Chatham House Announces Nigeria’s Economic Competitiveness Boost Under Tinubu Reforms

Chatham House reports that Nigeria’s economy is experiencing its highest competitiveness in 25 years, largely due to President Bola Tinubu’s economic reforms, particularly the significant devaluation of the naira. The report highlights the dual benefits of improved trade balances and increased foreign reserves, while cautioning against excessive strengthening of the naira that could undermine these gains. It calls for sustained reforms to bolster investor confidence and tackle rising inflation.

Chatham House, a UK-based international affairs think tank, has recognized the Nigerian economy as the most competitive it has been in 25 years, attributing this to the economic reforms implemented by President Bola Tinubu. This includes the significant devaluation of the naira, which fell from N460 per dollar to approximately N1,500. The report emphasizes that to ensure sustainable long-term growth, the government must avoid stabilizing the naira against the dollar, as a cheaper naira supports competitiveness.

Despite challenges faced since Tinubu’s election, such as the naira’s collapse and rising costs of fuel and food, Chatham House suggests that the reforms present Nigeria’s best opportunity for growth in decades. The report cites the naira’s substantial devaluation as critical, stating this adjustment is among the largest seen globally in recent years. As a direct consequence, Nigeria’s competitiveness is assessed to be higher than at any point in the last quarter-century.

The devaluation has also resulted in two significant advantages: a surplus in Nigeria’s balance of payments and an influx of capital back into the country. As a result, the Central Bank of Nigeria has successfully increased its foreign exchange reserves, surpassing $40 billion, which is essential for financial stability. The report praises the prudential level of reserves which now closely matches Nigeria’s external debt obligations.

Moreover, the naira’s depreciation positively impacts the Nigerian budget. The World Bank warns that a misaligned exchange rate has adversely affected government revenues more so than fuel subsidies in recent years. The reduction of subsidies and the naira’s fall helped narrow Nigeria’s fiscal deficit. However, the significant decline of the naira has also contributed to accelerating inflation, standing at an alarming 35% at the close of 2024, despite some recent improvements due to adjustments in the Consumer Price Index.

Chatham House identifies inflation as a pressing challenge for policymakers in Nigeria, particularly as it disproportionately impacts the urban poor. It argues against a move to strengthen the naira solely to combat inflation, warning that such action would undermine competitive gains. Instead, the report advocates for a focus on attracting Foreign Direct Investment (FDI) by maintaining the naira’s competitiveness and enhancing the overall business environment.

The think tank emphasizes two essential strategies to combat inflation without sacrificing competitiveness. First, improving the monetary transmission mechanism is crucial, as the current disparity between high interest rates set by the Central Bank and low returns for depositors inhibits domestic savings. Second, increasing public revenues is vital, particularly since Nigeria’s government revenue is significantly below the average for Sub-Saharan Africa.

Chatham House stresses the importance of resisting the temptation to allow the naira to strengthen excessively after devaluation. Maintaining a competitive naira is viewed as a crucial element for fostering a more diverse and capital-rich economy in Nigeria.

In conclusion, Chatham House’s report highlights that President Bola Tinubu’s economic reforms have positioned Nigeria to experience its most competitive economic period in a quarter-century. While challenges remain, including high inflation, proactive measures to maintain the naira’s competitiveness and improve revenue generation are essential for sustainable growth. The overall strategy proposed by Chatham House emphasizes the importance of a balanced approach to currency valuation and fiscal management as crucial for Nigeria’s economic future.

Original Source: www.arise.tv