‘2025 economic performance, FDI inflow to be driven by reform sustainability’

The country’s economy as well as its ability to attract and retain foreign direct investments (FDIs) in the coming year will depend on the sustainability of the current reforms, analysts at Cordros Securities Limited have said.

Besides, robust government spending, underpinned primarily by higher debt service and personnel costs, may keep borrowings elevated in the year, the analysts said.

In a new report titled ‘Nigeria in 2025, Reform to Recovery, Navigating the Rebound’, the company warned that existing institutional weaknesses are likely to undermine reform efforts and limit potential gains.

According to the company, while the non-oil sector growth is expected to rebound, led by the services sector, existing challenges in manufacturing and agriculture will weigh on overall performance.

Cordros projected that headline inflation will moderate due to the high base effect this year.

It noted the disinflationary process will be gradual, in anticipation that the year-on-year print for headline inflation would stay above 30 per cent.

On the external front, the firm stated that the current account surplus is expected to remain robust, underpinned by sustained trade surpluses and improved remittances.

It noted: “FPI inflows are set to increase, supported by attractive naira yields, global monetary policy easing, and improved FX market efficiency after the adoption of the Electronic Foreign Exchange Matching System (EFEMS).

“However, existing geopolitical tensions remain a key risk to substantial inflows.
While we anticipate an improvement in FX liquidity, the naira is poised to depreciate further as the overall supply will remain insufficient to keep it stable at current level throughout the year.”

It pointed out that the path to depreciation will be steady as excess volatility is likely to be controlled by reduced market distortions under the EFEMS barring any shock.

For monetary policy, the company said a pause in the rate-hike cycle is on the horizon as the disinflationary process begins in the first quarter of 2025.
It added that persistent inflationary pressures will delay policy easing until 2025 full year.

“Given that oil receipts from exports are expected to remain constrained, the MPC is likely to keep interest rates elevated to sustain foreign inflows and support FX market liquidity,” it said.

On the fiscal side, the company pointed out that NNPC Limited’s remittances will likely remain constrained by pre-export obligations and suboptimal crude oil production, which is expected to stay below the target (two mb/d).

It added that the proposed tax reforms are expected to drive revenue growth, even as implementation challenges could also impact negatively on its benefits.