Nigeria’s economy, positive indicators and growing optimism

Though the Nigerian economy is not fully out of the woods yet, positive macroeconomic indicators point to a recovery path, COLLINS OLAYINKA writes.

Rising foreign direct investment (FDI) inflow and fast-growing gross domestic product (GDP) are indicators that the Nigerian economy is regaining its lost grounds faster than anticipated by analysts. With the international finance community, including the International Monetary Fund (IMF), endorsing the reforms, the economy may be on track to recreate the 2000s confidence level, which got foreign capital pouring into different sectors of the economy.

It is worthy of note that the Central Bank of Nigeria (CBN), which has remained bullish about the capacity of the Nigerian economy’s detour to a path of recovery may be on the right course. Maintaining rate parameters by the monetary policy committee (MPC) has further boosted Nigeria’s positive journey as reflected in the country’s Eurobond market, which further influenced foreign investor confidence in the domestic economy.

Undoubtedly, as the biggest market in Africa, Nigeria possesses the potential to attract and retain foreign investors, especially now that macroeconomic indicators are beginning to show positive signs and the expanded GDP size, smart and calculative investors that understand the times and signs are increasingly drawn back to the country.

This aligns with the positions of experts who are beginning to find it difficult not to acknowledge the positivity that is happening within the Nigerian economic space.

No wonder an investment report reveals that Nigeria’s Eurobond market concluded February in a positive trajectory, indicating a resurgence of foreign investors’ confidence.

Data from the Debt Management Office (DMO) show that the average yield on Nigeria’s Eurobonds declined to 8.8 per cent, a 41-basis point reduction from 9.21 per cent at the beginning of February. This decline suggests a strong appetite among investors.

Yields in the sub-Saharan African Eurobond market also fell by 27 basis points to an average of 8.4 per cent, indicating that Nigeria outperformed the region in terms of yield performance.

Analysts at Afrinvest agreed that the recent drop in yields to the region’s continued attractiveness was fuelled by improving macroeconomic dynamics and lower interest rate adjustments.

Providing another perspective, analysts at CSL explained the decline in yields as primarily influenced by global risk-off trends, geopolitical uncertainties, and significant economic data releases.

Comparatively, Afrinvest analysts are optimistic about a positive market performance, driven by substantial liquidity inflows from the coupon payment of N642.6 billion and the maturity of N562.5 billion.

Furthermore, a dovish interest rate outlook is expected to further support the bullish sentiment. In the sub-Saharan African market, the pursuit of higher yields is likely to persist as a dominant theme for sustained offshore interest in the region.

The decision of the CBN-led MPC to maintain interest rates unchanged at their last meeting has also garnered significant attention from global investors, keeping them closely monitoring the domestic economy.

There is no doubt that the rebased GDP signals newfound strength for the economy though analysts are divided on the propriety or otherwise of the exercise.
Expectedly, the economy got a massive boost from the rebased economic activities following a nine-year stagnated rebased index. The revision has resulted in a larger economy, as new and rapidly growing sectors such as fintech, e-commerce, entertainment and digital services are now included in the calculations.

Consequently, there will be a shift in the economic contribution of different sectors. Technology, telecommunications, and entertainment (including Nollywood and digital start-ups) will likely have a greater share of GDP, while agriculture and oil and gas may experience a reduction in their percentage contribution as newer sectors gain prominence.

Justifying the rebasing at the end of the MPC meeting in Abuja recently, the CBN governor, Yemi Cardoso, explained that there were items that were no longer relevant that were still being used before this year’s exercise while new areas of endeavour were missing. To him, the exercise was long due.

Thinking along the same line of thought, Abuja-based public commentator, Ayo Olodo, said informal sector activities, which are often overlooked, may be better captured in the new GDP calculation. Additionally, there is a possibility of changes in various economic indicators. For example, the debt-to-GDP ratio could improve, giving the impression that Nigeria has more fiscal space for borrowing, although debt servicing costs remain a significant concern.

Furthermore, per capita income may increase, although this does not necessarily guarantee improved living standards if inflation persists at high levels. He argued that the implications for policy and investment are also worth noting, saying foreign investors might be drawn to newly highlighted sectors that were previously underreported.

The government could adjust fiscal and monetary policies to better align with the rebalanced economy while taxation policies may be reviewed, especially if certain high-growth sectors are found to be under-taxed.
He added that if GDP grows significantly, Nigeria may move closer to upper-middle-income status, which could affect eligibility for concessional loans and development aid.

On his part, Chief Executive Officer of FirstBank Group, Olusegun Alebiosu, highlighted several positive indicators for the economy. These include improving government revenues, a better revenue-to-debt service ratio of 68 per cent, and the growth in foreign reserve balances to over $40 billion.

The government’s N54.99 trillion 2025 budget is expected to provide sufficient economic stimulus said Alebiosu who also noted the lower likelihood of poor budget implementation due to the improving government’s revenue. He also expressed confidence that the projected GDP growth rate of 3.68 per cent for 2025 is a realistic outcome.

Alebiosu underscored the hardship Nigerians have had to go through and still going through as a result of deep-seated reforms that changed the configuration of the Nigerian economy. To him, the economy has taken a new form of identity that is alien to the stakeholders within the Nigerian economic space.

Indeed, the inflation rate soared to a three-decade high of 34.6 per cent in November but slowed to 24.48 per cent in January, after CPI rebasing. Again, Cardoso emphasized the need to remain focused and stay the course amid challenges.

He has continued to stress the importance of consolidating market gains and ensuring sustained improvement. He highlighted the need for increased collaboration with the fiscal sector to drive economic growth. Cardoso also underscored the CBN’s commitment to stabilizing forex rates, strengthening price controls, and fostering rising investor confidence.

The naira strengthened by 6.95 per cent to N1,510/$ in the parallel market last month, February, driven by expectations of a stable exchange rate, reduced FX demand, sustained intervention by the CBN and growing ‘buying Nigeria’ mania.

Businesses, particularly those in the real sector, welcomed the MPC’s decision to hold interest rates to maintain the naira’s rally and reduce the rising cost of borrowing.

The MPC’s decision was based on its anticipation of robust GDP growth in the medium term, driven by significant contributions from the non-oil sector. Additionally, the Committee noted the sustained increase in domestic crude oil production (1.74mb/d) and expected an improved contribution from the oil sector, further boosting overall GDP growth.

The MPC acknowledged the rebasing of the Consumer Price Index (CPI) and the adjustments in the weights of items in the CPI basket, stating that the new methodology aligns with current consumption patterns.

The MPC highlighted the recent appreciation of the naira, which was attributed to improved FX liquidity. The Committee also recognised the current measures taken by the CBN to enhance transparency and credibility in the FX market, including the implementation of the Electronic Foreign Exchange System (EFEMS) and the Nigerian Foreign Exchange Market (NFEM) FX Code.

The CBN chief also noted the role played by remittances in the strengthening of the naira.
Remittances through International Money Transfer Operators (IMTOs) have already shown a positive impact of FX reforms, rising by 79.4 per cent to $4.18 billion in the first three quarters of 2024.

To address the pressing challenge of inflation, the CBN took decisive action by raising the Monetary Policy Rate by 875 basis points to 27.5 per cent in 2024. This move was crucial in containing inflation and restoring stability.
Analysts believe that these measures under Cardoso have not only lifted the forex market and established long-term stability but have also laid the foundation for sustainable economic growth.

One significant factor contributing to the resilience of the domestic economy is the strength of the financial system, which is supported by robust soundness indicators. This instils confidence in the economic structure.

Major prudential ratios, such as capital adequacy, liquidity and non-performing loans (NPL) ratios, were within prudent limits, reflecting proactive regulatory oversight and strong industry risk management practices. The CBN extended significant credit to growth-enhancing sectors, including agriculture, manufacturing, and general commerce, as well as individuals and households.

This credit played a crucial role in stimulating economic activities and supporting output performance, highlighting the role of financial institutions and sound regulation led by the CBN.

Besides, the bank has taken strategic measures to combat inflation. The CBN recently hosted the Monetary Policy Forum 2025, which brought together fiscal authorities, legislative representatives, private sector stakeholders, development partners, subject-matter experts and scholars with the theme: ‘Managing the disinflation process.’