices of staple foods such as yam, corn, and rice. Moreover, soaring gasoline prices have compounded the economic difficulties faced in Africa’s top crude oil producer.
President Bola Tinubu’s decision to allow the naira to devalue and to abolish fuel subsidies, aimed at stimulating economic growth, has been labeled a necessary yet painful solution for an economy in dire need of reform.
In an exclusive interview, Finance Minister Wale Edun, who has been leading these reforms since his appointment in August 2023, discusses with African Business his belief that the economy is on the verge of recovery and how staying the course will yield benefits for Nigeria in 2025 and beyond.
Following a challenging year, you are tasked with stabilizing and rejuvenating the economy. Considering your administration’s reforms, do you hold an optimistic view of Nigeria’s economic prospects in 2025?
Absolutely, I am very optimistic about our nation’s economic trajectory, not only for 2025 but for the years to come. In the forthcoming year, we expect an uptick in economic growth alongside a reduction in the inflation rate. These forecasts are captured in the Medium Term Expenditure Framework and the Fiscal Strategy Paper approved by the legislature. Importantly, we are not alone in this anticipation; assessments from the International Monetary Fund (IMF), the World Bank, and various analysts are in agreement regarding expectations of improved growth and decelerating inflation. By 2025, many of the pressing issues concerning economic stability should be rectified.
The main hurdle in stabilizing our economy centers on controlling inflation and keeping it in check. We are optimistic that notable progress will be made in this regard soon. Particularly, we foresee a continuation of the downward trend in fuel prices, one of the key contributors to rising costs. This decrease is linked to an uptick in domestic refining capabilities, particularly from the Dangote refinery, a stable exchange rate, and our policy of facilitating crude oil sales to domestic refineries in naira. These elements are making strides in lowering fuel prices, and we expect further reductions as both government-owned refineries and the BUA Group enhance their capacities. Furthermore, a deceleration in food price increases is predicted to help curb inflation as well.
The reforms we have enacted were crucial for unlocking the nation’s potential and securing the economic growth and development we seek. It’s essential to understand that with such reforms, there are initial costs that must be endured before the benefits manifest. A primary ongoing challenge is providing adequate assistance to vulnerable Nigerians. While we are making progress, addressing this has proven complex, especially due to the absence of a universally accepted database. However, we are advancing in tackling the challenges regarding the acceptance of the vulnerable population database. Our direct benefit transfers have now reached around 20 million Nigerians, and we anticipate augmenting these efforts in Q1 2025. Thus, I am not only confident in sustaining our favorable trajectory but also in our efforts to improve outcomes and significantly enhance the quality of life for every Nigerian.
Investors prioritize transparency and predictability. There has been some discourse regarding Nigeria’s foreign exchange reserves, which are around $40 billion—levels last seen in the late 2010s. Could you shed light on this situation?
Building trust is imperative for reinstating confidence among all stakeholders, both domestic and international. Before discussing foreign exchange reserves, I want to emphasize the steps taken to enhance transparency and predictability in government finances, such as utilizing technology to eliminate leakages and opacity in transactions. We have noticed a significant reduction in financial leakages.
In addition to fiscal considerations, the Central Bank of Nigeria (CBN) has significantly bolstered its regulatory measures to instill confidence across all sectors of our financial system. Recently, it rolled out the Bloomberg Electronic Foreign Exchange Matching System to enable efficient price discovery, thereby creating a reliable and transparent trading environment that will help stabilize stakeholder expectations and enhance market predictability. This initiative follows a series of financial market reforms initiated with the unification of various exchange rate windows in June of the prior year.
As of December 14, foreign reserves stood at $42 billion. While the CBN is better situated to provide specific commentary on this matter, I am encouraged by the steady growth of our reserves. This growth is not unexpected given the ongoing improvement in our current account balance, supported by inflows from portfolio investors and remittances. It’s noteworthy that reserves have continued to rise even in a year when, until recently, fuel subsidy payments limited the CBN’s access to revenue from crude oil exports. We believe that enhanced crude oil production will further bolster the availability of foreign exchange within the economy, and it is also important to recognize the promising potential of our oil refining sector to generate domestic value and export income for our country.
Your administration has implemented long-awaited reforms, including the elimination of fuel subsidies. While these measures have been difficult, are you starting to see tangible benefits for the economy?
Indeed, the benefits of these reforms are beginning to emerge. We are observing signs of growth that inspire hope for sustained and significant advancement along our chosen path. Some of these improvements have already surfaced in my earlier responses.
It’s crucial to clarify that regardless of the reforms, Nigeria’s economy has never ceased to grow. Some comments have inaccurately depicted the economy as being in recession, which is entirely misleading. The latest output growth data indicates that the economy grew by nearly 3.5% between July and September 2024, with an average growth rate of 3.23% from January to September. Additionally, since the Tinubu administration commenced at the end of May 2023, the economy has consistently grown broadly. Data from the Nigeria Bureau of Statistics for Q3 2024 reveals that 97% of our economy continues to expand.
A concern has been our financial system, specifically the foreign exchange market. The new CBN team led by Governor Yemi Cardoso has enacted extensive reform measures that have improved perceptions of safety and reliability within our financial framework. By ensuring the disbursement of “trapped” funds and clearing outstanding debts, together with various foreign exchange market reforms and capital enhancement requirements for banks, confidence in our financial ecosystem has strengthened. By adhering strictly to legal parameters in borrowing from the Central Bank, we’ve effectively managed liquidity growth. Collectively, these actions have contributed to a more stable exchange rate.
Regarding energy, we remain focused on improving the accessibility and availability of electricity as well as oil and gas production. We are witnessing new investments that are vital for enhancing production capacities. In December, Shell Nigeria revealed investments in the Bonga North Field. Additional investments in the onshore sector from local companies like Renaissance Africa Energy, OANDO, and SEPLAT underline that our reform initiatives are making progress.
The legislature is currently assessing a series of bills that could reshape the government’s financial framework. Thanks to our efforts so far, government revenue as a percentage of national output has grown to 13% in Q2 2024, compared to an average of 8% in preceding years, aiding in the reduction of the government deficit and the portion of resources allocated to debt servicing.
What is next on the government’s reform agenda, and what key lessons have you learned over the past 18 months?
In the immediate term, we will focus on addressing critical concerns related to safeguarding vulnerable populations, significantly boosting food supply, lowering costs, and supporting key sectors to accelerate growth.
As I’ve mentioned, we still have substantial work ahead to reach the most vulnerable individuals in our society. Our cash transfer initiative has reached approximately one-third of the intended beneficiaries, which is far from satisfactory. We have identified the barriers and are committed to ensuring coverage for all intended recipients as quickly as possible. Access to food is vital for enhancing the quality of life for our citizens. Despite increases in agricultural output, with a growth of 1.1% between July and September 2024, this rate is still too slow to adequately nourish all citizens and our neighbors in the sub-region. We are actively working to stimulate agricultural growth beyond population growth rates.
Enhancing output in the energy sector—oil, gas, and electricity—is paramount. Nigeria’s industrial ambitions cannot be realized without sufficient energy inputs. We must explore diverse options to foster investment in the energy sector. Without an efficient and cost-effective energy industry, our manufacturing and processing sectors will struggle to harness the opportunities presented by the African Continental Free Trade Agreement (AfCFTA). Efforts are currently underway regarding tax reforms; the Presidential Committee on Fiscal and Tax Reforms has already produced bills that are under legislative review. These tax reforms will create a more flexible fiscal environment, enhancing the effectiveness of monetary policy and improving fiscal-monetary policy coordination outcomes.
Central to our forthcoming initiatives is the pursuit of rapid, sustainable, and inclusive economic growth. As a government, we aspire, while contemplating the successor to the current National Development Plan, to achieve output growth of 7% by 2027 while controlling inflation, stabilizing exchange rates, and maintaining interest rates within benchmarks that facilitate organizational access to external funding. Accomplishing these objectives requires promoting investment by local wealth holders.
The challenges stemming from reforms, particularly given the considerable trust deficit we inherited, have complicated implementation. Rebuilding lost trust is no easy task, especially in a political environment that makes consensus-building challenging.
With international banks reducing their operations in Africa and foreign direct investment declining, how concerned are you about these developments? What strategies is your administration pursuing to attract both domestic and foreign investments?
Any limitation on capital access for either government or the private sector is concerning. It’s essential to point out that, despite your observation regarding a decline in foreign direct investment (FDI), current data illustrates that FDI growth is outpacing export growth, and this disparity is anticipated to increase. This represents a strategic opportunity for economies facing capital constraints.
A significant result of Covid-19 is the trend toward greater regionalization of supply chains. Producer nations are recognizing the benefits of proximity to markets and are investing in hubs to cater to a broader array of markets. It is crucial that Nigeria enhances its appeal for investment—not solely foreign, but also domestic. Failure to do so may lead to capital flight, exchange rate challenges, and additional economic turmoil. Maintaining low inflation is vital; otherwise, our ability to secure domestic markets and compete globally will suffer. Elevated inflation rates undermine domestic investors’ willingness to hold assets in our currency, prompting a shift to foreign currencies (such as the US dollar), complicating domestic monetary management.
To attract investment, the quality and size of our labor force must promote cost-effective production. The ongoing revisions to our educational curricula are pivotal in this regard. Regulatory certainty also plays a critical role; creating and enforcing rules must be consistent to uphold our national interests. Furthermore, I acknowledge the crucial importance of security—both at borders and within the country itself.
We are pro-actively addressing the aforementioned issues through various government initiatives. Our commitment to executing reform measures signifies our recognition that without reform, sustaining the status quo will render our economy unattractive and vulnerable. Second, we aim to ensure that investment returns, adjusted for inflation, remain favorable, understanding that jeopardizing local wealth holders’ resources adversely affects the economy. Lastly, we have restructured the Ministry of Finance Incorporated (MoFI) to enhance national balance sheet management by aggressively identifying and managing assets in the national interest.
In relation, we are working to consolidate public agencies overseeing state assets, namely the Infrastructure Concession and Regulatory Commission (ICRC), the Bureau of Public Enterprises (BPE), and MoFI.
How crucial is it to support national champions like the Dangote Group in advancing Nigeria’s industrial transformation and decreasing import dependency?
We recognize the importance of producing for both domestic and international markets. We cannot fully leverage the advantages of the AfCFTA without robust competitive production capabilities. One pressing trend we must tackle in the Nigerian economy is the lackluster performance of our processing sectors in relation to national output. We need to significantly increase contributions from our processing sectors—manufacturing, construction, and utilities—to at least double their current levels.
I often contemplate our true level of import dependency. What is the definitive measure for categorizing a nation as import-dependent? With imports making up less than 20% of our national output, we perform well compared to many regional and continental counterparts. Some African nations depend on imports for almost half of their national output. However, I concede that we have not transformed our imports sufficiently into export prospects. This underscores the importance of national champions; nonetheless, it’s essential for relevant agencies to assure that our domestic market supremacy does not adversely affect our national interests.
How significantly is the Dangote refinery contributing to improving Nigeria’s current account balance and overall balance of payments?
The Dangote Group operates in several vital sectors of the economy, alongside other leading manufacturers. Strengthening the manufacturing sector is a key focus of this administration, aiming to reduce dependence on imported manufactured goods and enhance the current account balance, thereby bolstering reserves. The Dangote Group has initiated petroleum motor spirit production with a capacity of 650,000 barrels. This will soon be complemented by a 250,000-barrel capacity from the BUA Group refinery. These advancements significantly ease demand pressures on foreign exchange, improving our current account balance and strengthening the balance of payments through enhanced domestic refining capacity and additional manufacturing activities.
During your recent Eurobond roadshow, what feedback did you receive from investors regarding Nigeria’s economic direction and investment opportunities?
The oversubscription of our recent Eurobond, amounting to $9.1 billion instead of the anticipated $2.2 billion, underscores our successful reentry into the global market, solidifying Nigeria’s standing as an appealing investment destination. It is important to mention that global contractionary monetary policies—driven by the Russia-Ukraine conflict to combat inflation—have limited the attractiveness of developing nations’ Eurobonds.
This oversubscription further reflects enhanced confidence in the President’s economic strategy, general faith in the economy, belief in its debt repayment capacity, and acknowledgment that the presidential investment targets directive for ministries, departments, and agencies is poised to increase investment opportunities and minimize associated risks.
Looking ahead, what are your key priorities, and why should investors remain confident in Nigeria?
My priorities revolve around reducing inflation while achieving vigorous economic growth paired with a solid social protection framework. The US managed to tame inflation through high-interest rates while simultaneously promoting economic growth via investment based on savings rather than debt. We strive to attain a similar outcome.
Recent actions by investors reveal their confidence, evidenced by the subscriptions to our debt instruments. Both the latest Eurobond issuance and prior domestic US dollar-denominated bond offerings have seen oversubscription. Moving forward, our emphasis is on fostering a stable, rapidly growing, inclusive, and sustainable economy. This strategy will undoubtedly facilitate the realization of expectations for investors, especially those with a long-term outlook, as all Nigerians, along with residents, will experience a significant enhancement in their quality of life.
Nigeria has ambitious infrastructure initiatives, including major gas pipeline projects to Europe via Morocco and Algeria. What are the government’s broader plans?
The current infrastructure stock as a percentage of GDP stands at 35%; our ambitious investment goal is to elevate this to 75%, as this is critical for unlocking sustained productivity.
Consequently, the administration is committed to completing these ambitious projects and reigniting momentum as we progress into 2025.
Infrastructure investment plans are structured in accordance with the Revised National Integrated Infrastructure Master Plan (NIIMP). The financing strategy encompasses debt, equity, and public-private partnerships.
