DailySunFor many Nigerians, 2024 has been a difficult year. The country’s inflation rate surged for the third straight month in November, reaching 34.6%, the highest level in over 28 years, as reported by the national statistics agency.
This inflation spike has been exacerbated by recent floods in the northern regions, which have led to substantial increases in the prices of essential food items such as yam, corn, and rice. Furthermore, rising gasoline prices have added more pressure to the economic situation in Africa’s top crude oil producer.
President Bola Tinubu’s decision to allow the naira’s devaluation and to remove fuel subsidies to spur economic growth has been characterized as a necessary but challenging solution for an economy long overdue for reforms.
In an exclusive interview, Finance Minister Wale Edun, who has been at the forefront of these reforms since taking office in August 2023, shares with African Business his views on why he believes the economy is on the verge of recovery and how sticking to this path will benefit Nigeria in 2025 and beyond.
After a tough year, you are tasked with stabilizing and revitalizing the economy. With the reforms your administration has put in place, are you optimistic about Nigeria’s economic prospects in 2025?
Absolutely, I am very optimistic about our country’s economic trajectory, not only for 2025 but for the years to come. Next year, we expect to see a boost in economic growth alongside a reduction in the rate of price increases. These forecasts are detailed within the Medium Term Expenditure Framework and the Fiscal Strategy Paper approved by the legislature. It’s worth mentioning that we are not alone in these expectations; projections from the International Monetary Fund (IMF), the World Bank, and other analysts also suggest improved growth and a slowdown in inflation. By 2025, many of the challenges concerning economic stability should likely be addressed.
The main challenge in stabilizing our economy is to reduce inflation and keep it at manageable levels. We are confident that significant progress will be made in this area soon. Specifically, we expect the downward trend in fuel prices—one of the main drivers of inflation—to persist. This current decline is a result of increased domestic refining capacity, especially from the Dangote refinery, a stable exchange rate, and our policy of selling crude oil to local refiners in naira. These elements are enabling the reduction in fuel costs, and we anticipate further decreases as government-owned refineries and the BUA Group increase their capabilities. Additionally, we expect a slower rise in food prices will help lower inflation as well.
The reforms we have enacted are vital for unlocking the potential of this country and achieving the growth and development we need. It’s crucial to understand that with such reforms, costs must be borne before benefits can be realized. Our ongoing challenge in this context is providing adequate support for vulnerable Nigerians. While progress is being made, this task has been quite complex, particularly due to the absence of a universally accepted database. However, we are making headway in resolving the issues around the acceptance of the vulnerable population database. To date, our direct benefit transfers have reached around 20 million Nigerians, and we anticipate ramping up these efforts in Q1 2025. Therefore, I am not only confident about sustaining our positive momentum but also that we are actively working to enhance outcomes and significantly improve the quality of life for all Nigerians.
Investors prioritize transparency and predictability. There’s been some speculation about Nigeria’s foreign exchange reserves, currently around $40 billion—the levels recorded in the late 2010s. Can you shed some light on this issue?
Building trust is essential for restoring confidence among all stakeholders, both domestically and internationally. Before addressing foreign exchange reserves, I would like to highlight measures we’ve taken to ensure transparency and predictability in government finances, such as employing technology to eliminate leaks and opacity in transactions. We have seen a noticeable reduction in financial leaks.
Beyond fiscal considerations, the Central Bank of Nigeria (CBN) has significantly strengthened its regulatory framework to build confidence throughout our financial system. Recently, it introduced the Bloomberg Electronic Foreign Exchange Matching System to enhance efficient price discovery, providing a reliable and transparent trading environment that fosters stability in stakeholder expectations and enhances market predictability. This comes on the heels of various financial market reforms initiated with the unification of different exchange rate windows in June of the previous year.
As of December 14, our foreign reserves stood at $42 billion. While the CBN is better equipped to offer detailed insights on this matter, I am encouraged by the steady increase in our reserves. This uptick is not surprising given the ongoing improvement in our current account balance, bolstered by inflows from portfolio investors and remittances. It’s important to note that reserves have continued to rise even during a year when, until recently, fuel subsidy payments restricted the CBN’s access to revenues from crude oil exports. We expect that improved crude oil production will further enhance the availability of foreign exchange within the economy, and it’s also crucial to acknowledge the promising potential of the oil refining sector to generate both domestic value and export income for our nation.
Your administration has implemented long-awaited reforms, including removing fuel subsidies. While these measures have been difficult, are you starting to see tangible benefits for the economy?
Yes, the advantages of these reforms are beginning to show. We are observing signs of growth that instill hope for sustained and significant progress along our chosen path. My earlier responses already point to some of these improvements.
It’s essential to clarify that despite these reforms, Nigeria’s economy has not stopped growing at any point. Some comments inaccurately portray the economy as being in recession, which is entirely untrue. The latest data on output growth indicates that the economy expanded 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 took office at the end of May 2023, the economy has consistently grown across various sectors. Data from the Nigeria Bureau of Statistics for Q3 2024 demonstrates that 97% of our economy continues to expand.
A concern remains regarding our financial system, particularly within the foreign exchange market. The new CBN leadership, headed by Governor Yemi Cardoso, has undertaken extensive reform measures that have improved perceptions of safety and reliability within our financial system. By ensuring the release of “trapped” funds and clearing outstanding debts, alongside various reforms in the foreign exchange market and capital requirements for banks, confidence in our financial structure has increased. By adhering strictly to legal frameworks in borrowing from the Central Bank, we have effectively managed liquidity growth. Collectively, these efforts have contributed to a more stable exchange rate.
In terms of energy, we are focused on improving the accessibility and availability of electricity, as well as oil and gas production. We are witnessing new investments that are crucial for enhancing production capabilities. In December, Shell Nigeria announced investments in the Bonga North Field. Other investments in the onshore sector by local companies such as Renaissance Africa Energy, OANDO, and SEPLAT indicate that our reform programs are making strides.
The legislature is currently reviewing a series of bills that could transform the government’s financial landscape. As a result of our efforts to date, government revenue as a share of national output has risen to 13% in Q2 2024, compared to an average of 8% in previous years, thus helping to reduce the government deficit and the proportion of resources allocated to servicing debt.
What is next on the government’s reform agenda, and what significant insights have you gained over the past 18 months?
In the short term, we will focus on addressing key issues related to safeguarding vulnerable populations, significantly improving food supply, reducing costs, and supporting crucial sectors to grow more rapidly.
As I have mentioned, we still have considerable work to do to reach the most vulnerable members of our society. Our cash transfer program has covered about one-third of the intended beneficiaries; this is far from optimal. We have identified the barriers and are diligently working to ensure coverage for all intended recipients as quickly as possible. Access to food is a critical component of enhancing the quality of life for our citizens. Despite improvements in agricultural output, which saw a growth of 1.1% between July and September 2024, it remains insufficient to adequately feed all citizens and our neighbors in the region. We are actively working to stimulate agricultural growth beyond the rates of population growth.
Boosting output in the energy sector—including oil, gas, and electricity—is essential. Nigeria has industrial ambitions that require sufficient energy inputs. We must explore various avenues to stimulate investment in the energy sector. Without an efficient and cost-effective energy industry, we will struggle to position our manufacturing and processing sectors to leverage 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 currently 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 upcoming initiatives is the push for rapid, sustainable, and inclusive growth in our economy. As a government, we aim, while contemplating the successor to the current National Development Plan, to achieve output growth of 7% by 2027 while keeping inflation in check, stabilizing exchange rates, and ensuring interest rates remain within acceptable levels to support organizations seeking external funding. Achieving these objectives will require promoting investment by local wealth holders.
The difficulties presented by reforms—especially given the significant trust deficit we inherited—have complicated implementation. Rebuilding lost trust is a formidable task, particularly in a political environment that complicates consensus-building.
With international banks reducing their operations in Africa and foreign direct investment declining, how concerned are you about these trends? What actions is your administration taking to attract both domestic and foreign investments?
Any development that restricts access to capital for either the government or private sectors is a concern. It’s worth noting that, contrary to your observation regarding decreasing foreign direct investment (FDI), current data indicates that FDI growth is outpacing export growth, and this gap is projected to widen. This presents a strategic opportunity for economies constrained by capital.
A key outcome of Covid-19 is the trend toward increased regionalization of supply chains. Producer nations are starting to recognize the advantage of being closer to markets and are investing in hubs to serve a broader range of markets. It is crucial for Nigeria to enhance its investment appeal—not only for foreign investment but also for domestic capital. If we fail in this regard, we risk capital flight, exchange rate pressures, and further economic turmoil. Keeping inflation low is imperative; otherwise, our ability to secure domestic markets and compete globally will be compromised. Moreover, high inflation rates deter domestic investors from maintaining assets in our currency, prompting them to shift to foreign currencies (like the US dollar), making domestic monetary policy management more difficult.
To be attractive for investment, the quality and size of our workforce must enable cost-effective production. The ongoing revisions to educational curricula are key in this regard. Regulatory certainty is another vital aspect; creating and enforcing rules and regulations should not be arbitrary, as this would undermine our national interests. Additionally, I acknowledge the critical role of security—both at borders and within the nation itself.
We are actively tackling the issues I’ve outlined through various government initiatives. Our commitment to implementing reform measures demonstrates our understanding that without reform, the status quo will render our economy unattractive and vulnerable. Secondly, we seek to ensure that investment returns, adjusted for inflation, remain positive, understanding that putting local wealth holders’ resources at risk only further harms 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 connection, we are working to consolidate the public agencies responsible for managing state assets, specifically the Infrastructure Concession and Regulatory Commission (ICRC), the Bureau of Public Enterprises (BPE), and MoFI.
How important is it to support national champions like the Dangote Group in advancing Nigeria’s industrial transformation and reducing import dependency?
We recognize the importance of producing for both domestic and international markets. We cannot take full advantage of the AfCFTA without competitive production capabilities. One pressing issue we must tackle in the Nigerian economy is the underwhelming performance of our processing sectors compared to national output. We need to significantly boost contributions from our processing sectors—manufacturing, construction, and utilities—to at least double their current levels.
I occasionally reflect on our actual import dependency. What is the definitive measure to classify a nation as import-dependent? With imports accounting for less than 20% of national output, we are doing better than many regional and continental counterparts. Some African countries depend on imports for as much as half of their national output. Nevertheless, I acknowledge that we have not adequately transformed our imports into opportunities for export. This calls attention to the importance of national champions; however, it is crucial for relevant agencies to ensure that our domestic market dominance does not adversely affect our national interests.
How significantly is the Dangote refinery contributing to enhancing Nigeria’s current account balance and overall balance of payments?
The Dangote Group operates in several essential sectors of the economy, alongside other notable manufacturers. Enhancing the manufacturing sector is a primary goal of this administration, aiming to reduce reliance on imported manufactured goods and improve our current account balance, thereby strengthening reserves. The Dangote Group has commenced production of petroleum motor spirit, boasting a capacity of 650,000 barrels. This will soon be bolstered by a 250,000-barrel capacity from the BUA Group refinery. These advancements considerably alleviate demand pressures on foreign exchange, enhancing our current account balance and improving the balance of payments through increased domestic refining capacity and additional manufacturing activities.
During your recent Eurobond roadshow, what feedback did you receive from investors regarding Nigeria’s economic trajectory and investment opportunities?
The oversubscription of our recent Eurobond, which totaled $9.1 billion instead of the expected $2.2 billion, underscored our successful reentry into the global market and reinforced Nigeria’s position as an attractive investment destination. It’s notable that global contractionary monetary policies—stemming from the Russia-Ukraine conflict, driven by inflation concerns—have dulled the allure of developing nations’ Eurobonds.
This oversubscription further signifies increased confidence in the President’s economic strategy, general confidence in the economy, faith in its debt repayment capabilities, and acknowledgment that the presidential directive for investment targets for ministries, departments, and agencies is expected to elevate investment opportunities and mitigate associated risks.
Looking forward, what are your key priorities, and why should investors maintain confidence in Nigeria?
My priorities focus on lowering inflation while achieving vigorous economic growth alongside a robust social protection framework. The US achieved inflation control through high interest rates while simultaneously fostering economic growth through investments based on savings rather than debt. We aim to achieve a similar situation.
Recent actions by investors illustrate their confidence, underscored by subscriptions to our debt instruments. Both the latest Eurobond issue and previous domestic US dollar-denominated bond issuances have seen oversubscription. Going forward, our emphasis will be on enabling a stable, rapidly growing, inclusive, and sustainable economy. This approach will undoubtedly facilitate the fulfillment of aspirations for investors, especially long-term stakeholders, as all Nigerians and residents will experience a significant improvement in their quality of life.
Nigeria has ambitious infrastructure plans, including significant gas pipeline projects to Europe via Morocco and Algeria. What are the government’s broader plans?
The current share of our infrastructure stock as a percentage of GDP stands at 35%; our ambitious investment target is to reach 75%, which is crucial for unlocking sustained productivity.
Thus, the administration is committed to completing these ambitious projects and reigniting momentum to advance in 2025.
Plans for infrastructure investment are organized according to the Revised National Integrated Infrastructure Master Plan (NIIMP). The financing strategy encompasses a combination of debt, equity, and public-private partnerships.
